SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 FORM 10-KSB/A-1
                                   (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, 2000

                                       OR

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

             For the transition period from __________ to __________

                         Commission File Number 0-25030

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

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

                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 [ ].

     The  Registrant's  revenues  for its fiscal  year ended March 31, 2000 were
$37,252,210.

     The aggregate market value of the voting stock on July 12, 2000 (consisting
of  Common  Stock,  par  value  $0.01  per  share)  held by  non-affiliates  was
approximately  $2,040,768  based upon the closing price for such Common Stock on
said date  ($.23),  as  reported  by a market  maker.  On such date,  there were
47,369,542 shares of Registrant's Common Stock outstanding.

<PAGE>
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

     The  statements  which are not  historical  facts  contained in this Annual
Report are forward  looking  statements  that involve  risks and  uncertainties,
including , but not limited to instability of revenues,  future losses, decrease
in same store sales and unpredictable  operating  results.  The Company's actual
results may differ  materially from the results discussed in any forward looking
statement.  Unless  otherwise  indicated,  all  references  to the number of our
shares of common stock give effect to the 1 for 3 reverse  stock split  effected
in July 1997.

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 one of
its subsidiaries,  Toys International.COM,  Inc. ("Toys," formerly known as Toys
International, Inc.), a company organized under the laws of Delaware, operate an
aggregate of  thirty-three  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 and Houston,  Texas, (iv)
Auburn  Hills,  Michigan,  (v)  Chicago,  Illinois,  and (vi)  Charlotte,  North
Carolina.  The Company  intends to expand its operations  geographically  and in
accordance  therewith has executed leases to open five additional  stores by the
end of calendar  year 2000.  These stores shall be located in Nevada,  Illinois,
Colorado,  Maryland, and Minnesota. Toys has a wholly-owned subsidiary organized
under  the  laws of  Germany,  Toys  International.de  GmbH,  which  operates  a
German-language  e-commerce website.  The Company's other subsidiary is Play Co.
Toys  Canyon  Country,  Inc.  ("Canyon")  which  holds the lease for one  retail
location  operated by Toys.  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  twenty stores
(inclusive  of the three it purchased in January  1997) and remodeled one store,
all of  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.

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<PAGE>
     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 offers approximately 3,000 items for sale
on the website. The second site, www.webjumbo.de, debuted in October 1999 and is
a full line site retailing  approximately  5,000 items. This site is exclusively
in  German,  and a sizable  portion  of the items sold  thereon  will  represent
European toys not sold in the Company's retail 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.

Toys Initial Public Offering

     In November 1999, Toys effected an initial public offering of Common Stock,
$.001 per share, in the Federal Republic of Germany,  generating net proceeds of
approximately $22,864,000.  Such shares are currently traded on the SMAX segment
of the Frankfurt Stock Exchange under the symbol "TY40."

Ownership of the Company

     At fiscal year end March 31,  2000,  approximately  22% 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").  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

                                       3
<PAGE>
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 25% of the Company and owns approximately 79% of UTTC common stock
and is, in turn,  owned  approximately  62% 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
Liechtenstein   Trust,   which  is  the  parent  corporation  also  of  Frampton
Industries,  Ltd.  ("Frampton") and ABC Fund, Ltd. ("ABC"),  entities affiliated
with  the  Company.   Breaking  Waves,   Inc.,  a  wholly  owned  subsidiary  of
ShopNet.Com, Inc., owns approximately 11% of the Company.

     The following chart depicts the Company's  approximate  ownership structure
as of March 31, 2000:

                       Europe American Capital Foundation
                 / /                   ||               \\
                / /                    \/                \\
Frampton Industries (>50%) American Telecom PLC (80%)    ABC Fund, Ltd. (>50%)
                                     (100%)
                                       ||
                                       \/
                                U.S. Stores Corp.
                                     (62.0%)
                                       ||
                                       \/
                     Multimedia Concepts International, Inc.
                                     (79.0%)
                                       ||
                                       \/
                          United Textiles & Toys Corp.
                                     (22.0%)
                                       ||
                                       \/
                       Play Co. Toys & Entertainment Corp.

     The Company has two operating  subsidiaries:  Toys and Play Co. Toys Canyon
Country,  Inc.  ("Canyon").  Toys currently  operates  twenty-eight  stores, and
Canyon operates one store. The Company plans to combine these two  subsidiaries.
See "Item 2. Description of Property."


                                       4
<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
above 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 while the Company purchased no additional pieces of suits during year ended
March 31,  2000,  it continues  to sell the suits at its retail  locations.  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  located in San  Marcos,  California.  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.


                                       5
<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.

     In June 1999,  the Company  opened its 26th store in the Venetian  Hotel in
Las Vegas,  Nevada.  In  September  1999,  the  Company  opened one store in San
Francisco  (Pier 39) and two stores near Charlotte,  North Carolina.  In October
1999, the Company opened one store in Mission Viejo, California,  and two stores
near Houston, Texas. During fiscal year 1999, the Company opened six new stores.
With the closure of the Company's  Simi Valley store in February  2000,  and the
opening of its new stores in  Nashville,  Tennessee  in May 2000 and in Orlando,
Florida in June 2000, the Company's store count was brought to its current level
of thirty-three  stores.  The Company intends to open seven additional stores by
the end of the calendar year 2000. See "Management's  Discussion and Analysis of
Financial  Condition  and  Results  of  Operation  -  -  Liquidity  and  Capital
Resources."

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.


                                       6

<PAGE>
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. and  Amazon.com.  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.

Warehousing, Shipping and Inventory Systems

     The  Company's  stores are serviced from one  distribution  facility in San
Marcos, California which is approximately 37,000 square feet, plus 12,000 square
feet in an  adjacent  ancillary  facility.  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.


                                       7
<PAGE>
     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 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, 2000,  the Company had four executive  officers,  approximately
148 full time employees, and approximately 346 part time employees in the United
States. Toys International.de GmbH has an additional five full time employees in
Germany. 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 with FINOVA. The credit line offered under
the FINOVA Agreement  replaced the $7 million credit line the Company previously
had with Congress Financial Corporation (Western)  ("Congress").  Neither FINOVA
nor Congress is  affiliated  with the Company.  The Company  repaid the Congress
loan on February 3, 1998. The FINOVA credit line is secured by substantially all
of the Company's  assets and expires on August 3, 2000. The FINOVA  Agreement is
guaranteed by United  Textiles and accrues  interest at a rate of floating prime
plus one and one-half  percent.  Effective July 30, 1998, the Company and FINOVA
amended the  Agreement to increase the maximum  level of  borrowings  thereunder
from $7.1 million to $7.6 million. Effective September 24, 1998, the Company and
FINOVA  entered  into a  second  amendment  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.


                                       8

<PAGE>
     In November 1998,  pursuant to an agreement ("ZD 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 L/C in favor of FINOVA. As consideration for its issuance of
the L/C, ZD was entitled to (i) a one-third profit  percentage after application
of corporate  overhead  beginning  April 1, 1999 through the end of the terms of
the store  leases  from three of the  Company's  stores  (Venetian  Hotel in Las
Vegas, Nevada; Auburn Hills, Michigan;  and Gurnee,  Illinois) and (ii) nominate
and appoint  one-third of the Company's  directors  during the  aforesaid  store
lease terms (but in no event  later than fiscal year end 2013).  Such stores did
not generate a profit after application of corporate  overhead through March 31,
2000,  thus, no payments have accrued or been made to ZD through March 31, 2000.
As a result of the L/C,  FINOVA  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.  In
August 1999, the Company and FINOVA  entered into a Sixth  Amendment to Loan and
Security  Agreement  pursuant to which the Company's maximum level of borrowings
was increased to $11.3 million. The amendment also (1) increased the minimum net
worth financial  covenant from $750,000 to $2.9 million as of June 30, 1999 with
the $2.9 million threshold increasing by 60% of any equity raised by the Company
and by 60% of any  annual  profits  generated  by the  Company;  (2)  allows the
Company to sell a minority equity  interest (up to 49%) in its Toys  subsidiary;
and (3) increased the maximum levels of capital expenditures, capital leases and
unsecured debt allowed under the financing agreement.

     In December  1999,  at the Company's  request,  FINOVA agreed to reduce the
maximum  borrowing  level of the  credit  facility  from  $11.3  million to $9.3
million and to terminate a $2 million standby L/C that previously helped support
the credit facility.  The termination of the L/C allowed the Company access to a
$2 million  certificate of deposit which  previously was restricted and was used
as collateral for the L/C by the issuing bank.

     On March 13, 2000,  the Company and FINOVA agreed that FINOVA would release
its interest as beneficiary in $1.7 million of standby letters of credit.  These
standby  letters of credit had originally  been provided by Multimedia  Concepts
International,  Inc. for $1 million, and by ZD for $700,000.  Further, the total
amount  available under the facility was reduced to $5 million.  Beginning April
30, 2000, the facility is to be further reduced by $1 million at each month-end,
until reduced to zero in August 2000. On March 31, 2000, the Company had $47,542
outstanding  under its revolving credit facility with FINOVA  representing  fees
and interest as the principal balance was paid down to zero.

     In May 2000, the Company entered into a Termination  and Release  Agreement
with ZD, pursuant to which (i) the Company agreed to pay ZD an aggregate  amount
of $500,000  ("Termination Fee") in full satisfaction of any and all obligations
to ZD  under  the ZD  Agreement  and  (ii)  all of  ZD's  obligations  under  ZD
Agreement,  including  the  provision  of  the  L/C in  favor  of  FINOVA,  were
terminated.  By supplemental  letter, in lieu of payment of the Termination Fee,
ZD agreed to receive 854,700 shares of the Company's  Series E Preferred  Stock.
Subsequently, ZD entered into an Assignment of Termination and Release Agreement

                                       9
<PAGE>
which provided for the assignment by ZD of all its rights and obligations  under
the  Termination  and Release  Agreement to EACF.  Accordingly,  the Company has
issued the  854,700  shares of Series E  Preferred  Stock to EACF.  The Series E
Preferred  Stock was valued of $0.59 per share,  which  represented a 60 percent
discount of the market value as of the date of the transaction. To obtain a fair
value for the Series E Preferred  Stock,  the Company engaged the services of an
independent  appraiser  to determine  the value of the Series E Preferred  Stock
near the transaction date.

     The Company is currently seeking an alternative  lending arrangement with a
bank or finance  company.  Although  the Company has received  three  letters of
intent for such a facility,  there can be no  assurance  that it will be able to
obtain such a facility on acceptable terms, or at all.

 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  "Description  of Business--
Suppliers and Manufacturers."

Fixture Financing

     Since the  beginning of fiscal year 1999,  the Company has  utilized  lease
financing  agreements for the acquisition of fixtures and security equipment 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 are in the
approximate  aggregate amount of $1,750,000.  All such financings are secured by
the Company's  store  fixtures and equipment.  The Company is currently  seeking
additional financing of this type.

Recent Developments

     In  June  2000,  the  Company  added  Carolyn  Morrison  to  its  executive
management team. Ms. Morrison joins the Company in the capacity of President and
Chief Operating  Officer of Toys.  Richard Brady, who formerly held those titles
in the Toys subsidiary, has been promoted to Chief Executive Officer of Toys.

     Ms. Morrison has a deep knowledge of the specialty toy market. She has over
20 years of retail experience,  most recently having served for eight years with
FAO Schwartz as Executive Vice President.

     The Company believes that Ms. Morrison's leadership skills coupled with her
proven  successful  implementation  of  strategic  plans and her  experience  in
multi-store  management  will  play a  pivotal  role in the  achievement  of the
Company's  plan to strengthen  its position  within the specialty toy segment of
the toy industry.


                                       10
<PAGE>
     On July 15, 1999, Tudor, a British Virgin Islands  corporation of which Mr.
Mika is a  shareholder,  as an assignee of an option to acquire from the Company
25% of the outstanding  shares of the common stock of Toys,  elected to exercise
such option (the "Tudor  Option").  At the time, the Company owned 100% of Toys,
or 9,340,000  shares of common  stock.  The Tudor Option called for the purchase
price to be 25% of Toy's  book  value at June 30,  1999,  which  book  value was
determined to be $2,894,711.  In October 1999,  Tudor paid the Company  $723,678
(25% of the book value as of June 30, 1999) for 2,335,000  shares of Toys common
stock.  This was the  conversion  option  (as  hereinafter  defined)  which  was
assigned to Tudor by ABC.

     On July 20, 1999, the Company and Toys entered into an investment agreement
whereby  an  unaffiliated  investment  bank  (Concord)  and CDMI  Capital  Corp.
("CDMI," a British Virgin islands corporation of which Moses Mika, a director of
the Company,  is a shareholder)  each purchased 330,000 shares (or 3.3%) of Toys
common stock for an aggregate  of $2.8 million as a private  placement  prior to
the  aforementioned  public  offering.  This  sale  of  securities  reduced  the
Company's ownership of Toys from 75% to 70.05%.

     On November  19, 1999,  the  Company's  subsidiary,  Toys,  consummated  an
initial public offering of its common stock on the SMAX segment of the Frankfurt
Stock Exchange ("IPO").  The Offering was underwritten by Concord Effekten AG of
Frankfurt,  Germany.  Toys sold 2 million shares,  or a 16.7%  interest,  in the
Offering  for net  proceeds of  approximately  $23.3  million.  The Offering was
priced at 13 Euros per share, or  approximately US $13.52 per share. The Company
retained majority ownership of Toys (58.4%).

     In May 1999,  the  Company  sold  750,000  shares  of Series F Stock,  at a
purchase price of $1.00 per share, in a private placement.  The Company received
approximately  $645,000 in net proceeds  from the sale. In September  1999,  the
Company  filed  a  registration   statement  on  Form  SB-2  (the  "Registration
Statement")  covering the resale of 1,500,000  shares of Common Stock underlying
the Series F Stock sold in the above-described  private placement, an additional
350,000  shares of Common  Stock  underlying  options  which were granted to the
Placement Agent and its designees as part of the private placement,  and 100,000
shares of Common Stock which will be issued on effectiveness of the Registration
Statement to a former  commercial  lessor as part of a  settlement  of an action
commenced by same against the Company.  In May 2000, the Company filed Amendment
No. 1 to the Registration Statement, which has not yet been declared effective.

     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
both notes.

     In  February  1999,  the Company  entered  into a one year  agreement  with
Typhoon Capital  Consultants,  LLC ("Typhoon")  pursuant to which Typhoon was 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
its  services,  Typhoon was to be granted 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. The Company  terminated  this agreement in August
1999,  however,   due  to  Typhoon's  breach  of  its  obligations   thereunder.
Accordingly,  the Company has not  executed the option  agreements  and does not
expect to issue such options.


                                       11
<PAGE>
     In November 1998, the Company borrowed  $250,000 from Amir Overseas Capital
Corp.  ("Amir"),  a  corporation  not  affiliated  with  the  Company,  under  a
promissory note which bore interest at 12%. The note was repaid in January 1999.
In September 1998, the Company borrowed $1,000,000 from Amir, under a promissory
note, which bore interest at 12%. This note was repaid in December 1998.

     In  July  1998,  the  Company  entered  into  a  Lead  Generation/Corporate
Relations  Agreement with Corporate  Relations Group,  Inc.  ("CRG"),  a Florida
corporation  not  affiliated  with the  Company,  pursuant  to which  CRG was 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.  The Company has  recorded an  aggregate  value for this  transaction  of
$143,750, representing only the $100,000 cash payment and $43,750 for the Series
E Stock  (based on a closing  market  price of  $0.875  per share on August  27,
1998), as the Company did not execute the option  agreements given CRG's failure
to perform material duties required of it by the agreement.

     In June 1998,  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 - 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.

     The  debenture  provided  for the  conversion  of  same,  at  ABC's  option
("Conversion  Option"),  into shares of common  stock of either (i) a subsidiary
which the Company  intended to form for the purpose of  acquiring  those  stores
operated by the Company (or its  subsidiaries)  which conduct  business as "Toys
International,"  or (ii) any other subsidiary (such as Toys) 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 on the date ABC
exercised the option with a limitation on such share  ownership being 25% of the
total  outstanding  shares of said subsidiary.  In September 1998, in accordance
with the terms of the  debenture,  ABC assigned its option to Tudor as discussed
above.


                                       12
<PAGE>
     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.


                                       13
<PAGE>
ITEM 2.           DESCRIPTION OF PROPERTY

     The Company 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, plus 12,000 square feet in an adjacent ancillary
facility)  located at 550  Rancheros  Drive,  San  Marcos,  California  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 latter lease is on a
month to month basis, which the Company intends to terminate in the near future.
The 40,000  square  foot  facility  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.  This lease,  which was renewed  March
2000 for a two-year  period ending April 2002,  contains an option to extend the
lease for an additional three-year period. The fixed minimum rent has increased,
effective  May 1, 2000,  to $25,000 per month,  or $300,000 per year. As part of
the  renewal,  the lease was  assigned to the  Company's  Toys  subsidiary.  The
Company  believes  that this  lease is on terms no more or less  favorable  than
terms it might otherwise have negotiated with an unaffiliated party.

     The following  table sets forth the leased  properties on which the Company
is currently operating stores (aggregating 31) are located:

<TABLE>
<CAPTION>
===============================================================================================================================
                                                    SIZE IN SQUARE FEET                                  APPROXIMATE
                                                                                 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                        $85,000.00
Santa Margarita
27690-B Santa Margarita
Mission Viejo, CA  92691
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                             8,250              December 1999                         $88,000.00
Chula Vista
1193 Broadway
Chula Vista, CA  91911
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                            10,030                June 2000                          $128,000.00
El Cajon
327 N. Magnolia
El Cajon, CA  92020
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                            10,000           September 2005                          $111,000.00
Encinitas
280 N. El Camino Real
Encinitas, CA  92024
-------------------------------------------------------------------------------------------------------------------------------
<PAGE>
===============================================================================================================================
                                                    SIZE IN SQUARE FEET                                   APPROXIMATE
                                                                                 LEASE                     BASE RENT
                 STORE LOCATION                                               EXPIRATION                  ANNUAL COST
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                        <C>                           <C>

-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                  9,800         December 2004                        $117,000.00
Pasadena
885 S. Arroyo Parkway
Pasadena, CA  91105
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                 12,000         January 2001                          $96,000.00
Orange
1349 E. Katella
Orange, CA  92513
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                 10,478         March 2005                           $113,000.00
Redlands
837 Tri-City
Redlands, CA  92373
-------------------------------------------------------------------------------------------------------------------------------
Toys International.deGmbH*                                    50,000         December 2001                        $138,000.00
Neuwiederstrasse 80
56566 Neuwied Germany
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                 10,156          August 2002                          $88,000.00
Clairemont
4615-A Clairemont Drive
San Diego, CA  92117
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                 11,597          March 2004                           $91,000.00
Rancho Cucamonga
9950 W. Foothill Blvd, Suite U
Rancho Cucamonga, CA 91730
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                 10,000         October 2004                          $65,000.00
Corona
1210 W. Sixth Street
Corona, CA  91720
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                  9,400         December 2003                        $179,000.00
Woodland Hills
19804 Ventura  Blvd., #366
Woodland Hills, CA 91364
-------------------------------------------------------------------------------------------------------------------------------
Toys International                                             5,183         January 2004                         $160,000.00
South Coast Plaza, Ste. 1020
3333 Bristol Street, Suite 1030
Costa Mesa, CA  92626
-------------------------------------------------------------------------------------------------------------------------------
Toys International                                             3,869         January 2001                         $146,000.00
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
-------------------------------------------------------------------------------------------------------------------------------
<PAGE>
===============================================================================================================================
                                                    SIZE IN SQUARE FEET                                   APPROXIMATE
                                                                                 LEASE                     BASE RENT
                 STORE LOCATION                                               EXPIRATION                  ANNUAL COST
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                        <C>                           <C>
Toys International                                             3,620          August 2007                         $83,000.00
Galleria at South Bay
1815 Hawthorne Blvd., #366
Redondo Beach, CA  90278
-------------------------------------------------------------------------------------------------------------------------------
Toy  Co.                                                       5,642         January 2003                         $113,000.00
Ontario Mills
One Mills Circle, #302
Ontario, CA  91764
-------------------------------------------------------------------------------------------------------------------------------
Toy Co.                                                        7,103         October 2002                         $163,000.00
Arizona Mills
5000 Arizona Mills Circle, #689
Tempe, AZ  85282
-------------------------------------------------------------------------------------------------------------------------------
Toy Co.                                                        6,567             May 2008                         $175,000.00
Fashion Outlet of Las Vegas
32100-320 Las Vegas Blvd. So.
Primm, NV 89019
-------------------------------------------------------------------------------------------------------------------------------
Toy Co.                                                        9,369           May 2003                           $175,000.00
Grapevine Mills
3000 Grapevine Mills Pkwy, Ste. 312
Grapevine, TX 76051

-------------------------------------------------------------------------------------------------------------------------------
Toys International                                             5,339           December 2008                      $133,000.00
Thousand Oaks
208 W. Hillcrest Drive
Thousand Oaks, CA 91360
-------------------------------------------------------------------------------------------------------------------------------
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                          $169,000.00
Gurnee Mills Mall
06170 W. Grand Ave., Sp. #559
Gurnee, IL 60031
-------------------------------------------------------------------------------------------------------------------------------
Toys International                                             9,400          March 2008                          $221,000.00
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
===============================================================================================================================
<PAGE>
===============================================================================================================================
                                                    SIZE IN SQUARE FEET                                  APPROXIMATE
                                                                                 LEASE                     BASE RENT
                 STORE LOCATION                                               EXPIRATION                  ANNUAL COST
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                        <C>                           <C>
-------------------------------------------------- --------------- ------------------------- -------------------------
Toys International                                          5,500        August 2009                         $116,000
Pier 39
The Embarcadero
San Francisco, CA 94133
-------------------------------------------------- --------------- ------------------------- -------------------------
Play Co.                                                    4,594         July 2008                          $106,000
Concord Mills
8111 Concord Mills Blvd.
Concord, NC 28027
-------------------------------------------------- --------------- ------------------------- -------------------------
Toy Co.                                                    10,402         July 2008                          $229,000
Concord Mills
8111 Concord Mills Blvd.
Concord, NC 28027
-------------------------------------------------- --------------- ------------------------- -------------------------
Toy Co.                                                     8,988        October 2009                        $198,000
Katy Mills
5000 Katy Mills Circle, Ste. 514
Katy, TX 77494
-------------------------------------------------- --------------- ------------------------- -------------------------
Play Co.                                                    4,476        October 2009                        $103,000
Katy Mills
5000 Katy Mills Circle, Ste. 722
Katy, TX 77494
-------------------------------------------------- --------------- ------------------------- -------------------------
Toys International                                          5,959        January 2010                        $155,000
The Shops at Mission Viejo
30 Shops at Mission Viejo
Mission Viejo, CA 92691
================================================== =============== ========================= =========================
</TABLE>

-------------------------
* Consists of office and warehouse space.


ITEM 3.  LEGAL PROCEEDINGS

     In October 1997, in the Superior Court of the State of  California,  County
of San Bernardino,  Foothill Marketplace,  Ltd., a former lessor, commenced suit
against the Company for breach of  contract  pertaining  to premises  located in
Rialto,  California.  During  the third  quarter  of fiscal  year end 2000,  the
parties  settled  the action  pursuant  to a  stipulated  agreement  whereby the
Company  remitted  an initial  cash  payment  of $35,000  and agreed to remit an
aggregate  $186,138  over the ensuing  36-month  period.  The  Company  recorded
$156,405 on a discounted basis for this payment stream. In addition, the Company
agreed to issue  100,000  shares of Common  Stock to Foothill  Marketplace.  The
Company recorded $42,500 in litigation  related expenses for the shares based on
the market  value of the stock  including  a 15%  discount  applied,  due to the
restricted nature of the shares. The Company has estimated the total net present
value of the settlement to be $233,905, net of related legal costs of $36,301.


                                       17
<PAGE>
     The Company is a party to legal  proceedings  and claims which arise in the
ordinary course of its business.  The Company believes that the outcome of these
proceedings, individually and in the aggregate, will not have a material adverse
effect on its financial position, results of operations, or liquidity.

     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.




                                       18
<PAGE>
ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


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

                                               Votes                      Votes                    Abstentions
                                              Cast For                Cast Against

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

-------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       19
<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) (3)       Warrants (1)       Preferred Stock          Warrants
          ------               ---------------           ------------       ----------------         --------

                                Low         High        Low       High        Low      High       Low        High
                                ---         ----        ---       ----        ---      ----       ---        ----
           1998
<S>                             <C>         <C>         <C>       <C>          <C>     <C>        <C>         <C>
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 - 06/30/99                1.06         2.03                             .50     3.37         .10        .58
07/01/99 - 09/30/99                 .75         1.50                             .84     1.62         .13        .29
10/01/99 - 12/31/99                 .50         1.44                             .63     4.13         .13        .95

           2000
01/01/00 - 03/31/00                 .31         2.00                            1.88     3.94         .28        .56
04/01/00 - 07/12/00                 .20          .47                            1.25     2.68         .19        .43
---------------------------- ----------- ------------ --------- ---------- ---------- -------- ----------- ----------
</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.

     As of July 12, 2000, there were  approximately 437 holders of record of the
Company's   Common  Stock,   although  the  Company   believes  that  there  are
approximately 1,530 additional  beneficial owners of shares of Common Stock held
in street name.  As of July 12, 2000,  the number of  outstanding  shares of the
Company's  Common  Stock was  47,369,542  (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).
See "Market For Common Equity and Related  Stockholder Matters - - Conversion of
Series E Preferred Stock to Common Stock."

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.



                                       20
<PAGE>
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 Preferred  Stock (the "Series F Stock"),  at a purchase price
of $1.00  per  share,  through  Robb  Peck  McCooey  Clearing  Corporation  (the
"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.

     In September 1999, the Company filed a registration  statement on Form SB-2
(the "Registration Statement") covering the resale of 1,500,000 shares of Common
Stock  underlying  the  Series  F  Stock  sold  in the  above-described  private
placement, an additional 350,000 shares of Common Stock underlying options which
were  granted to the  Placement  Agent and its  designees as part of the private
placement,  and  100,000  shares  of  Common  Stock  which  will  be  issued  on
effectiveness of the  Registration  Statement to a former  commercial  lessor as
part of a settlement of an action commenced by same against the Company.  In May
2000, the Company filed Amendment No. 1 to the Registration Statement.

Series E Preferred Stock Issuance

     In May 2000, the Company entered into a Termination  and Release  Agreement
with ZD, pursuant to which (i) the Company agreed to pay ZD an aggregate  amount
of $500,000  ("Termination Fee") in full satisfaction of any and all obligations
to ZD  under  the ZD  Agreement  and  (ii)  all of  ZD's  obligations  under  ZD
Agreement,  including  the  provision  of  the  L/C in  favor  of  FINOVA,  were
terminated.  By supplemental  letter, in lieu of payment of the Termination Fee,
ZD agreed to receive 854,700 shares of the Company's  Series E Preferred  Stock.
Subsequently, ZD entered into an Assignment of Termination and Release Agreement
which provided for the assignment by ZD of all its rights and obligations  under
the  Termination  and Release  Agreement to EACF.  Accordingly,  the Company has
issued the 854,700 shares of Series E Preferred Stock to EACF.

     Pursuant  to the  settlement  agreement,  the  Company  agreed to pay to ZD
$500,000 in cash. Subsequently,  ZD agreed to receive 854,700 shares of Series E
Preferred  Stock in lieu of the $500,000 cash. The Series E Preferred  Stock was
thereby valued at $0.59 per share,  which  represented a 60 percent  discount of
the market value as of the date of the  transaction.  To obtain a fair value for
the Series E Stock,  the Company  engaged an independent  appraiser to determine
the value of the Series E Stock  near the  transaction  date.  ZD  assigned  its
rights under this  agreement  to EACF and  accordingly,  the Company  issued the
854,700 shares of Series E Stock to EACF.

Conversion of Series E Preferred Stock to Common Stock

     Beginning in January 2000, and through the fourth quarter,  certain holders
of 929,563  shares of Series E Preferred  Stock  elected to convert their shares
into Common Stock shares.  Each Series E Preferred  Stock was converted into six
shares  of  Common  Stock,  or a total of  5,577,378  shares  of  Common  Stock.
Subsequent  to March 31,  2000,  a  substantial  amount of Common Stock has been
issued upon conversion of the Series E Preferred Stock.


                                       21
<PAGE>
Conversion of Convertible Debenture into Series E Preferred Stock

     In February  1999,  the Company  issued  convertible  debentures  to Europe
American Capital Foundation ("EACF") and Frampton  Industries,  Ltd ("Frampton")
in the amounts of $500,000 and $150,000,  respectively, both bearing interest at
5% per annum (the "Debentures"). Such Debentures were convertible into an amount
of the Company's  Series E Preferred  Stock.  The  Debentures  were amended from
time-to-time and as a result,  the Debentures  became  convertible into Series E
Preferred Stock at $.20 per share.

     In December 1999,  Frampton assigned its debenture to EACF, and on March 3,
2000,  EACF  advised  the  Company of its  intention  to convert  the  debenture
effective February 29, 2000. Accordingly,  in March 2000, in accordance with the
terms of the debenture, the Company issued 3,423,300 shares of Series E Stock to
EACF.

Issuance/Reservation of Common Stock

     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.

     In December  1999,  the Company  settled its last  tenant/landlord  matter.
Pursuant to a settlement  agreement,  the Company agreed to issue 100,000 shares
of  Common  Stock.  See  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations - - Results of Operations."



                                       22
<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,
                                               1997              1998             1999              2000
                                               ----              ----             ----              ----

Balance Sheet Data:

<S>                                          <C>                 <C>              <C>              <C>
Working capital (deficiency)                 $(1,570,486)        $4,452,481       $5,763,509       $13,550,389
Total assets                                    9,378,618        14,139,887       21,081,758        32,283,781
Total current liabilities                       8,148,657         4,581,831        7,558,647         7,436,310
Long term obligations                             226,925         7,055,549        8,527,116         1,124,374
Stockholders' equity                            1,003,036         2,502,507        4,995,995        13,779,690
Common stock dividends                                ---               ---              ---               ---
</TABLE>

<TABLE>
<CAPTION>



                                                                  Year Ended March 31,

                                                1997              1998              1999             2000
                                                ----              ----              ----             ----

Operating Data:

<S>                                            <C>               <C>               <C>             <C>
Net sales                                      $19,624,276       $22,568,527       $34,371,230     $37,252,210
Gross profit                                     5,955,172         8,878,928        14,780,446      15,197,485
Gross margin                                         30.3%             39.3%             43.0%           40.8%
Total operating expenses                         8,789,570        10,119,430        13,741,011      22,996,151
Minority interest in net loss of
consolidated subsidiary                                ---               ---               ---         952,757
Extraordinary gain on extinguishment of
debt                                                   ---               ---               ---         650,000
Net income (loss)                              (3,584,881)       (2,054,470)         (577,766)     (8,015,367)
Effects of non-cash dividends on
convertible preferred stock                            ---       (1,473,806)       (1,707,725)     (2,592,252)
Net income (loss) applicable to common
shares                                         (6,474,496)       (3,528,276)       (2,285,491)    (10,607,619)
Income (loss) per common share(1)                   (1.29)            (0.86)             (.50)          (1.58)
Weighted average shares outstanding(1)
                                                 2,791,876         4,098,971         4,590,642       6,719,736
</TABLE>
(1) Adjusted for effects of 1 for 3 reverse split of Common Stock in July 1997.


                                       23
<PAGE>
Results of Operations

     This  Annual  Report  on  Form  10-KSB  and  the  following   "MANAGEMENT'S
DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND  RESULTS OF  OPERATIONS"
includes  "forward-looking  statements" within the meaning of Section 27A of the
Securities  Act and Section 21E of the Exchange Act. All  statements  other than
statements of historical fact are  "forward-looking  statements" for purposes of
these  provisions,  including  any  projections  of earnings,  revenues or other
financial  items,  any  statements of the plans and objectives of management for
future operations,  any statements concerning proposed new products or services,
any statements  regarding  future economic  conditions or  performance,  and any
statements  of  assumptions  underlying  any of the  foregoing  in  some  cases,
forward-looking  statements can be identified by the use of terminology  such as
"may", "will", "expects", "plans", "anticipates",  "estimates",  "potential", or
"continue" or the negative thereof or other comparable terminology.  Although we
believe  that  the  expectations  reflected  in the  forward-looking  statements
contained   herein  are  reasonable,   there  can  be  no  assurance  that  such
expectations or any of the forward-looking  statements will prove to be correct,
and actual results could differ  materially  from those  projected or assumed in
the  forward-looking  statements.  Our future financial condition and results of
operations,  as well as any  forward-looking  statements are subject to inherent
risks and uncertainties.  All forward-looking statements and reasons why results
may differ included in this report are made as of the date hereof, and we assume
no obligation to update any such forward-looking  statement or reason why actual
results might differ.

     The Company has two subsidiaries, Toys International.COM, Inc. ("Toys") and
Play  Co.  Toys  Canyon  Country,  Inc.  ("Canyon").   Toys  currently  operates
twenty-nine  of the Company's  aggregate  thirty-three  stores,  of which Canyon
holds the lease for one of Toys' retail locations.

For the year ended March 31, 2000 as compared to the year ended March 31, 1999

     The Company  generated net sales of $37,252,210 in the year ended March 31,
2000 (also  referred to as fiscal year 2000).  This  represented  an increase of
$2,880,980,  or 8.4%,  over net sales of $34,371,230 in the year ended March 31,
1999 (also  referred to as fiscal year 1999).  Of this sales growth,  $1,238,720
can be attributed to the Company's Internet  operations in the United States and
Germany  ("Internet  Operations");  the  remainder  of the sales  growth  can be
attributed to the Company's new stores as same store sales declined by 24.8% for
the period.  The sales of the  Internet  Operations  included  both  business to
consumer  (approximately  $719,000)  and  business  to  business  (approximately
$520,000) sales. The business to business sales activity also included wholesale
transactions  to other toy  retailers  and  wholesalers.  The  Company  runs all
wholesale  transactions  through  its  Internet  division,  since its  wholesale
division was closed several years ago.

     The Company  believes  that its same store sales showed a decline  (after a
period of two years of continuous  increases in the fiscal years ended March 31,
1998 and March  31,1999) due to a significant  reduction in the sales of certain
collectible items, in particular,  Beanie Babies. The Company attributes a great
deal of this decline both to a reduction in demand for Beanie Babies and related
items and a general lack of availability  of those items from the  manufacturer.
This decline  represented  approximately  a $7.9  million  decline in same store
sales. Excluding sales of Beanie Babies and related products, the Company's same
store sales  actually  increased  by 5.7% in the fiscal  year 2000.  The Company
expects this trend to continue only through the second quarter of current fiscal
year 2001.


                                       24

<PAGE>
     The  Company  ended  fiscal  year 2000 with 31  retail  locations  in seven
states,  compared to 25 retail locations in six states at the end of fiscal year
1999.  During fiscal year 2000,  the Company  opened seven new stores and closed
one store due to a lease expiration.

     The Company  posted a gross profit of  $15,197,485  in the year ended March
31, 2000.  This  represented  an increase of $417,039,  or 2.8%,  over the gross
profit of  $14,780,446  in the year  ended  March  31,  1999.  The gross  profit
increase was due to the above noted  growth in net sales.  The  Company's  gross
margin  declined  from 43.0% in fiscal  year 1999 to 40.8% in fiscal  year 2000.
This 2.2% gross margin decrease was largely due to dampening effect of the 12.6%
gross margin posted by the Internet  Operations  on the Company's  overall gross
margin and to a $250,000  inventory  reserve  established  by the  Company.  The
inventory  reserve  was for  obsolete  inventory  identified  after the  holiday
season.  The reserve is an estimate by  management  to reflect  inventory at the
lower of cost or market.  Excluding  the impact of the  inventory  reserve,  the
Company posted a gross margin of 41.5%.

     Operating  expenses  (total  operating  expenses  less  litigation  related
expenses and  depreciation  and  amortization)  in the year ended March 31, 2000
were  $21,379,825.  This represented a $8,652,815,  or 67.9%,  increase over the
Company's  operating  expenses of  $12,727,010 in the year ended March 31, 1999.
The primary reasons for the operating  expense increase were operating  expenses
relating to the Internet  Operations of  approximately  $2,721,000,  a growth in
rent expense of approximately  $2,020,000 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 seven new stores in fiscal year 2000  coupled  with a full fiscal
year of  expenses  related to the six stores  that  opened in the second half of
fiscal year 1999.  As a percentage  of sales,  operating  expenses  increased by
20.9% to 57.9% of net sales for fiscal year 2000 from 37.0% in fiscal year 1999.

     During the year ended March 31, 2000, the Company  commenced  international
e-commerce   operations,   primarily  in  Germany.  The  Company  experienced  a
relatively  significant  number  of bad  debts  due to its  previous  use of the
standard German  business  practice of selling  Internet  products on a "bill me
later"  basis.   Accordingly,   the  Company   discontinued  this  practice  and
established an allowance for doubtful accounts of $119,949.

     During  fiscal  year 2000,  the Company  settled  its final  store  closing
related litigation. Under this settlement, the Company agreed to an upfront cash
payment of $35,000,  to issue 100,000 shares of its common stock,  and to pay an
aggregate  $186,138 over a 36-month period.  The Company has estimated the total
net present  value of the  settlement  to be $233,905 and accrued an  additional
amount of  $270,206  in fiscal  year  2000 to cover the  estimated  value of the
settlement  and other  litigation  related  expenses.  In fiscal year 1999,  the
Company incurred $27,659 of litigation related expenses.

     Depreciation and amortization  expense in the year ended March 31, 2000 was
$1,346,120.  This represented a $359,778,  or 36.4%, increase over the Company's
depreciation  and  amortization  expense of $986,342 in the year ended March 31,
1999.  Depreciation and amortization are non-cash  charges.  The primary reasons
for the  depreciation  and  amortization  expense  increase was the depreciation
related  to the fixed  assets  purchased  for the seven new stores  that  opened
during fiscal year 2000,  and the  resulting  amortization  for the  capitalized
website development costs, which were put in service during fiscal year 2000.

                                       25
<PAGE>
     Total operating expenses (the sum of operating expenses, litigation related
expenses, and depreciation and amortization expense) in the year ended March 31,
2000 were $22,996,151.  This represented a $9,255,140,  or 67.4%,  increase over
the Company's  total  operating  expenses of $13,741,011 in the year ended March
31,  1999.  The  reasons  for this  increase  are noted in the  three  preceding
paragraphs.

     The Company  recorded an operating  loss of  $7,798,666 in fiscal year 2000
compared to operating income of $1,039,435 in fiscal year 1999. This represented
a reduction of $8,838,101.  This decrease was a result of the $417,039  increase
in gross  profit  being more than  offset by the  $9,255,140  increase  in total
operating  expenses.  Approximately  $2.6  million  of the  operating  loss  was
generated by the Company's Internet Operations.

     Total interest  expense,  net of interest  income of $276,923,  amounted to
$1,819,458 in the year ended March 31, 2000.  This  represented  a $204,407,  or
12.7%, increase over the Company's interest expense of $1,615,051 in fiscal year
1999, a year in which the Company had no interest  income.  Interest  income for
the year ended March 31, 2000 was earned on increased cash  positions  resulting
from the proceeds of Toys' equity  transactions  discussed below. In both fiscal
years, the Company recorded a $650,000  non-cash interest charge that related to
the  beneficial   conversion   feature  of  certain   convertible   subordinated
debentures.  No cash or stock  dividends  were  actually paid out. The Company's
interest  expense  increased  due to a higher level of borrowings in fiscal year
2000 than in fiscal year 1999.

     Given the Company's  loss in each of fiscal 2000 and 1999,  current  income
tax expense is not  material to the  Company's  operations.  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,
2000 and 1999 and resulted in a net zero dollar  provision  for deferred  income
taxes for each of the years ended March 31, 2000 and 1999.

     In fiscal year 2000, the Company  recorded a minority  interest in the loss
of the consolidated  Toys subsidiary of $952,757.  This minority  interest arose
out of various sales of stock in the Company's Toys subsidiary,  as described in
Note 11 to the  consolidated  financial  statements  and  below.  This  minority
interest represented a reduction in the Company's net loss for fiscal year 2000.
Since Toys  operated  as a wholly  owned  division of the Company in fiscal year
1999, no minority interest was recorded in that year.

     In fiscal year 2000,  the Company  recorded a $650,000  extraordinary  gain
that related to the  modification of terms on certain  convertible  subordinated
debentures.  The modification to the terms of the debentures were so significant
that the amended debenture agreements were deemed to be substantially  different
by  management  than the  original  debentures.  The  original  debentures  were
therefore  accounted for as an extinguishment of debt. This  extraordinary  gain
offset the $650,000 non-cash interest charge recorded above.

     In fiscal  year 2000,  the Company  recorded  other  comprehensive  loss of
$151,531 that related to foreign currency  translation  adjustments arising from
Toys' Internet operations in Germany. There were no foreign currency translation
adjustments in fiscal year 1999.


                                       26

<PAGE>
     As a  result  of  the  above-mentioned  factors,  the  Company  recorded  a
comprehensive  net loss of $8,166,898 for the fiscal year ended 2000 compared to
a comprehensive net loss of $577,766 for the fiscal year ended March 31, 1999.

     In fiscal year 2000,  the net loss of $8,015,367  was increased by non-cash
dividends of $2,592,252 in order to determine the net loss  applicable to common
shares. The non-cash dividends  represent  amortization of the discount recorded
upon  issuance  of  Series E and  Series F 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 $1,707,725  was recorded for fiscal year 1999.
As a result, the net loss applicable to common shares was $10,607,619,  or $1.58
per share, for the year ended March 31, 2000 and $2,285,491,  or $.50 per share,
for the year ended March 31, 1999.

Liquidity and Capital Resources

     At March 31, 2000, the Company had $13,550,389 of working capital  compared
to a working  capital  position of  $5,763,509  at March 31,  1999.  The primary
factor in the  $7,786,880  increase  in working  capital was the  November  1999
initial public offering of Toys,  which generated  approximately  $22,864,000 in
net proceeds and $2,800,000  generated by a private  equity  transaction in July
1999.  Another  significant  factor in the ending March 31, 2000 working capital
position was a paydown of the Company's line of credit from  $7,814,666 at March
31, 1999 to a balance of $47,542 at March 31, 2000,  after having reached a peak
borrowing level of $11.3 million during the fiscal year.

     While the Company  generated an operating  profit  during fiscal year ended
March 31, 1999,  the Company  generated an operating  loss in fiscal 2000 and in
the fiscal years prior to fiscal  1999.  The Company has  historically  financed
those  operating  losses and its working capital  requirements  through debt 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 consistent profitability.

     For the year ended March 31, 2000, the Company used  $10,066,001 of cash in
its operations compared to $1,197,105 used in operations in the year ended March
31, 1999. The primary  reason for the $8,868,896  increase in the use of cash in
operations was the Company's  comprehensive  net loss of $8,166,898  compared to
the prior year's comprehensive net loss of $577,766.

     The Company used  $4,007,087  of cash in its  investing  activities  during
fiscal  year 2000  compared  to  $2,833,831  in fiscal  year 1999.  The  primary
investment  in both fiscal  years was the  purchase of  property  and  equipment
generally for new stores.  The Company purchased  approximately $2.3 million and
$2.7  million  in  property  and  equipment  in  fiscal  years  2000  and  1999,
respectively.   Also,  the  Company  invested  approximately  $1.96  million  in
capitalized   website   development   costs  for  its   e-commerce   operations.
Additionally,  in fiscal year 2000, the Company generated $723,678 from the sale
of a portion of its investment in Toys, as discussed below.


                                       27

<PAGE>
     The Company generated $20,148,659 from its financing activities in the year
ended March 31, 2000 compared to the  generation of  $3,507,917  from  financing
activities in the year ended March 31, 1999.  The most  significant  item in the
Company's financing activities in fiscal year 2000 was the November 1999 initial
public  offering  of Toys,  which  generated  approximately  $22,864,000  in net
proceeds and $2,800,000 generated by a private equity transaction in July 1999.

     As a result of the above  factors,  the Company had a net  increase in cash
and cash  equivalents  of  $5,924,040  in  fiscal  year 2000  compared  to a net
decrease in cash and cash equivalents of $523,019 in fiscal year 1999.

     During  fiscal  2000,  the Company  opened seven new stores in high traffic
shopping  malls for a total cost  (excluding  inventory) of  approximately  $2.3
million.  The stores are  located in Las  Vegas,  Nevada;  Katy (near  Houston),
Texas; Concord (near Charlotte), North Carolina; San Francisco and Mission Viejo
(near Los Angeles), both in California.  The Company opened six stores in fiscal
1999.

     The Internet  operations were another  significant use of capital in fiscal
year 2000. The Company invested approximately $4,577,000,  primarily in Germany,
to finance the Internet  Operations  including  capitalized  website development
costs  of  approximately   $1,960,000,   operating   expenses  of  approximately
$1,789,000,  and inventories in Germany of approximately  $828,000. The Internet
Operations  began in April 1999 with the debut of the  Company's  U.S.  website,
www.toyswhypayretail.com.    The   Company    debuted   its   German    website,
www.webjumbo.de, in October 1999.

     The Company  had  planned to finance the costs of opening  those new stores
and its Internet  Operations  through a combination of capital lease  financing,
use of the Company's  working capital,  and the sale of additional  equity.  The
Company  received  approximately  $861,000 in lease financing during fiscal year
2000. The Company continues to seek additional capital lease financing.

     The following equity  transactions  entered into over fiscal year 2000 were
equity and debt transactions structured to help the Company with the cost of the
capital  expenditures  associated with opening the seven new stores and starting
the Internet Operations.

     On July 15, 1999, Tudor  Technologies,  Inc. ("Tudor") - an entity of which
Mr.  Moses  Mika (a  director  of the  Company)  is a  shareholder  - elected to
exercise its right to purchase a 25% ownership  interest in the  Company's  Toys
subsidiary.  Tudor  was  the  assignee  of an  option  to  acquire  25%  of  the
outstanding  shares of the common stock of Toys at book value. The book value of
Toys as of June 30, 1999 was determined to be $2,894,711. In October 1999, Tudor
paid the  Company  $723,678  (25% of the book value as of June 30,  1999).  This
option arose out of the June 30, 1998  conversion,  by ABC Fund, Inc. ("ABC," an
affiliate of the Company), of a $1.5 million debenture into Series E Stock as of
June 30, 1998.  Pursuant to the terms of the debenture,  in September  1998, ABC
assigned its right to purchase the Toys common stock to Tudor.


                                       28

<PAGE>
     On July 20, 1999,  the  Company's  subsidiary,  Toys,  sold a 6.6% minority
interest  to two  investors  for $2.8  million  in gross  proceeds  in a private
transaction. The investors were an unaffiliated investment banking firm, Concord
Effekten AG ("Concord") of Frankfurt, Germany and CDMI, a British Virgin Islands
corporation. Mr. Mika is a shareholder of CDMI. Each party invested $1.4 million
in the transaction.

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

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

     On November  19,  1999,  Toys  completed an initial  public  offering  (the
"Offering")  on the SMAX  segment of the  Frankfurt  Stock  Exchange in Germany.
Concord  underwrote  the  Offering.  Toys  sold 2  million  shares,  or a  16.7%
interest,  in the Offering for net proceeds of  approximately  $22,864,000.  The
Offering was priced at 13 euros per share, or approximately US $13.52 per share.
The Company retained majority  ownership of Toys with a 58.4% equity interest in
the subsidiary and, as a result,  will continue to consolidate  Toys' operations
in its financial statements.  No gain or loss was recorded on the sales of Toys'
shares  in the  public  offering  or in  earlier  private  placements  per Staff
Accounting  Bulletin  Topic  5, as  discussed  in  Note  11 to the  consolidated
financial statements.

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

     In March  2000,  the  holders  of the  Company's  convertible  subordinated
debentures  converted  the then  outstanding  $650,000  of  debentures  into the
Company's  Series E Preferred Stock at the agreed  conversion price of $0.20 per
share.  This resulted in an issuance of 3,423,300 shares of Series E stock being
issued, including accrued interest.

     In November 1998,  the Company  entered into an agreement with ZD Group LLC
("ZD"),  a related  party,  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 with  interest at
prime plus one percent. The term loan was repaid during the year ended March 31,
2000.

                                       29

<PAGE>
     As  consideration  for its  issuance of the L/C, ZD was entitled to receive
payments  representing  one-third  (33%) of the net  profits  from three  stores
beginning in April 1999. To date,  those stores have not earned any net profits;
therefore, the Company has not been liable for any payments.

     In May 2000, ZD and the Company reached a settlement whereby the Company is
no longer  liable for paying to ZD a percentage  of the net profits of the three
stores. As of March 31, 2000, and the date of the settlement, the Company had no
liabilities to ZD as the three stores had not yet made any net profits.

     Pursuant  to the  settlement  agreement,  the  Company  agreed to pay to ZD
$500,000 in cash. Subsequently,  ZD agreed to receive 854,700 shares of Series E
Preferred  Stock in lieu of the $500,000 cash. The Series E Preferred  Stock was
thereby valued at $0.59 per share,  which  represented a 60 percent  discount of
the market value as of the date of the  transaction.  To obtain a fair value for
the Series E Stock,  the Company  engaged an independent  appraiser to determine
the value of the Series E Stock  near the  transaction  date.  ZD  assigned  its
rights under this  agreement to EACF and,  accordingly,  the Company  issued the
854,200 shares of Series E Stock to EACF.

     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.

     During  fiscal 2000,  the FINOVA  Agreement was amended to name the Company
and Toys as co-borrowers under the Agreement.  The Agreement was further amended
to reduce the available borrowing levels. As of March 31, 2000, the total amount
available  under the facility was $5 million,  which is to be further reduced by
$1 million,  beginning  April 30, 2000 and at each subsequent  month-end,  until
reduced to zero by August 2000.

     The FINOVA  Financing  also includes  various  covenants,  two of which the
Company violated during the year ended March 31, 1999 by exceeding the specified
maximum levels of capital expenditures and debt financing.  The Company received
a waiver  of these  defaults  in  connection  with an  amendment  to the  FINOVA
financing,  which was executed in August 1999.  The FINOVA  Agreement as amended
established  new covenants  with which the Company was in compliance  during the
year  ended  March 31,  2000 and with which it  expects  to comply  through  the
maturity date of August 2000.

     The FINOVA  financing also requires the  maintenance of a minimum level net
worth in amounts defined by the Agreement. As of March 31, 1999, the requirement
was  $750,000.  The  amendment  executed in August 1999  requires the Company to
maintain a base net worth of  $2,900,000,  plus 60% of any equity raised between
June 30, 1999 and March 31, 2000. At March 31, 2000, the required equity base is
calculated  to be  approximately  $18,300,000,  with  which  the  Company  is in
compliance  given  consideration  to the  aggregate  of  minority  interest  and
stockholders' equity.

                                       30

<PAGE>
     The FINOVA Agreement is guaranteed by United Textiles & Toys Corp. ("UTTC")
and is secured by substantially  all the assets of the Company and $3,000,000 in
letters of credit.  Of the  $3,000,000  in  letters  of credit,  $2,000,000  was
collateralized  by  amounts  held  in  a  restricted   certificate  of  deposit.
Multimedia Concepts International,  Inc., an affiliate through common ownership,
had provided a $1,000,000 L/C. As noted above,  the FINOVA Agreement was amended
to reduce the borrowing levels available to the Company. As such, the letters of
credit were no longer  needed as a guarantee.  Therefore,  the letters of credit
were released by FINOVA.

     Due to the August  2000  maturity of the FINOVA  Agreement,  the Company is
seeking an alternative financing agreement. The Company has received a letter of
intent from a major  finance  company,  which is completing  its due  diligence.
However,  there can be no  assurance  that any such  finance  agreement  will be
consummated on terms acceptable to the Company, or if at all.

     Planned new store openings remain a significant  capital  commitment of the
Company. The Company has entered into leases to open seven 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  $3.4 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 Company  has opened two of those  seven new stores.  The first of those
stores  opened in May in the  Nashville,  Tennessee.  The second store opened in
June in Orlando, Florida. The cost of opening those stores (excluding inventory)
was  approximately  $570,000.  The Company  expects to receive  landlord  tenant
improvement  contributions  on those  two  stores in the  approximate  amount of
$212,000,   which  will  reduce  the  net  cost  of  opening   those  stores  to
approximately $358,000.

     The  remaining  five  stores  scheduled  to be opened in the second half of
calendar year 2000 are expected to cost (excluding inventory) approximately $3.2
million.   The  Company   expects  to  receive   landlord   tenant   improvement
contributions on those five stores in the approximate amount of $200,000,  which
will reduce the net cost of opening those stores to approximately $3 million.

     The Company has developed a new strategy for its Internet  Operations  that
it believes may differentiate its websites from its competitors'  websites.  The
Company  has  invested  approximately  $2 million in this new  concept.  The new
concept requires the participation of media and/or financing  partners.  The new
concept  is  based  on  the  use of a  continuing  story  line  to  draw  repeat
viewers/potential  customers to its websites  rather than  spending  significant
amounts of capital on advertising expense. The Company believes that it may draw
a more loyal customer base in this new approach.  If the Company does secure the
participation  of media  partners,  than it will also  need to raise  additional
financing  to fund  the  somewhat  open-ended  nature  of  capital  expenditures
associated with this new project.  The Company is currently  seeking  additional
financing for this purpose.  There can be no assurance  that such financing will
be available on terms acceptable to the Company or at all.


                                       31

<PAGE>
     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  approximately
$645,000  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.  A registration
statement was originally filed in September 1999 on Form SB-2 and amended in May
2000. The registration statement has not yet been declared effective. The shares
of Series F Stock shall convert automatically,  without any action by the holder
upon the  earlier  of (i) two  years  from  issuance,  or (ii) in the  event the
closing  price  per  share of the  Common  Stock  has been at least  $5.00 for a
consecutive 30-day period.

     We believe  that  current  cash and cash  equivalents  and cash that may be
generated from operations will be sufficient to meet our anticipated  cash needs
through March 31, 2001.  However,  any projections of future cash needs and cash
flows are subject to substantial uncertainty.  If current cash, cash equivalents
and cash that may be generated from  operations are  insufficient to satisfy our
liquidity  requirements,  we will likely seek to sell additional  equity or debt
securities  or to  obtain a line of  credit.  The sale of  additional  equity or
equity-related   securities   would  result  in   additional   dilution  to  our
stockholders.  In addition, we will, from time to time, consider the acquisition
of  or  investment  in   complementary   businesses,   products,   services  and
technologies, which might impact our liquidity requirements or cause us to issue
additional  equity or debt securities.  There can be no assurance that financing
will be available in amounts or on terms acceptable to us, if at all.

Trends Affecting Liquidity, Capital Resources and Operations

     The Company  believes that the period covered by its fiscal year 2000 was a
slow year for the  worldwide  toy  industry.  With the  exception of the Pokemon
phenomenon,  there were very few hot toys.  Movie related toy products  (such as
Star Wars) did not sell well in that  period and as  discussed  above,  sales of
Beanie babies slowed dramatically.

     The Company is trying to  mitigate  this  slowness  in the toy  industry by
locating  its new  stores in sites  that have a large  amount of  customer  foot
traffic  such as tourist  areas.  These  high-traffic  areas  should  enable the
Company to provide better access to its educational,  specialty, and collectible
toy merchandise.  Additionally,  the history of the toy industry  indicates that
there is  generally  at least one highly  popular  toy every  year.  The Company
believes that its new locations will help position the Company to take advantage
of those future positive trends.

     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, Amazon.com and Toys R Us.com.  There can be no assurance that the
Company's  business  strategy will enable it to compete  effectively  in the toy
industry.

                                       32

<PAGE>
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, 2000, the Company has net operating loss ("NOL") carryforwards
of approximately  $16,000,000 for federal purposes and approximately  $8,000,000
for state  purposes.  The federal NOLs are  available to offset  future  taxable
income and expire at various  dates  through March 31, 2020 while the state NOLs
are available and expire at various dates through March 31, 2005.

     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.  Further,  a portion of the
NOL's may be allocable to the Toys subsidiary, the operations of which generated
a portion of the NOL's while previously  operating as a division of the Company.
The effects of such have not yet been determined.





                                       33

<PAGE>
ITEM 7. FINANCIAL STATEMENTS

         See attached Financial Statements.


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

         Not applicable.





                                       34
<PAGE>
                                                    PART III

ITEM 9.           DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Officers and Directors

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

         Name                           Age               Position

<S>                                      <C>              <C>
         Harold Rashbaum                 73               Chairman of the Board

         Richard Brady                   48               Chief Executive Officer, President, and Director

         James Frakes......              43               Chief Financial Officer, Secretary, and Director

         Moses Mika                      79               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.  Commencing  July 2000, Mr. Brady was promoted
from President of Toys to Chief Executive Officer.


                                       35
<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.

     Carolyn Morrison has acted as President and Chief Operating Officer of Toys
since June 18, 2000.  From September  1992 until  February  2000,  Ms.  Morrison
served as Senior Vice  President and Executive  Vice  President for FAO Schwarz,
Inc.  ("FAOS").  From May 1989  through July 1992,  she held  various  executive
positions with Hartmarx Corporation.  From June 1995 through May 1992 she worked
for Federated  Department  Stores Inc. She has held retail  positions  from 1976
until 1985. Ms. Morrison is a graduate of DePauw University in Indiana and holds
a B.A. degree in communications.


                                       36
<PAGE>
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.




                                       37
<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,
2000 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,  (ii) Harold Rashbaum,  (iii) UTTC, (iv) MMCI, (v) ATPLC, (vi) ABC, (vii)
EACC,  and (viii)  EACF.  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.


                                       38
<PAGE>
ITEM 10..........EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

     The following provides certain information concerning all Plan and Non-Plan
(as defined in Item 402 (a)(ii) of Regulation S-B) compensation  awarded or paid
by the Company during the years ended March 31, 2000,  1999, and 1998 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                                                      Compen-sation
<S>                         <C>       <C>       <C>           <C>             <C>              <C>            <C>       <C>
   Richard Brady
     President,  CEO,
    and Director            2000      175,000    5,000        9,147 (1)       --               --             --         --
                            1999      124,500    --           8,579 (1)       --               --             --         --
                            1998      120,000    --           8,579 (1)       25,000(2)        --             --         --

James B. Frakes
Chief Financial
Officer, Secretary, and
Director                    2000      110,000    --           3,797(3)        --               --             --         --
                            1999      101,200    --             --            --               --             --         --
                            1998        N/A
</TABLE>

     (1) Includes an automobile  allowance of $7,200 for each of 2000, 1999, and
1998, and the payment of life  insurance  premiums of $1,947 for 2000 and $1,379
for each of 1999 and 1998.

     (2) 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 sold by Mr. Brady in March 2000.

     (3) Represents lease payments on a Company car.


     During fiscal 2000, Harold Rashbaum,  the Company's  chairman of the board,
received  an  aggregate  of  $48,600  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,  both of whom  sold  their
respective  shares during the fourth  quarter of the fiscal year ended March 31,
2000.  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.

                                       39

<PAGE>
1994 Stock Option Plan

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

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

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

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

                                       40

<PAGE>
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.  During the year ended  March 31,  1999,
5,673  shares of the  Company's  Common  Stock were  contributed  to the plan by
individuals.

Toys Employee Stock Option Plan ("ESOP")

     In October 1999,  Toys adopted an Employee  Stock Option Plan,  pursuant to
which 1,000,000 shares of Common Stock have been reserved for issuance. To date,
Carolyn  Morrison has been granted options in the aggregate of 225,000,  subject
to certain vesting.




                                       41
<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, 2000 (on
which date there were  47,369,542  shares  outstanding)  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 of Common Stock
                 Of Beneficial Owner                           Beneficially Owned1                Percent of Common Stock
                                                                                                   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.
550 Rancheros Drive                                                   25,587                                 *
San Marcos, CA 92069
------------------------------------------------------- ----------------------------------- ------------------------------------
James B. Frakes 5
c/o Play Co. Toys & Entertainment Corp.
550 Rancheros Drive                                                   30,000                                 *
San Marcos, CA 92069
------------------------------------------------------- ----------------------------------- ------------------------------------
Moses Mika
c/o Play Co. Toys & Entertainment Corp.
550 Rancheros Drive                                                     --                                  --
San Marcos, CA 92069
------------------------------------------------------- ----------------------------------- ------------------------------------
Breaking Waves, Inc. 4
112 West 34th Street                                                1,270,000                              2.7%
New York, New York  10120
------------------------------------------------------- ----------------------------------- ------------------------------------
ShopNet.Com, Inc. 4
14 East 60th Street, Suite 402                                      1,270,000                              2.7%
New York, New York  10022
------------------------------------------------------- ----------------------------------- ------------------------------------
United Textiles & Toys Corp. 6
1410 Broadway, Suite 1602                                           4,384,910                              9.3%
New York, NY 10018
------------------------------------------------------- ----------------------------------- ------------------------------------
Multimedia Concepts International, Inc.7
1410 Broadway, Suite 1602                                           4,818,420                              10.1%
New York, NY 10018
------------------------------------------------------- ----------------------------------- ------------------------------------
U.S. Stores Corp. 8
1385 Broadway, Suite 814                                                --                                  --
New York, New York  10018
------------------------------------------------------- ----------------------------------- ------------------------------------
<PAGE>
(table continued from previous page)
------------------------------------------------------- ----------------------------------- ------------------------------------
                   Name and Address                      Number of Shares of Common Stock
                 of Beneficial Owner                           Beneficially Owned1                Percent of Common Stock
                                                                                                   Beneficially Owned2,3
------------------------------------------------------- ----------------------------------- ------------------------------------
American Telecom, PLC 9
8-13 Chiswell Street                                                2,400,000                              5.1%
London EC 1Y 4UP
------------------------------------------------------- ----------------------------------- ------------------------------------
ABC Fund, Inc.10
P.O. Box 47 Road Town                                               3,757,920                              7.9%
Tortola, BVI
------------------------------------------------------- ----------------------------------- ------------------------------------
Europe American Capital Foundation 11
c/o Vermogenstreuhand GMBH                                          20,539,800                             43.4%
14 Kaiser Street
Bregenz, Austria A-6900
------------------------------------------------------- ----------------------------------- ------------------------------------
Officers and Directors as a Group
(4 persons)4,5                                                        45,587                                 *
------------------------------------------------------- ----------------------------------- ------------------------------------
</TABLE>
*      Less than 1%

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

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

     (3) Does not include  41,715,060  shares of Common Stock  issuable upon the
conversion  of 6,952,510  shares of Series E Stock  outstanding,  or any portion
thereof,  except where  directly  applicable  and in accordance  with footnote 2
above.  Between March 31, 2000 and July 12, 2000, a substantial amount of Common
Stock has been issued upon conversion of the Series E Preferred Stock.

     (4) Mr.  Rashbaum,  the  Company's  chairman  of the  board,  is  also  the
president  and the sole  director  of  Breaking  Waves  which is a wholly  owned
subsidiary  of ShopNet,  a publicly  traded  company.  Mr.  Rashbaum is also the
president  and a director of  ShopNet.  By virtue of its  ownership  of Breaking
Waves,  ShopNet may be deemed the beneficial owner of the Company's Common Stock
owned by Breaking Waves.

     (5) Represents shares underlying an option.

     (6) The president of United  Textiles,  a publicly traded company,  is Ilan
Arbel who is also the  president,  chief  executive  officer,  and a director of
Multimedia,  a publicly  traded  company  which is the parent  company of United
Textiles (owning approximately 78.5% of same). Multimedia is owned approximately
67.7% by U.S. Stores Corp. ("U.S.  Stores"), a company of which Mr. Arbel is the
president and a director.  U.S.  Stores is owned 100% by American  Telecom,  PLC
("ATPLC"), a British corporation.

     (7) By virtue of its majority ownership of United Textiles, Multimedia also
may be deemed a beneficial  owner of the  Company's  Common Stock held by United
Textiles.

     (8) By virtue of its majority  ownership of Multimedia,  U.S. Stores may be
deemed a beneficial owner of the Company's Common Stock held by Multimedia.


                                       43
<PAGE>
(footnotes continued from previous page)

     (9) Represents  shares of Common Stock into which ATPLC's 400,000 shares of
Series E Stock are convertible. By virtue of its ownership of U.S. Stores, ATPLC
also may be deemed a beneficial owner of the Company's Common Stock beneficially
owned by U.S. Stores.

     (10)  Represents  shares of Common  Stock into  which its EACF's  shares of
Series E Stock are convertible.

     (11) Represents  shares of Common Stock into which its 3,423,300  shares of
Series E Stock are convertible.  By virtue of its ownership of ATPLC,  EACF also
may be deemed a beneficial  owner of the  Company's  Common  Stock  beneficially
owned by ATPLC.




                                       44
<PAGE>
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ShopNet.Com, Inc.

     In October  1999,  the Company  loaned  $50,000 to  ShopNet.  The loan bore
interest at 9% and was repaid in March 2000.

     In January  1999,  the Company  borrowed  $100,000  from  ShopNet  under an
unsecured  note, with interest at 9%. 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.  These notes
were repaid.

Breaking Waves, Inc.

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

     In October 1999, the Company loaned  $200,000 to Breaking  Waves.  The loan
bore interest at 9% and was repaid in March 2000.

     On November 24,  1998,  pursuant to a sales  agreement  entered into by and
between the Company and Breaking  Waves,  Breaking  Waves  purchased 1.4 million
unregistered shares of the Company's Common Stock in a private transaction.  The
shares  purchased by Breaking Waves represent  approximately  25.2% of the total
Common Stock currently issued and outstanding.  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 remitted in cash, and the
remaining  $365,000  consisted of product from Breaking Waves (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 Breaking Waves in
its stores on a trial basis. While the Company purchased no additional pieces of
suits  during the year ended March 31, 2000,  the Company  continues to sell the
suits at its retail locations.

     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 Breaking  Waves 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.


                                       45

<PAGE>
     On March 1, 1998,  the Company  borrowed  $250,000 from Breaking  Waves 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,  pursuant to an  agreement  with ZD - a related New York
limited  liability  company,  the  beneficiary  of  which is a  relative  of the
Company's  chairman - ZD issued a $700,000  irrevocable  standby L/C in favor of
FINOVA.  As  consideration  for its issuance of the L/C, ZD is entitled (i) to 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,  now  scheduled  to  open in the  late  fall of  1999;  Auburn  Hills,
Michigan;  and Gurnee,  Illinois) and (ii) to nominate and appoint  one-third of
the Company's  directors during the aforesaid store lease terms (but in no event
later than fiscal year end 2013).  Such stores did not  generate a profit  after
application of corporate  overhead in the  nine-month  period ended December 31,
1999,  thus,  no payments  have accrued or been made to ZD to date.  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 beneficiary  interest in the $700,000  standby letter of credit was released
by FINOVA in March 2000.

     In May 2000, the Company entered into a Termination  and Release  Agreement
with ZD, pursuant to which (i) the Company agreed to pay ZD an aggregate  amount
of $500,000  ("Termination Fee") in full satisfaction of any and all obligations
to ZD  under  the ZD  Agreement  and  (ii)  all of  ZD's  obligations  under  ZD
Agreement,  including  the  provision  of  the  L/C in  favor  of  FINOVA,  were
terminated.  By supplemental  letter, in lieu of payment of the Termination Fee,
ZD agreed to receive 854,700 shares of the Company's  Series E Preferred  Stock.
Subsequently, ZD entered into an Assignment of Termination and Release Agreement
which provided for the assignment by ZD of all its rights and obligations  under
the  Termination  and Release  Agreement to EACF.  Accordingly,  the Company has
issued the 854,700 shares of Series E Preferred Stock to EACF.

     Pursuant  to the  settlement  agreement,  the  Company  agreed to pay to ZD
$500,000 in cash. Subsequently,  ZD agreed to receive 854,700 shares of Series E
Preferred  Stock in lieu of the $500,000 cash. The Series E Preferred  Stock was
thereby valued at $0.59 per share,  which  represented a 60 percent  discount of
the market value as of the date of the  transaction.  To obtain a fair value for
the Series E Stock,  the Company  engaged an independent  appraiser to determine
the value of the Series E Stock  near the  transaction  date.  ZD  assigned  its
rights under this  agreement  to EACF and  accordingly,  the Company  issued the
854,200 shares of Series E Stock to EACF


                                       46

<PAGE>
Frampton Industries, Ltd. and Europe American Capital Foundation

     In January  1999,  the Company and  Frampton,  then an  affiliated  British
Virgin  Islands  company  under the  common  control  of EACF,  an entity  which
beneficially controls the Company, executed a letter agreement pursuant to which
Frampton 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,  which provided that Frampton shall be
provided an  investment  banking fee of 8% of the face amount of each  debenture
funded,  initially  bore a six month term and was  extended on mutual  agreement
until March 31, 2000 whereupon it terminated.

     In November  1998,  the Company  entered into  agreements  with each of (i)
Frampton  and  (ii)  EACF  to  secure  additional  financing.  Pursuant  to  the
agreements,  Frampton loaned $500,000 to the Company and EACF loaned $150,000 to
the Company, each loan in the form of a convertible,  subordinated debenture due
December 31, 1999.  The  debentures  bore a 5% interest rate and initially  were
convertible  into Series E Stock at a price of $0.10 per share at Frampton's and
EACF's  respective  options.  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 and EACF each agreed to amend such conversion price to $0.20 per
share,  which  represents  the full  market  price  on the date of the  original
transaction.  In December 1999,  Frampton assigned its debenture to EACF, and on
March 3, 2000,  EACF  advised  the  Company  of its  intention  to  convert  the
debenture effective February 29, 2000. Accordingly, in March 2000, in accordance
with the terms of the debenture, the Company issued 3,423,300 shares of Series E
Stock to EACF.

United Textiles & Toys Corp.

     The Company's former majority stockholder,  United Textiles, has guaranteed
the Company's loan from FINOVA.

     On July 27,  1998,  the Company  sold  100,000  shares of Series E Stock to
United Textiles, the Company's parent, for $100,000. In determining the purchase
price paid by United Textiles, 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,  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 - 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

                                       47
<PAGE>
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.

     The Debenture  provided for the  conversion of same, at ABC's option,  into
shares of common stock of either (i) a subsidiary  which the Company intended to
form for the purpose of acquiring  those stores  operated by the Company (or its
subsidiaries) which conduct business as "Toys  International," or (ii) any other
subsidiary  (such as Toys)  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 on the date ABC  exercised  the option with a
limitation on such share ownership being 25% of the total outstanding  shares of
said  subsidiary.  In  September  1998,  in  accordance  with  the  terms of the
Debenture,  ABC assigned its option to Tudor,  an entity of which Mr. Moses Mika
(a director of the Company) is a shareholder.

Tudor Technologies, Inc.

     On July 15, 1999,  Tudor elected to exercise its right to purchase the Toys
common stock, assigned from ABC, with the exercise price based on the book value
at the end of the most recent  fiscal  quarter,  June 30, 1999. On September 15,
1999,  the Company  provided  Tudor with a compilation of the Toys June 30, 1999
financial  statements  as the formal  basis for the exercise  price.  In October
1999, Tudor received 2,335,000 shares of Toys' common stock, representing 23.35%
of the outstanding shares of the Toys subsidiary as of October 1999, in exchange
for $723,678.

     On  October  25,  1999,  Tudor  lent the  Company  $127,922  under a Demand
Promissory  Note.  The Demand Note carried an interest rate of eight percent per
annum and was utilized as a bridge loan, which was paid off after the completion
of Toys' initial public offering.

CDMI Capital Corporation

     On July 20, 1999, the Company and Toys entered into an investment agreement
whereby  Concord (an  unaffiliated  investment  bank) and CDMI (a British Virgin
islands  corporation  of which  Moses  Mika,  a director  of the  Company,  is a
shareholder) each purchased 330,000 shares (or 3.3%) of Toys common stock for an
aggregate  of $2.8 million as a private  placement  financing to the Toys German
public offering.

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.


                                       48
<PAGE>
     During  fiscal  2000,  the Company  remitted an aggregate of $48,000 to Mr.
Rashbaum in  consideration  of the  consulting  services  he provided  therefor.
During fiscal year 1999, the Company  remitted  $33,000 to Mr.  Rashbaum for his
services. 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.

     In March 1998, each of Messrs.  Brady and Rashbaum was issued 25,000 shares
of Series E Stock as  bonuses in  recognition  of their  efforts to further  the
Company's turnaround toward profitability.  Both sold their shares in the fourth
quarter of fiscal year end 2000.

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

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
Multimedia,  an  affiliate  of the Company by virtue of its 78.5%  ownership  of
United  Textiles.  The  letter of  credit  was  terminated  in March  2000.  See
"Business of the Company - Financing Through FINOVA Capital Corporation."




                                       49
<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
                  Consolidated Balance Sheets                                           F-3
                  Consolidated Statements of Operations and Comprehensive
                      Net Income (Loss)                                                 F-5
                  Consolidated Statements of Stockholders' Equity                       F-6
                  Consolidated Statements of Cash Flows                                 F-8
                  Notes to Consolidated Financial Statements                            F-10
</TABLE>

     (b) During its last fiscal 2000 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;  with
the Company's Registration Statement on Form SB-2, Registration No. 333-87251 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).

<PAGE>
  4.5               Form of Warrant Agreement  between the Company,  the Underwriter and Continental Stock Transfer
                    & Trust Company. See (ii) above.
10.26               Lease Agreement for Store - Chula Vista. See (i) above.
10.27               Lease Agreement for Store - El Cajon. See (i) above.
10.29               Lease Agreement for Store - Simi Valley. See (i) above.
10.30               Lease Agreement for Store - Encinitas. See (i) above.
10.34               Lease Agreement for Store - Redlands. See (i) above.
10.35               Lease Agreement for Store - Rancho Cucamonga. See (i) above.
10.36               Lease Agreement for Store - Woodland Hills. See (i) above.
10.37               Lease Agreement for Warehouse - Executive Offices. See (i) above.
10.38               Lease Agreement for Store - Pasadena. See (i) above.
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).
<PAGE>
10.89               Lease Agreement for Store - Arizona Mills  (incorporated  by reference  herein to exhibit 10.89
                    of the Company's 10-QSB/A-1 for the period ended September 30, 1997).
10.90               FINOVA Loan and Security  Agreement  (incorporated  by reference herein to exhibit 10.90 of the
                    Company's 10-QSB for the period ended December 31, 1997)
10.91               Schedule to Loan and Security  Agreement  (incorporated by reference herein to exhibit 10.91 of
                    the Company's 10-QSB for the period ended Dec. 31, 1997).
10.92               Lease Agreement for Store - City Mills  (incorporated  by reference  herein to exhibit 10.92 of
                    the Company's 10-KSB for the fiscal year ended March 31, 1998).
10.93               Lease  Agreement  for  Store -  Fashion  Outlet of Las Vegas (incorporated by reference herein
                    to exhibit  10.93 of the Company's 10-KSB for the fiscal year ended March 31, 1998).
10.93(a)            Fixture Financing Agreements
10.93(b)            Letter from Ilan Arbel, dated May 15, 1998, re: funding of Company's  operations  (incorporated
                    by reference herein to exhibit  10.93(b) of the Company's  10-KSB/A-2 for the fiscal year ended
                    March 31, 1998).
10.94               Lease Agreement for  Store-Concord  Mills (Play Co. Toys)  (incorporated by reference herein to
                    exhibit 10.94 of the Company's 10-QSB for the period ended June 30, 1998).
10.95               Lease  Agreement for  Store-Katy  Mills (Play Co. Toys)  (incorporated  by reference  herein to
                    exhibit 10.95 of the Company's 10-QSB for the period ended June 30, 1998).
10.96               Lease Agreement for Store-Concord  Mills (Toy Co.) (incorporated by reference herein to exhibit
                    10.96 of the Company's 10-QSB for the period ended June 30, 1998).
10.97               Lease Agreement for Store-Katy  Mills (Toy Co.)  (incorporated  by reference  herein to exhibit
                    10.97 of the Company's 10-QSB for the period ended June 30, 1998).
10.98               Lease Agreement for Store-Ontario  Mills (Toy Co.) (incorporated by reference herein to exhibit
                    10.98 of the Company's 10-QSB for the period ended June 30, 1998).
10.99               Amendment No. 1 to Finova Loan Agreement  (incorporated by reference herein to exhibit 10.99 of
                    the Company's 10-QSB for the period ended June 30, 1998).
10.100              Amendment No. 1 to Lease Agreement for Store-Rancho  Cucamonga (Play Co. Toys) (incorporated by
                    reference herein to exhibit 10.100 of the Company's 10-QSB for the period ended June 30, 1998).
10.101              Company & Corporate Relations Group, Inc. Lead Generation/Corporate  Relations Agreement, dated
                    July 22, 1998  (incorporated  by reference herein to exhibit 10.101 of the Company's 10-QSB for
                    the period ended June 30, 1998).
10.103              Promissory Note with Amir Overseas Capital Corp.  (dated  September 18, 1998)  (incorporated by
                    reference  herein to exhibit 10.103 of the Company's  10-QSB
                    for the period ended September 30, 1998).
<PAGE>
10.104              Promissory  Note with Amir Overseas  Capital Corp.  (dated November 9, 1998)  (incorporated  by
                    reference  herein to exhibit 10.104 of the Company's  10-QSB
                    for the period ended September 30, 1998).
10.105              Lease Agreement for Store - Dallas  (incorporated  by reference herein to exhibit 10.105 of the
                    Company's 10-QSB/A-1 for the period ended September 30, 1998).
10.106              Lease Agreement for Store - Thousand Oaks  (incorporated  by reference herein to exhibit 10.106
                    of the Company's 10-QSB/A-1 for the period ended September 30, 1998).
10.107              Lease Agreement for Store - Detroit  (incorporated by reference herein to exhibit 10.107 of the
                    Company's 10-QSB/A-1 for the period ended September 30, 1998).
10.108              Lease  Agreement for Store - Chicago  (incorporated  by reference  herein to exhibit  10.108 of
                    the Company's 10-QSB/A-1 for the period ended September 30, 1998).
10.109              Lease Agreement for Store - Orange County  (incorporated  by reference herein to exhibit 10.109
                    of the Company's 10-QSB/A-1 for the period ended September 30, 1998).
10.110              Phoenix  Leasing  Incorporated  Loan and Security  Agreement and Ancillary  Documents  (October
                    1998)  (incorporated by reference herein to exhibit 10.109 of the Company's  10-QSB/A-1 for the
                    period ended September 30, 1998).
10.111              Agreement  by  and  between  the  Company  and  ZD  Group,  L.L.C.,  dated  November  11,  1998
                    (incorporated  by reference  herein to exhibit  10.111 of the  Company's  10-QSB for the period
                    ended December 31, 1998).
10.112              Intercreditor  and Subordination  Agreement by and between ZD Group,  L.L.C. and FINOVA Capital
                    Corporation,  dated February 11, 1999  (incorporated  by reference  herein to exhibit 10.112 of
                    the Company's 10-QSB for the period ended December 31, 1998).
10.111(a)*          Termination and Release  Agreement by and between ZD Group,  L.L.C. and the Company,  dated May
                    2000.
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).
<PAGE>
10.116              Fourth  (initially  filed as "Third")  Amendment to Loan and Security  Agreement by and between
                    the Company and FINOVA Capital  Corporation,  dated  February 11, 1999 (later renamed  "Fourth"
                    Amendment)  (incorporated by reference herein to exhibit 10.116 of the Company's 10-QSB for the
                    period ended December 31, 1998).
10.117              Letter of Intent by and between the Company and Frampton  Industries,  Inc.,  dated  January 4,
                    1999  (incorporated  by  reference  herein to exhibit  10.117 of the  Company's  10-QSB for the
                    period ended December 31, 1998).
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.
10.131              ABC Fund,  Inc.  Assignment of Debenture to Tudor  Technologies,  Inc. dated September 15, 1998
                    (incorporated  by reference  herein to exhibit  10.131 of the  Company's  10-QSB for the period
                    ended June 30, 1999).
10.132              Tudor  Technologies,  Inc. Election to Exercise dated July 15, 1999  (incorporated by reference
                    herein to exhibit 10.132 of the Company's 10-QSB for the period ended June 30, 1999).
10.133              Sixth  Amendment  to  Loan  and  Security  Agreement  by and between the Company and FINOVA
                    Capital  Corporation,  dated  August 1999  (incorporated  by  reference  herein to exhibit
                    10.133 of the Company's 10-QSB for the period ended June 30, 1999).
10.134              Fixture   Financing   Agreement   With   Longwater   Capital Corporation (incorporated by
                    reference  herein to exhibit 10.134 of the Company's 10-QSB for the period ended June 30, 1999).
10.135              Lease Agreement for Store - International Gateway
10.136              Investment Agreement
<PAGE>
10.137              Amendment to Lease  Agreement - Concord Mills (Toy Co.)  (incorporated  by reference  herein to
                    exhibit 10.137 of the Company's 10-QSB for the period ended September 30, 1999).
10.138              Amendment No. 2 to Chula Vista Lease Agreement
10.139              Amendment and Assignment of Warehouse Lease Agreement
10.140              Assignment of Rancho Cucamonga Lease
10.141              Lease Agreement - Arundel Mills
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 14th day of July 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                     7/14/00
Harold Rashbaum                             Board of Directors                  Date


/s/ Richard Brady                           Chief Executive Officer,            7/14/00
Richard Brady                               President, and Director             Date


/s/ James Frakes                            Chief Financial Officer,            7/14/00
James Frakes                                Secretary, and Director             Date


/s/ Moses Mika                              Director                            7/14/00
Moses Mika                                                                      Date
</TABLE>






                                       56
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                                Table of Contents

                             March 31, 2000 and 1999

<TABLE>
<CAPTION>




                                                                                                               Page

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

Consolidated Financial Statements

     Consolidated Balance Sheets                                                                               F-3

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

     Consolidated Statements of Stockholders' Equity                                                           F-6

     Consolidated Statements of Cash Flows                                                                     F-8

Notes to Consolidated Financial Statements                                                                    F-10

</TABLE>


                                      F-1
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS





Board of Directors
Play Co. Toys & Entertainment Corp.

We have audited the accompanying  consolidated balance sheets of Play Co. Toys &
Entertainment Corp. and Subsidiary as of March 31, 2000 and 1999 and the related
consolidated  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,  2000.  These  consolidated   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 13, the  Company  restated  its  previously  issued  1999
financial statements.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Play Co. Toys &
Entertainment  Corp.  and Subsidiary at March 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the two years in the period
ended  March  31,  2000  in  conformity  with  generally   accepted   accounting
principles.



                                                             HASKELL & WHITE LLP

Irvine, California
July 7, 2000


                                      F-2
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                           Consolidated Balance Sheets



                                 ASSETS (Note 4)
<TABLE>
<CAPTION>

                                                                                             March 31,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                                       Restated
                                                                                                       (Note 13)
                                                                                ---------------    ----------------

Current
<S>                                                                             <C>                <C>
     Cash and cash equivalents                                                  $     6,050,007    $        125,967
     Restricted certificates of deposit (Notes 2 and 4)                                 129,000             350,000
     Accounts receivable, net of allowance for doubtful
         accounts of $119,949 in 2000                                                   676,456              98,276
     Merchandise inventories, net of reserve for obsolete
         inventory of $250,000 in 2000                                               14,111,236          11,506,284
     Other current assets                                                                20,000           1,241,629
                                                                                ---------------    ----------------

                  Total current assets                                               20,986,699          13,322,156

Property and equipment,  net of accumulated  depreciation  and
amortization  of  $5,162,813  and   $4,058,603,   respectively
(Note 3)                                                                              7,398,621           5,348,175

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

Website development costs (Note 1)                                                    1,753,193              34,012

Deposits and other assets (Note 4)                                                    2,145,268             377,415
                                                                                ---------------    ----------------

                                                                                $    32,283,781    $     21,081,758
                                                                                ===============    ================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-3

<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                           Consolidated Balance Sheets


                      Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>

                                                                                             March 31,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                                       Restated
                                                                                                       (Note 13)
                                                                                ---------------    ----------------
Current
<S>                                                                             <C>                <C>
     Accounts payable                                                           $     6,110,161    $      5,611,442
     Accrued expenses and other liabilities                                             892,428             595,008
     Current portion of capital lease obligations (Note 5)                              386,179             227,197
     Current portion of notes payable (Note 6)                                                -           1,125,000
     Borrowings under financing agreement (Note 4)                                       47,542                   -
                                                                                ---------------    ----------------

                  Total current liabilities                                           7,436,310           7,558,647

Borrowings under financing agreement (Note 4)                                                 -           7,814,666

Capital lease obligations, net of current portion (Note 5)                              988,767             585,681

Deferred rent liability                                                                 135,607             126,769
                                                                                ---------------    ----------------

                  Total liabilities                                                   8,560,684          16,085,763
                                                                                ---------------    ----------------

Minority interest                                                                     9,943,407                   -
                                                                                ---------------    ----------------

Commitments and contingencies (Notes 4, 5, 7, 9, 10 and 14)

Stockholders' equity (Note 11)
     Series E  Convertible  Preferred  Stock,  $.01 par  value,  25,000,000  and
     10,000,000 shares authorized;  8,377,640 and 5,883,903 shares  outstanding,
     respectively,  full liquidation value of $8,377,640 and $5,883,903,  net of
     unamortized discount of $0 and $1,842,252
     for beneficial conversion feature (Notes 6 and 11)                               7,349,154           5,761,101
     Series F Convertible Preferred Stock, $.01 par value,
       5,500,000  shares  authorized,  750,000  and  none  outstanding,
     full
       liquidation value of $375,000                                                    750,000                   -
     Common stock,  $.01 par value,  160,000,000 and 51,000,000  shares
       authorized;   11,227,568  and  5,503,519   shares   outstanding,
       respectively                                                                     112,275              55,035
     Additional paid-in capital                                                      33,053,724          15,906,172
     Accumulated other comprehensive income (loss)                                     (151,531)                  -
     Accumulated deficit                                                            (27,333,932)        (16,726,313)
                                                                                ---------------    ----------------

                  Total stockholders' equity                                         13,779,690           4,995,995
                                                                                ---------------    ----------------

                                                                                $    32,283,781    $     21,081,758
                                                                                ===============    ================
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       F-4

<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

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

                                                                                       Years Ended March 31,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                                       Restated
                                                                                                       (Note 13)
                                                                                ---------------    ----------------
<S>                                                                             <C>                <C>
Net sales                                                                       $    37,252,210    $     34,371,230

Cost of sales                                                                        22,054,725          19,950,784
                                                                                ---------------    ----------------

                  Gross profit                                                       15,197,485          14,780,446
                                                                                ---------------    ----------------

Operating expenses
     Operating expenses (Notes 9 and 10)                                             21,379,825          12,727,010
     Litigation related expenses (Note 7)                                               270,206              27,659
     Depreciation and amortization                                                    1,346,120             986,342
                                                                                ---------------    ----------------

                  Total operating expenses                                           22,996,151          13,741,011
                                                                                ---------------    ----------------

Operating income (loss)                                                              (7,798,666)          1,039,435
                                                                                ---------------    ----------------

Interest income (expense)
     Interest income                                                                    276,923                   -
     Interest and finance charges                                                    (1,152,988)           (855,074)
     Amortization of debt issuance costs                                               (293,393)           (109,977)
     Effective non-cash interest for beneficial conversion feature (Note 6)            (650,000)           (650,000)
                                                                                ---------------    ----------------

                  Total interest income (expense)                                    (1,819,458)         (1,615,051)
                                                                                ---------------    ----------------

Net loss before income taxes and minority interest                                   (9,618,124)           (575,616)

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

Net loss before minority interest                                                    (9,618,124)           (577,766)

Minority interest in net loss of consolidated subsidiary                                952,757                   -
                                                                                ---------------    ----------------

Net loss before extraordinary gain                                                   (8,665,367)           (577,766)

Extraordinary gain on extinguishment of debt (Note 6)                                   650,000                   -
                                                                                ---------------    ----------------

Net loss                                                                             (8,015,367)           (577,766)

Other items of comprehensive income (loss)                                             (151,531)                  -
                                                                                ---------------    ----------------

Comprehensive net loss                                                          $    (8,166,898)   $       (577,766)
                                                                                ===============    ================

Calculation of basic and diluted loss per share:

     Net loss                                                                   $    (8,015,367)   $       (577,766)

     Effects of non-cash dividends on convertible
        preferred stock (Note 11)                                                    (2,592,252)         (1,707,725)
                                                                                ---------------    ----------------

Net loss applicable to common shares                                            $   (10,607,619)   $     (2,285,491)
                                                                                ===============    ================

Basic and diluted loss per common share and share equivalents (Note 1)          $         (1.58)   $           (.50)
                                                                                ===============    ================

Weighted average number of common shares and
     share equivalents outstanding                                                    6,719,736           4,590,642
                                                                                ===============    ================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-5

<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                 Consolidated Statements of Stockholders' Equity
                       Years Ended March 31, 2000 and 1999
                                (Notes 6 and 11)
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

<TABLE>
<CAPTION>
                 Consolidated Statements of Stockholders' Equity
                       Years Ended March 31, 2000 and 1999
                                (Notes 6 and 11)

                                               Preferred Stock              Preferred Stock                             Additional
                                                  Series E                     Series F           Common Stock           Paid-In
                                          Shares            Amount        Shares    Amount      Shares     Amount        Capital
                                       -------------    -------------     ------    -------    ---------  --------     -------------

<S>                                     <C>          <C>                  <C>       <C>        <C>        <C>          <C>
Balances, 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 Stock          1,533,333                -             -          -            -         -       1,533,333
Issuance of Series E Stock
    for cash                              100,000                -             -          -            -         -         100,000
Issuance of Series E Stock to
    consultants                                 -                -             -          -            -         -          43,750
Issuance of Series E 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                                 -        1,707,725             -          -            -         -               -
Beneficial conversion feature for
    convertible debentures                      -                -             -          -            -         -         650,000
Miscellaneous adjustments                       -                -             -          -            -         -             171
Net loss for the year                           -                -             -          -            -         -               -
                                       -------------    -------------     ------     ------    ---------    ------      ----------

Balances, March 31, 1999 (Note 13)      5,883,903        5,761,101             -          -    5,503,519    55,035      15,906,172
</TABLE>

<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                                    (cont'd)

<TABLE>
<CAPTION>
                                       Accumulated
                                          Other                            Total
                                       Comprehensive    Accumulated     Stockholders'
                                        Income(Loss)      Deficit          Equity
                                       -------------    -------------   -------------
<S>                                     <C>              <C>            <C>
Balances, March 31, 1998                $    -           $(14,440,822)  $ 2,502,507

Conversion of debt and accrued
    interest to Series E Stock               -                 -          1,533,333
Issuance of Series E Stock
    for cash                                 -                 -            100,000
Issuance of Series E Stock to
    consultants                              -                               43,750
Issuance of Series E Stock to officers       -                 -             79,000
Issuance of common stock for cash
    and inventories                          -                 -            665,000
Non-cash dividend to amortize discount
    on Series E                              -             (1,707,725)           -
Beneficial conversion feature for
    convertible debentures                   -                 -            650,000
Miscellaneous adjustments                    -                 -                171
Net loss for the year                        -               (577,766)     (577,766)
                                       -------------    -------------     -----------

Balances, March 31, 1999 (Note 13)           -            (16,726,313)    4,995,995
</TABLE>






          See accompanying notes to consolidated financial statements.

                                       F-6


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY


           Consolidated Statements of Stockholders' Equity (continued)
                       Years Ended March 31, 2000 and 1999
                                (Notes 6 and 11)


<TABLE>
<CAPTION>

                                                                                                                        Accumulated
                                            Preferred Stock      Preferred Stock                           Additional     Other
                                               Series E              Series F             Common Stock       Paid-In   Comprehensive
                                           Shares     Amount     Shares    Amount       Shares    Amount     Capital    Income(Loss)
                                         ---------  ----------   -------  ---------   ---------  --------  ----------- -------------

<S>             <C> <C>        <C>       <C>        <C>                   <C>         <C>        <C>       <C>          <C>
Balances, March 31, 1999 (Note 13)       5,883,903  $5,761,101         -  $       -   5,503,519  $ 55,035  $15,906,172  $          -

Issuance of Series F Stock                       -        -      750,000          -           -         -      645,380             -
Conversion of debt and accrued interest
    to Series E Stock                    3,423,300     684,660         -          -           -         -            -             -
Conversion of Series E Stock
    to common stock                       (929,563)   (938,859)        -          -   5,577,378    55,774      883,085             -
Issuance of subsidiary stock                     -        -            -          -           -         -   15,521,953             -
Issuance of common stock to consultant           -        -            -          -      45,333       453       55,647             -
Non-cash dividend to amortize discount
    on Series E and F Preferred Stock            -   1,842,252         -    750,000           -         -            -             -
Issuance of common stock for litigation
    settlement                                   -        -            -          -     100,000     1,000       41,500             -
Translation adjustment                           -        -            -          -           -         -            -     (151,531)
Miscellaneous adjustments                        -        -            -          -       1,338        13         (13)             -
Net loss                                         -        -            -          -           -         -            -             -
                                        ----------   ----------   -------  --------  ----------  --------  -----------    ----------

Balances, March 31, 2000                 8,377,640   $7,349,154   750,000  $750,000  11,227,568  $112,275  $33,053,724    $(151,531)
                                        ==========   ==========   =======  ========  ==========  ========  ===========    ==========

</TABLE>




<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY


           Consolidated Statements of Stockholders' Equity (continued)
                       Years Ended March 31, 2000 and 1999
                                (Notes 6 and 11)

                                    (cont'd)
<TABLE>
<CAPTION>
                                                                   Total
                                            Accumulated         Stockholders'
                                              Deficit              Equity
                                         ----------------    -----------------

<S>                                      <C>                  <C>
Balances, March 31, 1999 (Note 13)       $(16,726,313)        $ 4,995,995

Issuance of Series F Stock                          -             645,380
Conversion of debt and accrued interest
    to Series E Stock                               -             684,660
Conversion of Series E Stock
    to common stock                                 -                   -
Issuance of subsidiary stock                        -          15,521,953
Issuance of common stock to consultant              -              56,100
Non-cash dividend to amortize discount
    on Series E and F Preferred Stock      (2,592,252)                  -
Issuance of common stock for litigation
    settlement                                      -              42,500
Translation adjustment                              -            (151,531)
Miscellaneous adjustments                           -                   -
Net loss                                   (8,015,367)         (8,015,367)
                                         ---------------     -----------------

Balances, March 31, 2000                $ (27,333,932)   $     13,779,690
                                         ===============     =================

</TABLE>





          See accompanying notes to consolidated financial statements.

                                       F-7

<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                 Consolidated Statements of Cash Flows (Note 12)
<TABLE>
<CAPTION>



                                                                                       Years Ended March 31,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                                       Restated
                                                                                                       (Note 13)
                                                                                ---------------    ----------------

Cash flows from operating activities:
<S>                                                                             <C>                <C>
     Net loss                                                                   $    (8,015,367)   $       (577,766)
     Adjustments to reconcile net loss to net cash
       used for operating activities:
         Depreciation and amortization                                                1,346,120             986,342
         Minority interest in net loss of subsidiary                                   (952,757)                  -
         Effective interest for beneficial conversion feature                           650,000             650,000
         Extraordinary gain on extinguishment of debt                                  (650,000)                  -
         Stock compensation                                                                   -              79,000
         Other                                                                           13,110              (2,883)
         Amortization of debt issuance costs                                            293,393             109,977
         Deferred rent                                                                    8,838              16,418
     Increase (decrease) from changes in:
         Accounts receivable                                                           (278,180)            (19,682)
         Merchandise inventories                                                     (2,604,952)         (3,268,480)
         Other current assets                                                         1,221,629          (1,123,757)
         Deposits and other assets                                                   (2,027,235)            (54,226)
         Accounts payable                                                               498,719           2,106,212
         Accrued expenses and other liabilities                                         430,681             (98,260)
                                                                                ---------------    ----------------

                  Cash used for operating activities                                (10,066,001)         (1,197,105)
                                                                                ---------------    ----------------

Cash flows from investing activities:
     Purchase of restricted certificates of deposit                                    (129,000)           (100,000)
     Purchases of property and equipment                                             (2,341,428)         (2,699,819)
     Capital expenditures on website development costs                               (1,960,337)            (34,012)
     Sale of stock in subsidiary                                                        723,678                   -
     Issuance of notes receivable to affiliates                                        (650,000)                  -
     Repayment of notes receivable to affiliates                                        350,000                   -
                                                                                ---------------    ----------------

                  Cash used for investing activities                                 (4,007,087)         (2,833,831)
                                                                                ---------------    ----------------


</TABLE>


           See accompanying notes to consolidated financial statements.

                                       F-8


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY


           Consolidated Statements of Cash Flows (Note 12) (continued)

<TABLE>
<CAPTION>


                                                                                       Years Ended March 31,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                                       Restated
                                                                                                       (Note 13)
                                                                                ---------------    ----------------

Cash flows from financing activities:
<S>                                                                             <C>                <C>
     Borrowings under financing agreements                                      $    27,061,000    $     43,239,568
     Repayments under financing agreements                                          (34,828,124)        (40,870,100)
     Proceeds from notes payable                                                        127,922           2,700,000
     Repayment of notes payable                                                        (602,922)         (1,925,000)
     Repayments under capital leases                                                   (299,036)            (36,551)
     Proceeds from issuance of common stock                                                   -              14,000
     Proceeds from issuance of preferred stock                                          645,380             386,000
     Proceeds from issuance of common stock of subsidiary                            25,694,439                   -
     Reclassification of restricted cash                                              2,350,000                   -
                                                                                ---------------    ----------------

                  Cash provided by financing activities                              20,148,659           3,507,917
                                                                                ---------------    ----------------

Effect of exchange rate changes on cash                                                (151,531)                  -
                                                                                ---------------    ----------------

Net increase (decrease) in cash and cash equivalents                                  5,924,040            (523,019)

Cash and cash equivalents, beginning of year                                            125,967             648,986
                                                                                ---------------    ----------------

Cash and cash equivalents, end of year                                          $     6,050,007    $        125,967
                                                                                ===============    ================

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-9

<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999

1.       Summary of Accounting Policies

         Business Organization

         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
         also owns a majority interest in a subsidiary,  Toys International.COM,
         Inc.  ("Toys") that is in the same line of business,  with the addition
         of e-commerce  operations.  Prior to April 1, 1999,  Toys operated as a
         division of the Company.  Effective  April 1, 1999,  the net assets and
         liabilities of the division were  pushed-down to a separate  subsidiary
         corporation.  Toys has a wholly owned  foreign  subsidiary  in Germany,
         Toys International.de GmbH ("Toys.de").

         The Company had thirty-one  (31) retail stores located within  southern
         California,  Arizona,  Illinois,  Michigan, Nevada, North Carolina, and
         Texas at March 31, 2000, as compared to twenty-five (25) stores located
         in the same states,  except North  Carolina,  as of March 31, 1999. The
         Company's  retail  stores,  which are located in resorts,  high-traffic
         malls, and strip centers, operate under the names "Play Co.
         Toys," "Toys International," and "Toy Co."

         Revenue Recognition

         Revenues  are  recognized  at the point of sale for  retail  locations.
         Internet sales are recorded at the shipping date of the merchandise.

         Principles of Consolidation

         The accompanying consolidated financial statements include the accounts
         of the Company and its majority-owned subsidiary, Toys. All significant
         intercompany transactions and balances have been eliminated. A minority
         interest is reflected in the consolidated  balance sheet to reflect the
         minority  stockholders'  share of Toys equity and  cumulative  pro rata
         share of net income (loss).

         Nature of Relationships with Affiliates

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


                                      F-10
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



1.       Summary of Accounting Policies (continued)

         Nature of Relationships with Affiliates (continued)

                    Name of Entity and Nature of Affiliation

         United Textiles & Toys Corp.  ("UTTC"):  A company that held a majority
         of the Company's  common stock ("Common  Stock") through November 1998.
         As a result of the Company's equity transactions, and/or those of UTTC,
         UTTC's  interest in the  Company has been  reduced to 44.9% as of March
         31, 1999 and 22% as of March 31, 2000.  The Company is  influenced to a
         significant  degree  by UTTC,  as a result of  affiliate  relationships
         between  members of the management of UTTC and the Company.  Ilan Arbel
         ("Arbel") is the President of UTTC.  Arbel is the  son-in-law of Harold
         Rashbaum,  the President,  Chief Executive  Officer,  and a Director of
         ShopNet.com  ("ShopNet") and Breaking Waves, Inc. ("BWI"),  which holds
         11% of the Company's Common Stock. Moses Mika, the father of Arbel, 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. Arbel is the President and Director of MMCI.

         Europe  American Capital Foundation  ("EACF"):  A Liechtenstein  trust,
         of which Arbel is  an  agent.  EACF  is  the  majority  stockholder  of
         Frampton  Industries,  Ltd.  and  ABC  Fund,  Ltd.,  and  the  majority
         stockholder of American Telecom, PLC.

         Europe American Capital Corporation ("EACC"):  Entity of which Arbel is
         an officer.

         Frampton Industries, Ltd. ("Frampton"):  Majority-owned entity of EACF.

         American Telecom PLC:  80%-owned entity of EACF.

         ABC Fund, Ltd. ("ABC"): Majority-owned entity of EACF.

         U.S. Stores Corp.  ("USSC"):  A private company,  and parent company of
         MMCI, whose president and director is Arbel.



                                      F-11
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



1.       Summary of Accounting Policies (continued)

         Nature of Relationships with Affiliates (continued)

                    Name of Entity and Nature of Affiliation

         ZD  Group L.L.C.  ("ZD"):  ZD is a New York limited  liability  company
         whose members are related to Arbel and the Company's Chairman.

         European Ventures  Corp. ("EVC"):  Partial owner of ShopNet.com. (24%).
         Arbel is the president.

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

         Breaking Waves, Inc. ("BWI"): This entity is a wholly owned  subsidiary
         of ShopNet, and also owns 11% 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 Arbel.

         The  following  chart  depicts  the  Company's   approximate  ownership
         structure at March 31, 2000:



                       Europe American Capital Foundation
                 / /                   ||               \\
                / /                    \/                \\
Frampton Industries (>50%) American Telecom PLC (80%)    ABC Fund, Ltd. (>50%)
                                     (100%)
                                       ||
                                       \/
                                U.S. Stores Corp.
                                     (62.0%)
                                       ||
                                       \/
                     Multimedia Concepts International, Inc.
                                     (79.0%)
                                       ||
                                       \/
                          United Textiles & Toys Corp.
                                     (22.0%)
                                       ||
                                       \/
                       Play Co. Toys & Entertainment Corp.




                                      F-12
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                       Years Ended March 31, 2000 and 1999



1.       Summary of Accounting Policies (continued)

         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 $39,211 and
         $2,603,308 at March 31, 2000 and 1999,  respectively.  The Company also
         maintains a brokerage account in which it invests surplus cash in money
         market  funds.  The  account  is  insured  by the  Securities  Investor
         Protection   Corporation  up  to  $500,000.   Uninsured   balances  are
         approximately   $4,805,325   and  $0  at  March  31,   2000  and  1999,
         respectively.

         Cash and Cash Equivalents

         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."

         Merchandise Inventories

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

         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.

                                      F-13

<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



1.       Summary of Accounting Policies (continued)

         Store Opening and Closing Costs (continued)

         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.

         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.

         For the year ended March 31, 2000, 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.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



1.       Summary of Accounting Policies (continued)

         Net Loss Per Share (continued)

         The following  summarizes  the components of the basic and diluted loss
         per common share and share equivalents:
<TABLE>
<CAPTION>

                                                                                       Years Ended March 31,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                ---------------    ----------------

<S>                                                                             <C>                <C>
         Net loss before extraordinary gain                                     $       (1.29)     $         (.13)

         Extraordinary gain                                                               .10                    -
                                                                                -------------      ---------------

         Net loss                                                                       (1.19)               (.13)

         Effects of non-cash dividends on convertible
              preferred stock                                                            (.39)               (.37)
                                                                                -------------      --------------

         Net loss applicable to common shares                                   $       (1.58)     $         (.50)
                                                                                =============      ==============

</TABLE>

                                      F-15
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



1.       Summary of Accounting Policies (continued)

         Net Loss Per Share (continued)

         As  of  March  31,  2000  and  1999,  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,
                                                                                     2000                1999
                                                                                ---------------    ----------------
         Common shares issuable upon:
<S>                                     <C>                                          <C>                 <C>
         Conversion of Series E Convertible  Preferred Stock ("Series E Stock");
         8,377,640 and 5,883,903 shares  outstanding,  each convertible into six
         shares of Common Stock; all holding
         periods eliminated in February 2000.                                        50,265,840          35,303,418

         Exercise of 2,000,000 outstanding warrants to purchase 2,000,000 shares
         of  convertible  Series E Stock,  each  share  of  Series E Stock  then
         convertible into six shares of Common
         Stock; all holding periods eliminated in February 2000.                     12,000,000          12,000,000

         Conversion of  debentures  (Note 6) into  6,500,000  shares of Series E
         Stock, each share of Series E Stock then convertible into six shares of
         Common Stock,  subject to holding periods.  The debentures were amended
         in May 1999 (Note 6) reducing the number of shares of Series E Stock to
         3,250,000 related to principal.  The debentures were converted in March
         2000. The shares of Series E Stock resulting from the conversion of
         principal and interest are included above.                                           -          39,000,000

         Conversion of Series F Convertible  Preferred Stock ("Series F Stock");
         750,000 and no shares outstanding,  respectively, each convertible into
         two shares of common stock, subject to
         holding periods (Note 11).                                                   1,500,000                   -

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

                                                                                     63,795,840          86,333,418
                                                                                ===============    ================

</TABLE>

                                      F-16
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



1.       Summary of Accounting Policies (continued)

         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, 2000 and 1999,  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.

         Impairment of Long-Lived Assets

         Long-lived assets, and certain  identifiable  intangibles held and used
         by the Company,  are 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.  Through
         March 31, 2000, the Company had not identified any circumstances giving
         rise  to  impairment,  other  than  the  closing  of  retail  locations
         discussed above.


                                      F-17
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



1.       Summary of Accounting Policies (continued)

         Stock-Based Compensation

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

         Capitalization of Internet Development Cost

         In March  2000,  the  Emerging  Issues  Task  Force  ("EITF")  provided
         guidance for the accounting treatment of website development costs with
         Issue  No.  00-2.  The  consensus  of the EITF was  that  Statement  of
         Position 98-1,  "Accounting for Cost of Computer Software  Developed or
         Obtained  for  Internal  Use,"  should be applied to account  for costs
         associated  with  developing  websites.  The Company has adopted  these
         provisions and has capitalized  certain costs directly  attributable to
         developing  the software for its e-commerce  operations  under its Toys
         subsidiary.  All other costs to develop and  implement the Internet and
         e-commerce  operations  have been  expensed  as  incurred.  Capitalized
         amounts are being amortized on a straight-line basis over the estimated
         useful life, initially believed to be two years.

         The Company's initial website was under development beginning in fiscal
         1999.  For the year  ended  March 31,  1999,  the  Company  capitalized
         approximately  $35,000 in software  development  costs.  As the Company
         upgraded  its  initial  website  and began  developing  new  e-commerce
         websites,  those software  development  costs were also  capitalized in
         fiscal 2000. For the year ended March 31, 2000, the Company capitalized
         approximately  $1,960,337  in  software  development  costs,  of  which
         $207,144 was amortized during the year.


                                      F-18
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



1.       Summary of Accounting Policies (continued)

         Comprehensive Income (Loss)

         The  Company  applies  the  provision  of  SFAS  No.  130,   "Reporting
         Comprehensive  Income,"  which  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.  During the
         fiscal  year  ended  March  31,  1999,  the  Company  had no  items  of
         comprehensive  income (loss).  For the year ended March 31, 2000, items
         of  comprehensive  income  (loss)  were  related  to  foreign  currency
         translation.

         Segment Information

         The Company  adopted SFAS No. 131,  "Disclosures  About  Segments of an
         Enterprise and Related Information," in the fiscal year ended March 31,
         2000.  This  accounting  standard  changes the way the Company  reports
         information about its operating segments.

         The Company's  reportable  segments are its retail store operations and
         its Internet operations. The retail store operations are entirely based
         in the United  States,  and its Internet  operations  occur both in the
         United States and in Germany.  The Internet  operations consist of both
         business-to-consumer  and  business-to-business  (or wholesale)  sales.
         Since the  Internet  activities  effectively  began in April  1999,  no
         restatements of prior-year  presentations  are necessary to comply with
         SFAS 131.

         Information on segments  which is based on information  utilized by the
         Company's  chief  operating  decision maker,  and a  reconciliation  to
         income (loss) before income taxes, are as follows:


                                      F-19
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



1.       Summary of Accounting Policies (continued)

         Segment Information (continued)

         Fiscal year ended March 31, 2000:

<TABLE>
<CAPTION>
         Assets:
<S>                                                                    <C>
                  Retail stores                                        $      29,131,504
                  Internet                                                     3,152,277
                                                                       -----------------
                                                                       $      32,283,781

         Capital Expenditures:
                  Retail stores - Fixed Asset                          $       2,341,428
                  Internet - Website Development Costs                         1,960,337
                                                                       -----------------
                                                                       $       4,301,765

         Sales:
                  Retail stores                                        $      36,013,490
                  Internet                                                     1,238,720
                                                                       -----------------
                                                                       $      37,252,210

         Gross profit:
                  Retail stores                                        $      15,041,506
                  Internet                                                       155,979
                                                                       -----------------
                                                                       $      15,197,485

         Operating income (loss):
                  Retail stores                                        $      (5,132,710)
                  Internet                                                    (2,565,956)
                                                                       -----------------
                                                                       $      (7,698,666)
                                                                       =================

</TABLE>
                                      F-20
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



2.       Restricted Certificates of Deposit

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

         As the Company paid off the principal  balance of the FINOVA  financing
         during fiscal 2000, the $2,000,000 certificate of deposit was released.
         Separately,  the  remaining  $350,000 of  certificates  of deposit,  in
         aggregate,  were also released as the  facilities  for letter of credit
         expired. The certificates were not renewed, and the funds were used for
         current operations.

         As of March 31, 2000, the Company maintains time deposits as collateral
         to cover  trade  letters of credit,  and a standby  letter of credit as
         security for its electrical utility provider.

3.       Property and Equipment

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

                                                                                             March 31,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                ---------------    ----------------

<S>                                                                             <C>                <C>
         Furniture, fixtures and equipment                                      $     8,025,451    $      5,968,292
         Leasehold improvements                                                       3,860,829           2,763,711
         Signs                                                                          493,509             501,798
         Vehicles                                                                       104,912             104,912
         Construction in progress                                                        76,733              68,065
                                                                                ---------------    ----------------
                                                                                     12,561,434           9,406,778

         Accumulated depreciation and amortization                                   (5,162,813)         (4,058,603)
                                                                                ---------------    ----------------

                                                                                $     7,398,621    $      5,348,175
                                                                                ===============    ================

</TABLE>

                                      F-22
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



3.       Property and Equipment (continued)

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

                                                                                             March 31,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                ---------------    ----------------

<S>                                                                             <C>                <C>
         Furniture and fixtures                                                 $     1,765,270    $        849,429

         Accumulated depreciation                                                      (345,873)           (112,584)
                                                                                ---------------    ----------------

                                                                                $     1,419,397    $        736,845
                                                                                ===============    ================
</TABLE>

4.       Financing Agreements

         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 a previous credit facility with Congress
         Financing, and to pay fees related to the FINOVA Financing.

         The  FINOVA  Financing,  as amended  currently,  provides  for  maximum
         borrowings up to $5,000,000  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, 2000 and
         1999 was 9.0% and 7.75%,  respectively).  Beginning April 30, 2000, the
         availability  is to be  reduced  by $1  million at each month end until
         reduced to zero by the maturity date in August 2000.

         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
         $33,269 and $133,876, as of March 31, 2000 and 1999, respectively,  and
         is included in "Deposits and other assets" in the consolidated  balance
         sheets.  Additional costs were incurred and capitalized during the year
         relating to amendments to the  agreement  that  increased the borrowing
         capacity.


                                      F-22
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



4.       Financing Agreements (continued)

         The FINOVA Financing also includes various covenants,  two of which the
         Company violated during the year ended March 31, 1999, by exceeding the
         specified  maximum levels of capital  expenditures  and debt financing.
         The Company  received a waiver of these defaults in connection  with an
         amendment to the FINOVA  Financing,  which was executed in August 1999.
         The amendment  increased the available  borrowing level and established
         new covenants with which the Company was in compliance  during the year
         ended March 31, 2000,  and with which it expects to comply  through the
         maturity date of August 2000.

         The FINOVA  Financing also requires the  maintenance of a minimum level
         of net worth in an amount  defined  by the  agreement.  As of March 31,
         1999, the  requirement was $750,000.  The amendment  executed in August
         1999 defines the Company and Toys as  "co-borrowers,"  and requires the
         maintenance of a base net worth of  $2,900,000,  plus 60% of any equity
         raised  between June 30,1999 and March 31, 2000. At March 31, 2000, the
         required  equity base is  calculated to be  approximately  $18,300,000,
         with which the Company and Toys are in compliance,  given consideration
         to the aggregate of the consolidated  stockholders' equity and minority
         interest  since the minority  interest  represents  significant  equity
         raised between June 30, 1999 and March 31, 2000.

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

         At March 31,  1999,  the  Company  also had  $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),  which was  repaid  during the
         year ended March 31, 2000.

         As of July 7, 2000,  the  Company is seeking an  alternative  financing
         arrangement.  The Company has  received a letter of intent from a major
         finance company, which is completing its due diligence.  However, there
         can be no assurance that any such finance agreement will be consummated
         on terms acceptable to the Company, or if at all.


                                      F-23
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



5.       Capital Lease Obligations

         At March 31, 2000,  the Company was  obligated  to several  leases with
         financing  companies  that  have  been  classified  as  "capital  lease
         obligations." The amounts financed ranged from $1,000 to $232,000, with
         varying monthly  installment  payments from $26 to $5,300,  at interest
         rates  varying from 6% to 17%. The leases,  which have  maturity  dates
         ranging from 2001 to 2006, require minimum payments as follows:
<TABLE>
<CAPTION>

                  Year ending
                       March 31,
<S>                      <C>                                                                       <C>
                         2001                                                                      $        564,312
                         2002                                                                               505,123
                         2003                                                                               387,520
                         2004                                                                               242,381
                         2005                                                                                35,596
                                                                                                   ----------------

                  Total minimum lease payments                                                            1,734,932

                  Less amount representing interest                                                        (359,986)
                                                                                                   ----------------

                  Present value of minimum lease payments                                                 1,374,946

                  Less current portion                                                                     (386,179)
                                                                                                   ----------------

                  Long-term portion                                                                $        988,767
                                                                                                   ================

</TABLE>




                                      F-23
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



6.       Notes Payable
<TABLE>
<CAPTION>
                                                                                             March 31,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                ---------------    ----------------

<S>                                                                                     <C>             <C>
         Note payable to ShopNet,  an affiliate (Note 1), bearing interest at 9%
         per annum, payable in monthly installments of $25,000. Note was paid in
         April 1999.
                                                                                        $ -             75,000

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

         Note   payable   to   Full   Moon   Development,   Inc.,   an
         unaffiliated  entity,  bearing  interest  at 12%,  payable in
         monthly installments of $66,667.  Paid in June 1999.
                                                                                          -            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 Stock. Converted in
         December 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 Stock. Converted in December
         1999.                                                                            -            150,000
                                                                                ---------------    ----------------

                  Total notes payable, all current
                                                                                $         -        $ 1,125,000
</TABLE>

         The above notes may have  carried  interest  rates that  differed  from
         prevailing  interest  rates.  The  Company  did not provide for imputed
         interest on rate discounts or premiums,  as the effects were immaterial
         to the financial statements.


                                      F-25
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999


6.       Notes Payable (continued)

         The embedded  privilege to convert the  debentures to Frampton and EACF
         into Series E Stock represents a beneficial  conversion feature,  which
         is accounted for separately, in accordance with Topic D-60 of the 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 for the year ended March
         31, 1999, since the debenture allowed for immediate  conversion,  which
         was effectively offset by the dollar-for-dollar  increase in additional
         paid-in capital (Note 13).

         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 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.
         Thus, an extraordinary gain of $650,000 resulting from the modification
         of the terms was recognized in the quarter ended June 30, 1999.


                                      F-26
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



6.       Notes Payable (continued)

         However,  since the  agreement  was  revised in May 1999,  the  revised
         agreement is treated as a new debt 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 Stock.  As such,  the  modified  agreement  also
         contains  a  beneficial  conversion  feature,  the  amount  of which is
         limited to the  original  proceeds of $650,000  under Topic D-60 of the
         EITF.  Therefore,  the  Company  also  recognized  $650,000 in non-cash
         effective interest expense for the beneficial conversion feature in the
         quarter  ended  June 30,  1999.  As  previously  noted,  both  EACF and
         Frampton  elected to convert the  debentures  and the accrued  interest
         into Series E Stock.

         The above  convertible  debentures  to Frampton  and EACF,  and accrued
         interest  thereon,  were  converted into Series E Stock during the year
         ended March 31, 2000.  The conversion  price was $.20 per share;  i.e.,
         for every $100,000 converted,  the holder would receive 500,000 shares.
         Each share of Series E Stock is  convertible  into six shares of Common
         Stock (Note 11).

7.       Closure of Retail Stores - Litigation

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

         Subsequent to the filing of actions by the  landlords,  and through May
         1998,  the  Company  with  assistance  of  outside   counsel,   reached
         settlement  agreements with the various  landlords.  These  settlements
         aggregated  $469,600,  of which  $57,820  remained  outstanding  on one
         settlement  as of March 31,  1999,  and was  satisfied  during the year
         ended March 31, 2000.

         In December 1999, the Company settled its last tenant/landlord  matter.
         Pursuant to a settlement agreement,  the Company made a cash payment of
         $35,000 and agreed to pay installment  payments of $5,170.50 per month,
         aggregating  $186,138  over a 36-month  period.  The  Company  recorded
         $156,405 on a discounted basis in association with this payment stream.
         In  addition,  the  Company  agreed to issue  100,000  shares of Common
         Stock. The Company recorded $42,500 in expense related to this issuance
         based on the market  value of the  Common  Stock,  less a 15%  discount
         applied, due to the restricted nature of the shares. An additional cost
         of $36,301 was recorded for attorney fees incurred in  negotiating  the
         settlement agreement.

                                      F-27
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



7.       Closure of Retail Stores - Litigation (continued)

         The  statements  of  operations  for the years ended March 31, 2000 and
         1999 includes  $270,206 and $27,659 of  "litigation-related  expenses,"
         which comprise the settlement  costs on the  aforementioned  leases and
         legal fees associated with the negotiations.

8.       Income Taxes

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


                                                                                              March 31
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                ---------------    ----------------
         Current:
<S>                                                                             <C>                <C>
               Federal                                                          $             -    $              -
               State                                                                          -               2,150
                                                                                ---------------    ----------------
                  Total current                                                               -               2,150
                                                                                ---------------    ----------------

         Deferred:
               Federal                                                               (2,370,508)             40,424
               State                                                                   (330,811)             45,726
                                                                                ---------------    ----------------
                  Total deferred                                                     (2,701,319)             86,150
                                                                                ---------------    ----------------

                  Valuation allowance                                                 2,701,319             (86,150)
                                                                                ---------------    ----------------

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

</TABLE>



                                      F-28
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



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,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                ---------------    ----------------

<S>                                                                             <C>                <C>
         Inventories                                                            $      (369,486)   $       (329,264)
         AMT tax credits                                                                (23,260)            (23,260)
         Accrued expenses                                                                24,810              72,760
                                                                                ---------------    ----------------

                  Current portion of net deferred income
                      tax (assets) liabilities                                         (367,936)           (279,764)
                                                                                ---------------    ----------------

         Depreciation and amortization                                                 (253,552)           (211,108)
         Loss on disposal of assets                                                     170,417             127,043
         Net operating loss carryforwards                                            (6,082,466)         (3,471,124)
         Deferred rent liability                                                        (53,620)            (50,099)
         Income taxes                                                                     1,585                 794
         Amortization of stock options                                                 (200,520)           (200,520)
                                                                                ---------------    ----------------

                  Long-term portion of net deferred
                      income tax (assets) liabilities                                (6,418,156)         (3,805,014)
                                                                                ---------------    ----------------

         Total net deferred income tax (assets) liabilities                          (6,786,092)         (4,084,778)
                                                                                ---------------    ----------------

         Valuation allowance                                                          6,786,092           4,084,778
                                                                                ---------------    ----------------

                  Net deferred income taxes                                     $             -    $              -
                                                                                ===============    ================
</TABLE>


         At March  31,  2000  and  1999,  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-29
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



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,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                ---------------    ----------------

<S>                                                                                    <C>                  <C>
         Federal statutory income tax (benefit) rate                                   34.0%                34.0%
         Permanent adjustments                                                          (.2)                 4.4
         State income taxes, net of federal benefit                                       -                  1.5
         Change in valuation allowance                                                (33.8)               (38.4)
                                                                                ---------------    ----------------

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

         At  March  31,  2000,  the  Company  has  net  operating  loss  ("NOL")
         carryforwards of approximately  $16,000,000 for federal  purposes,  and
         approximately  $8,000,000  for state  purposes.  The federal  NOL's are
         available to offset future  taxable  income and expire at various dates
         through March 31, 2020,  while the state NOL's are available and expire
         at various dates through March 31, 2005.

         A portion of the NOL's described above are 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
         acquisition  of a majority  interest in the Company,  and the Company's
         November 1994  completion  of an Offering of its Common Stock.  Further
         changes in common and  preferred  stock  ownership  during  each of the
         years ended March 31, 1997 through  2000, as described in Note 11, have
         also  potentially  limited  the  use  of  NOL's.  The  effect  of  such
         limitations  has yet to be determined.  NOL's 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
         Stock (Note 13).  Further,  a portion of the NOL's may be  allocable to
         the Toys subsidiary, the operations of which generated a portion of the
         NOL's while  previously  operating  as a division of the  Company.  The
         effects of such have not yet been determined.


                                      F-30
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



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,  insurance,  and additional rents based on
         percentages  of sales in  excess  of  various  specified  retail  sales
         levels.  Many of the retail  leases  contain a provision  allowing  the
         Company to cancel the agreement if certain mutually agreed-upon minimum
         sales  thresholds  are not achieved by the end of the third year of the
         lease. The Company leases its primary office/warehouse  facility from a
         related party, as discussed in Note 10.

         During the years ended March 31,  2000 and 1999,  the Company  incurred
         total rental  expense  under all  operating  leases of  $6,158,171  and
         $4,104,073,  respectively.  Contingent  rent expense was  insignificant
         during the years ended March 31, 2000 and 1999.

         At March 31, 2000,  the aggregate  future  minimum  lease  payments due
         under these noncancelable leases are as follows:
<TABLE>
<CAPTION>

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

<S>                      <C>                                <C>                 <C>                <C>
                         2001                               $       323,484     $     4,975,164    $      5,298,648
                         2002                                       304,444           5,208,156           5,512,600
                         2003                                        27,963           5,100,892           5,128,855
                         2004                                             -           4,662,136           4,662,136
                         2005                                             -           4,210,678           4,210,678
                      Thereafter                                          -          16,187,494          16,187,494
                                                            ---------------     ---------------    ----------------

                  Total minimum lease payments              $       655,891     $    40,344,520    $     41,000,411
                                                            ===============     ===============    ================

</TABLE>

                                      F-31
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



9.       Commitments and Contingencies (continued)

         Operating Leases (continued)

         During  the year,  the  Company  executed  leases  for four (4)  stores
         located in Florida, Nevada, Tennessee, and Illinois, which have varying
         lease  expiration  dates through 2001, for which stores are expected to
         open on various  dates in fiscal  2001.  Such  leases  require  minimum
         rental payments aggregating  approximately $15,800,000 over the life of
         the leases. The aggregate minimum rental payments attributable to these
         leases are included in the schedule of future  minimum lease  payments,
         above.

         As of the date of this report,  the Company has executed leases for the
         opening of six (6) additional  stores located in California,  Colorado,
         Maryland, Minnesota, Oregon, and Texas. The stores are expected to open
         on various  dates in fiscal  2001 and 2002,  and the  leases  expire on
         various dates through  April 2011.  These leases will require  expected
         minimum rental payments aggregating  approximately $14,829,000 over the
         life of the leases. Accordingly,  existing minimum lease commitments as
         of March  31,  2000,  plus the  expected  minimum  commitments  for the
         proposed retail location would aggregate  minimum lease  commitments of
         approximately $55,829,000.

         In June 2000, Toys negotiated a lease for an approximate  50,000 square
         foot  warehouse  near  Koblenz,  Germany.  The lease  requires  monthly
         payments  of  approximately  $10,000  for the first  five  months,  and
         $12,500  for the next  thirteen  months.  After  the  initial  18-month
         period,  Toys has an option to purchase the location for  approximately
         $1,200,000 in cash; or approximately $1,400,000,  including $700,000 of
         cash and  $700,000  of Toys'  common  stock;  or renew the lease for an
         additional two years at approximately  $12,500 per month. The warehouse
         is to be used as a fulfillment center for Toys' Internet  operations in
         Germany.

         Legal Matters

         The Company is party to legal proceedings and claims which arise in the
         ordinary course of its business.  The Company believes that the outcome
         of these proceedings,  individually and in the aggregate, will not have
         a  material  adverse  effect  on its  financial  position,  results  of
         operations, or liquidity.


                                      F-32
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



9.       Commitments and Contingencies (continued)

         Dependence on Suppliers

         Approximately  40% and 41% of the Company's  inventory  purchases  were
         made directly from five (5) manufacturers for the years ended March 31,
         2000 and 1999,  respectively.  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 or
         deterioration  of a 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.

         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 with ZD

         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 with  interest at prime plus one percent.  The term loan
         was repaid during the year ended March 31, 2000 (Note 4).



                                      F-33
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



9.       Commitments and Contingencies (continued)

         Financing Agreement with ZD (continued)

         As  consideration  for its  issuance  of the L/C,  ZD was  entitled  to
         receive payments  representing  one-third (33%) of the net profits from
         three retail locations beginning in April 1999. Through March 31, 2000,
         the stores had not made a net  profit;  therefore,  the Company has not
         been liable for any payments.

         In May 2000, ZD and the Company  entered into a termination and release
         agreement  whereby  the  Company  is  no  longer  liable  to  pay  ZD a
         percentage  of the  net  profits  of  the  retail  locations.  However,
         pursuant to the termination and release  agreement,  the Company agreed
         to pay ZD $500,000 in cash. Subsequently,  ZD agreed to receive 854,700
         shares of Series E Stock in lieu of the  $500,000  cash.  The  Series E
         Stock was thereby  valued at $0.59 per share,  which  represented  a 60
         percent discount of the market value as of the date of the transaction.
         To obtain a fair value for the Series E Stock,  the Company  engaged an
         independent appraiser to determine the value of the Series E Stock near
         the  transaction  date. ZD assigned its rights under this  agreement to
         EACF and, accordingly,  the Company issued the 854,700 shares of Series
         E Stock to EACF.

         1994 Stock Option Plan

         In June 1994,  the Company  adopted the 1994 Stock Option  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 hiring 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,  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
         initially  granted  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,  due to the
         change in the subsequent market price being immaterial. As of March 31,
         200,  no  portion  of the  option  to  purchase  Common  Stock had been
         exercised.


                                      F-34
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



9.       Commitments and Contingencies (continued)

         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  to  cover  operating  expenditures.
         Historically,   the  Company  has  been  able  to  obtain  such  credit
         arrangements  and   substantially   repay  the  amounts  borrowed  from
         suppliers,  and reduce outstanding  borrowings from its lender,  during
         the fourth quarter of its fiscal year.

         Year 2000

         In  1998,  the  Company  developed  a  plan  to  upgrade  its  existing
         management  information  system  ("MIS") and  computer  hardware and to
         become year 2000 compliant.  The Company completed the hardware upgrade
         and installed a year 2000 compliant upgrade to its accounting software.
         The  Company  finished  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 have experienced any difficulties  related to
         year 2000.


                                      F-35
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



9.       Commitments and Contingencies (continued)

         Year 2000 (continued)

         Although the Company has not experienced  any problems  related to year
         2000 issues,  the possibility still exists that such problems may arise
         during the calendar  year.  However,  the effect,  if any, of year 2000
         problems on the Company's results of operations,  if the Company or its
         customers,  vendors,  or  service  providers  are not fully  compliant,
         cannot be estimated with any degree of certainty.

10.      Related-Party Transactions

         Office and Warehouse Lease

         The Company leases an office/warehouse building from Davidson,  Welker,
         & Brady, a partnership of which one of the partners,  Richard Brady, is
         the Company's chief executive officer,  president,  and a 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 Consumer
         Price Index,  adjusted every three years. The lease was amended in 1993
         to extend the term  through  April 2000  (Note 9). In April  2000,  the
         lease was assigned to, and renewed by, Toys for a two-year term with an
         option to extend the lease for an additional three years.  Monthly rent
         payments are $25,000.

         Rent expense  under this lease  totaled  $247,289 for each of the years
         ended March 31, 2000 and 1999.

         Consulting Fees to Chairman

         The  Company  made  payments  aggregating  $48,600  and  $33,000 to the
         Chairman  of  the  Board  of  Directors  of  the  Company  for  various
         consulting  services  during the years  ended  March 31, 2000 and 1999,
         respectively.



                                      F-36
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



10.      Related-Party Transactions (continued)

         Purchase Agreement with BWI

         In November  1998,  the Company  entered into an agreement with BWI, an
         entity that sells children's swimsuits and is 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 had an initial
         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.  While  the  Company  purchased  no  additional  pieces  of
         merchandise during the year ended March 31, 2000, the Company continues
         to sell the swimsuits at its retail locations.

         Placement Agent Agreement with Frampton

         In January 1999, the Company and Frampton,  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  was 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
         ended March 31, 1999,  Frampton  arranged two such  transactions  for a
         face amount of $650,000 involving itself and EACF (Note 6). The Company
         recognized $52,000 of interest expense for the investment-banking fee.

         Unsecured Promissory Notes Payable/Receivable

         On July 15, 1998, the Company borrowed  $300,000 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.  The
         Company  recognized  $7,875 in interest  expense  associated  with this
         transaction for the year ended March 31, 1999.

         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 were
         due  monthly  beginning  May 31,  1999.  The note was  repaid  upon its
         maturity  date of August 31,  1999.  The Company  recognized  $2,100 in
         interest expense for the year ended March 31, 2000.


                                      F-37
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999


10.      Related Party Transactions (continued)

         Unsecured Promissory Notes Payable/Receivable (continued)

         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 unsecured  note had an interest  rate of 15% per annum,  paid in 10
         monthly  installments of $25,000,  plus accrued  interest,  through its
         maturity date of December 31, 1998. The Company  recognized  $14,063 in
         interest expense for the year ended March 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 were due
         monthly  beginning June 30, 1999. The note was repaid upon its maturity
         date of September 30, 1999. The Company  recognized  $2,250 in interest
         expense for the year ended March 31, 2000.

         On October  25,  1999,  Tudor  Technologies,  Inc.  ("Tudor")  lent the
         Company  $127,922 under a demand  promissory note ("Tudor Demand Note")
         bearing an interest  rate of 8% per annum.  The Tudor Demand Note was a
         bridge loan  designed to be paid off after the  completion  of the then
         contemplated initial public offering of Toys and has been paid in full.
         The Company  recognized  $1,279 in interest  expense for the year ended
         March 31, 2000.

         In early  October  1999,  the  Company  loaned  $50,000 to ShopNet  and
         $200,000 to Breaking Waves,  both of which entities are affiliated with
         the Company.  The loans carry interest at 9% and were repaid during the
         year.  The Company  recorded  $2,250 and $9,150 in interest  earned for
         these loans for the year ended March 31, 2000.

         On November 29, 1999,  the Company  loaned BWI $400,000  under a demand
         promissory  note ("BWI Demand  Note")  bearing an interest rate of nine
         percent per annum.  The BWI Demand Note required a principal  repayment
         of $100,000,  plus accrued interest,  on January 30, 2000, and requires
         that the  balance  be paid on April 30,  2000.  The  January  30,  2000
         payment  was  remitted as agreed.  The  remaining  $300,000  balance is
         included in  accounts  receivable  at March 31,  2000 and was paid,  as
         agreed,  subsequent to year-end. The Company earned $10,150 in interest
         income for the year ended March 31, 2000.

         Equity Transactions

         See Note 11 for equity transactions with affiliates of the Company.


                                      F-38
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



11.      Equity Transactions

         Capital Structure

         The following  summarizes the Company's  capital  structure as of March
         31, 2000 and 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,           March 31,
                                                                                     2000                1999
                                                                                ---------------    ----------------
                Common Stock
<S>                                                                                 <C>                  <C>
                Authorized shares of $.01 par value
                common stock                                                        160,000,000          51,000,000

                Preferred Stock

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

                $.01 par convertible Series E Stock                                  25,000,000          10,000,000

                $.01 par convertible Series F Stock                                   5,500,000           5,500,000
</TABLE>

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

         Each share of Series F Stock is  convertible  into two shares of Common
         Stock,  at the option of the holder,  commencing at any time  following
         the date that 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  30-day period.  The Series F Stock
         has a liquidation  preference  of $0.50 per share,  subject only to the
         Series E Stock preference.

                                      F-39
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



11.      Equity Transactions (continued)

         Issuance of Common Stock to BWI

         In November 1998, the Company issued  1,400,000  shares of Common Stock
         to BWI, 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.

         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 shares 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.

         Conversion of Series E Stock to Common Stock

         Beginning  in January  2000,  and through the fourth  quarter,  certain
         holders of 929,563  shares of Series E Stock  elected to convert  their
         shares into Common  Stock  shares at  six-to-one.  This  resulted in an
         issuance of 5,577,378 shares of Common Stock.

         Issuance of Common Stock for Settlement

         As  described  in Note 7, the Company  reserved  for  issuance  100,000
         shares  of  Common  Stock  as  a  result  of  a  litigation  settlement
         agreement.

         Issuance of Series E Stock

         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.


                                      F-40
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



11.      Equity Transactions (continued)

         Issuance of Series E Stock (continued)

         Simultaneously,  ABC  converted  the  debenture  and $33,333 of accrued
         interest into 1,533,333 shares of Series E 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.
         However,  as part of the above-mentioned  amendment,  ABC retained 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,  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.

         In July 1999,  Tudor  elected to exercise  its right to purchase 25% of
         Toys based on Toys' book value,  which was  determined to be $2,894,711
         as of June 30, 1999,  the  agreed-upon  measurement  date.  The Company
         received $723,678 from Tudor in October 1999.

         On July 28, 1998,  the Company sold 100,000 shares of Series E 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 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.)


                                      F-41
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



11.      Equity Transactions (continued)

         Issuance of Series E Stock (continued)

         In  March  2000,  EACF,  the  holder  of  the  Company's   $650,000  of
         convertible debentures,  as amended,  elected to convert the debentures
         into Series E Stock.  Prior to this transaction,  Frampton assigned its
         convertible  debenture to EACF. The  conversion of the $650,000,  along
         with  $34,660  in  accrued  interest  at the  amended  $.20 per  share,
         resulted in 3,423,300 shares of Series E Stock being issued to EACF.

         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 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  at the  holder's  option  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 Company  filed a  Registration
         Statement on Form SB-2 with the Securities  and Exchange  Commission in
         September 1999, and amended the registration statement in May 2000. The
         registration statement has not yet been declared effective.  The shares
         of Series F Stock shall  convert  automatically,  without any action by
         the holder, upon the earlier of (i) two years from issuance, or (ii) in
         the event the closing  price per share of the Common  Stock has been at
         least $5.00 for a consecutive 30-day period.

         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 20
         months,  the  volatility  factor  utilized  for  the  model  was  155%.
         Additionally,  the model used a risk-free  interest rate of 6.0%. Since
         this  amount  was  considered  a cost of the  offering,  it was  netted
         against the proceeds in additional paid-in capital, resulting in no net
         effect on the  consolidated  statement of operations  or  stockholders'
         equity.

                                      F-42
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



11.      Equity Transactions (continued)

         Private Placement of Series F Stock (continued)

         Additionally,  the  placement  agent  received a commission  of 10%, or
         $75,000;  and 1%, or  $7,500,  to cover  administrative  expenses.  The
         Private  Placement closed on May 27, 1999,  providing net cash proceeds
         of $645,380 to the Company.

         Issuance of Options

         In February 1999, Typhoon Capital Consultants,  LLC ("Typhoon") and the
         Company entered into a consulting agreement (the "Typhoon  Agreement"),
         pursuant to which Typhoon is to provide  financial and other consulting
         services.  In exchange for Typhoon's  services,  the Typhoon  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 Typhoon  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, accordingly,  has not executed the option agreements, and does not
         expect to issue such options.  Therefore, no amounts have been recorded
         for these options as of March 31, 1999.

         In July of 1998,  Corporate  Relations  Group  ("CRG")  and the Company
         entered   into   a   five-year    consulting   agreement   to   provide
         corporate-relations services (the "CRG Agreement"). As compensation for
         their services, CRG received $100,000 in cash upon execution of the CRG
         Agreement,  and 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 CRG 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.


                                      F-43
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



11.      Equity Transactions (continued)

         Issuance of Options (continued)

         In the year ended March 31,  1999,  the Company  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 of $0.875 per share on August 27, 1998.  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
         has been 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.

         As of March 31,  2000,  the  Company  has  assessed  the value of these
         brochures and has reevaluated the useful life of the brochures.  Due to
         the  changing  focus of the  Company,  management  expects  the  future
         benefits of the brochures will not be realized  throughout the original
         five-year  amortization period.  Management estimates that an aggregate
         three-year amortization period will be an appropriate reflection of the
         time period that such  brochures will provide a benefit to the Company.
         Therefore,  the  Company  has  revised  its  amortization  period  to a
         three-year life and recorded an adjustment in the current period.  Such
         adjustment was not significant to the financial statements.

         Series E Stock Bonus

         In March 1998,  the Board of  Directors  of the Company  granted to its
         chairman,  and to the  Company's  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 the  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-44
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



11.      Equity Transactions (continued)

         Series  E  and  Series  F  Stock  Dividends  Resulting  from Beneficial
         Conversion Feature

         For the years  ended  March 31,  2000 and 1999,  the  Company  recorded
         non-cash  dividends  of  $2,592,252  and  $1,707,725  in  applying  the
         provisions of Topic No. D-60 of the EITF, as described below.

         Topic  D-60  communicated  the  views of the  staff of the SEC 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 beneficial  conversion feature is measured at the date
         of issuance of a convertible  security,  as the difference  between the
         conversion price and the market price of the underlying  security,  and
         is  limited  to  the  proceeds   received  from  the  issuance  of  the
         convertible security.

         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 20  shares  of  Common  Stock,  at the  option of the
         holder, with no holding period requirement.

         Based on the  calculations  prescribed by Topic No. D-60,  all proceeds
         initially received by the Company from the issuance of its Series E and
         Series F 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 and Series F 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,
         were initially being recorded over the required two-year holding period
         of the security.


                                      F-45
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



11.      Equity Transactions (continued)

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

         In February 2000, at a special  meeting of the Company's  stockholders,
         the holding period  requirement  for the Series E Stock was eliminated.
         As such,  the balance of the  unamortized  dividend was recorded in the
         quarter  ended  March  31,  2000,  such  that  there  are no  remaining
         dividends to be provided for Series E Stock issued through that date.

         As the Series F Stock was initially  convertible into common stock upon
         an effective registration statement, the Company provided for dividends
         to be recognized over a seven-month period through December 1999, based
         on the time  estimated  to be necessary  to effect a  registration.  As
         such,  the dividends on the 750,000  shares of Series F Stock have been
         fully recognized during the year ended March 31, 2000. As of July 2000,
         the  registration  statement  for the  Series F Stock  has not yet been
         declared effective.

         Equity Transactions of Subsidiary

         Private Sale of Equities

         On July 20, 1999,  Toys sold a 6.6% minority  interest to two investors
         for $2.8 million in gross proceeds.  The investors were an unaffiliated
         German investment-banking firm, which assisted with the public Offering
         discussed  below and  CDMI,  a  company  in which one of the  Company's
         directors,  Moses Mika,  is a  shareholder.  Each party  invested  $1.4
         million in the transaction. No gain or loss was recorded by the Company
         on this  sale of  Toys'  shares,  or the  transaction  involving  Tudor
         discussed above, in accordance with Staff Accounting Bulletin Topic 5 -
         Miscellaneous   Accounting,   "Accounting  for  Sales  of  Stock  in  a
         Subsidiary"  ("SAB  Topic 5"),  as such shares were issued as part of a
         broader corporate  reorganization;  namely, the public offering of Toys
         shares discussed below.


                                      F-46
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



11.      Equity Transactions (continued)

         Equity Transactions of Subsidiary (continued)

         Initial Public Offering

         On November 19, 1999,  Toys completed an initial  public  offering (the
         "Offering")  on the SMAX  segment of the  Frankfurt  Stock  Exchange in
         Germany.   The  Offering  was   underwritten  by  Concord  Effekten  AG
         ("Concord")  of  Frankfurt,  Germany.  In the  Offering,  Toys sold two
         million shares, or a 16.7% interest,  for net proceeds of approximately
         $22,864,000.  The  Offering  was  priced  at 13  Euros  per  share,  or
         approximately  US $13.52  per  share.  The  Company  retained  majority
         ownership  of  Toys  (58.4%)  and,  as  a  result,   will  continue  to
         consolidate Toys' operations in its financial  statements.  No gain was
         recorded on the sale of Toys'  shares in the  Offering per SAB Topic 5,
         as the  realization  of the gain is not  assured  given  the  Company's
         history of losses from  operations,  net operating loss  carryforwards,
         which are  generally  not available to offset  capital  gains,  and the
         start-up nature of the Company's Internet operations, an emerging focus
         Toys cited in its Offering  prospectus.  As such, the  transaction  was
         reflected as a capital  transaction,  which  affected the  consolidated
         paid-in capital of the Company.

         Stock Options

         In July 1999,  Toys granted  options to purchase an  aggregate  250,000
         shares of common  stock to  certain  of its  directors,  officers,  and
         advisors.  The options bear an exercise price of $4.24 per share, and a
         term of three  years,  and are not  exercisable  prior to November  19,
         2000.  As the Company and Toys  utilize  the  provisions  of APB 25 for
         stock  options  granted  to  employees,  no  compensation  expense  was
         recorded  for  224,000  of these  options,  as the  exercise  price was
         estimated by management to approximate the fair value given the private
         sales of Toys shares immediately preceding such grants. However, 26,000
         of the options were granted to a legal advisor for services  related to
         the proposed  Offering,  and were valued by management at the estimated
         fair value of approximately  $118,000,  which amount was netted against
         the proceeds of the Offering credited to additional paid-in capital. As
         such,  the  compensation  recorded for such shares had no net effect on
         Toys' or the Company's equity or results of operations.


                                      F-47
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



11.      Equity Transactions (continued)

         Stock Options (continued)

         Had compensation expense for the stock options been recognized based on
         the fair  value on the grant  date,  under the  methodology  prescribed
         under FASB 123, the Company's net loss  applicable to common shares and
         loss per common share would have been  $11,225,619 and $1.67 per share,
         respectively,  for the year ended March 31, 2000, based on a fair value
         of $2.76 per option.  The fair value of the options  granted,  which is
         amortized to expense over the option vesting period in determining  the
         pro  forma   impact,   is   estimated  on  the  grant  date  using  the
         Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>

<S>                                                                                    <C>
                  Expected life of option                                              3 years
                  Risk-free interest rate                                              6.5%
                  Expected volatility of Play Co. stock                              100.0%
                  Expected dividend yield                                              0.0%
</TABLE>

         Options  granted  prior to fiscal 2000 are  immaterial  for  disclosure
         purposes.

         Concurrently,  Toys granted an additional  450,000 incentive options to
         acquire shares of Toys common stock, which have an exercise period over
         nine years at an exercise price of three Euros per share.  The exercise
         price in US dollars will depend on the  conversion  rate at the time in
         the future when the options are exercised. The exercise price was $3.06
         as of  September  22,  1999,  the date of the  option  grant.  As these
         options  were  granted  subject  to  Toys  meeting  future  performance
         criteria,  no compensation expense has been recorded currently,  as the
         compensation has not yet been earned.  If Toys meets these  performance
         targets in the future,  the officers will  therefore be entitled to the
         options,  and Toys will record compensation  expense on the measurement
         date.  As Toys  utilizes the  provisions  under APB 25, a  compensation
         expense for each option will be recognized for the  difference  between
         the quoted market price and the exercise price on the measurement date.


                                      F-48
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



11.      Equity Transactions (continued)

         Stock Options (continued)

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

                                                                                                        Total
                                             Retail Profit     Retail Profit     Retail Profit         Options
                  Name                        $5 million        $6.5 million      $9 million          Achievable
                                          ------------------  ---------------    --------------  ------------------

<S>                                                   <C>              <C>               <C>                <C>
         Richard Brady                                75,000           75,000            75,000             225,000
         Harold Rashbaum                              45,000           45,000            45,000             135,000
         James Frakes                                 30,000           30,000            30,000              90,000
                                          ------------------  ---------------   ---------------  ------------------
                                                     150,000          150,000           150,000             450,000
                                          ==================  ===============   ===============  ==================
</TABLE>


     A summary of the Company's stock option activity and related information is
as follows:
<TABLE>
<CAPTION>

                                                         Play Co.                             Toys
                                          -----------------------------------    ----------------------------------
                                                                  Weighted                             Weighted
                                                Options            Average          Options             Average
                                          ------------------  ---------------    --------------  ------------------

<S>                                       <C>                 <C>                 <C>             <C>
         Outstanding -
           March 31,1999
           beginning of year                         30,000  $         1.15                  -  $               -

         Granted                                           -              -            700,000               3.48

         Exercised                                         -              -                  -                  -

         Forfeited/Cancelled                               -              -                  -                  -
                                          ------------------  ---------------   ---------------  -----------------

         Outstanding -
           March 31, 2000
           end of year                                30,000  $         1.15            700,000  $           3.48
                                          ==================  ==============    ===============  ================
</TABLE>


                                      F-49
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



11.      Equity Transactions (continued)

         Stock Options (continued)

         The weighted average remaining  contractual life of options as of March
         31, 2000 is as follows:
<TABLE>
<CAPTION>

                            Range of                      Wghtd Avg      Wghtd Avg                      Wghtd Avg
                            Exercise      # of Options     Contract       Exercise         Options       Exercise
                             Prices        Outstanding       Life           Price        Exercisable       Price
                           -----------    ------------    -----------    -----------    ------------    -----------

<S>                        <C>                 <C>                  <C>  <C>                 <C>        <C>
         Play Co.          $      1.15         30,000               5    $      1.15         20,000     $      1.15
                                          ===========                    ===========    ===========     ===========

         Toys              $      3.06        450,000               9    $      3.06              -     $      3.06
                                  4.24        250,000               3           4.24              -            4.24
                                          -----------                                   -----------

                                              700,000                                             -
                                          ===========                                   ===========
</TABLE>

         Warrants for Services

         In November 1999, in exchange for services  rendered in connection with
         Toys'  Offering,  Toys issued a warrant to Value  Management & Research
         (Espana),  S.A.  ("VMR  Spain"),  whereby VMR Spain may  purchase up to
         44,250 shares of Toys' common stock.  VMR Spain may exercise its rights
         at any time, in whole or in part,  during the period commencing May 23,
         2000 and ending May 19, 2001.  The purchase price under this warrant is
         8.50 Euros per share of Toys' common  stock,  which is  proportionately
         reduced if Toys should  subdivide its  outstanding  common stock into a
         greater  number of common  shares or  declare a  dividend,  or make any
         other  distribution  of common  stock of the Company  payable in common
         stock. Conversely,  the purchase price is proportionately  increased if
         the common  stock  outstanding  is  combined  into a smaller  number of
         common shares.

         Toys'   management   valued  the  warrants  granted  to  VMR  Spain  at
         approximately $598,000,  based on the commission rate stipulated in the
         service  agreement  and the  portion  of  shares  sold in the  Offering
         resulting  from  introductions  made by VMR Spain.  As the $598,000 was
         netted  against the proceeds of the Offering and credited to additional
         paid-in  capital,  the  compensation  had no net effect on Toys' or the
         Company's  equity or  results  of  operations.  No  warrants  have been
         exercised as of July 7, 2000.


                                      F-51
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



11.      Equity Transactions (continued)

         Warrants for Services (continued)

         Also in November  1999,  in exchange for services to be rendered,  Toys
         issued a warrant to Value  Relations  IR  Services  GmbH & Co. KG ("VMR
         Germany"),  whereby VMR Germany  may  purchase up to 200,000  shares of
         Toys' common stock. VMR Germany may exercise its rights, in whole or in
         part, at any time during the period  commencing June 1, 2000 and ending
         May 31,  2001.  The  purchase  price of this warrant is the same as the
         above-described  warrant.  The warrant is exercisable  in  40,000-share
         increments,  based  upon  the bid  price  of the  common  stock  on the
         Frankfurt Stock Exchange,  as defined within the warrant agreement.  No
         warrants have been exercised through July 7, 2000.

         The  warrants  granted to VMR Germany are in exchange for service to be
         rendered for marketing and public relations.  As of July 7, 2000, Toys'
         management  is not  aware of any  services  performed  to date,  and no
         compensation has been earned by VMR Germany and, accordingly,  Toys has
         recorded no compensation.  If and when services are performed,  and the
         related  compensation  is  earned,  the fair value of the  warrants  or
         services  provided  will be  determined  and recorded at that time.  No
         warrants have been exercised as of July 7, 2000.

12.      Supplemental Cash Flow Information

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

                                                                                       Years Ended March 31,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                ---------------    ----------------

<S>                                                                             <C>                <C>
         Interest paid                                                          $     1,152,988    $        809,601
                                                                                ===============    ================

         Income taxes                                                           $         5,000    $            850
                                                                                ===============    ================
</TABLE>


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

         The Company  acquired  leasehold  improvements and equipment during the
         year ended March 31,  2000 and 1999,  by entering  into  capital  lease
         obligations for $861,104 and $849,429, respectively (Notes 3 and 5).

         Convertible  debt and accrued  interest of $684,660 and  $1,533,333 was
         converted into 3,423,300 and 1,533,333  shares of Series E Stock during
         the year ended March 31, 2000 and 1999, respectively (Note 11).


                                      F-52

<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999


12.      Supplemental Cash Flow Information (continued)

         Common stock 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, 2000 and 1999,  non-cash  dividends  of
         $2,592,252 and $1,707,725,  respectively, were recorded to amortize the
         discount  recorded  on Series E and Series F Stock  resulting  from the
         beneficial conversion features (Note 11).

         During the year  ended  March 31,  2000,  shares of Series E Stock were
         converted  into  Common  Stock,  which  was  reflected  as  a  $938,859
         reclassification from Series E Stock to Common Stock (Note 11).

         Common Stock was issued to satisfy two  obligations  of the Company for
         an aggregate value $98,600 during the year ended March 31, 2000.

13.      Restatement of Amounts Previously Reported

         The March 31, 1999 financial statements contain certain restatements of
         amounts  previously  reported.  These restatements have previously been
         reflected in an amendment to the Company's Annual Report on Form 10-KSB
         for the year ended March 31, 1999.

         The restatements  were the result of inquiries made by the staff of 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
         "Consolidated  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.


                                      F-53
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



Restatement of Amounts Previously Reported (continued)

         The  revision  for the  Series E 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 Stock at a  discount  from the
         trading price of the Series E Stock.
         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 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
</TABLE>

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

<S>                                                                                      <C>
1.       Increase in operating expenses from recognition of compensation expense
         from issuance of Series E 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-54
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



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 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-55
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                 AND SUBSIDIARY

                   Notes To Consolidated Financial Statements
                      Years Ended March 31, 2000 and 1999



14.      Subsequent Events

         Software Development for Toys Subsidiary

         In the fiscal year ended March 31, 2000, Toys entered into two purchase
         orders  with a European  software  developer  to create the  underlying
         concept and the initial sample of a potential  next-generation Internet
         portal for the Company.  Cash payments  under the purchase  orders were
         made as the software development  unfolded. In May 2000, as part of the
         consideration  of  $100,000  for  this  first  phase  of  the  software
         development,  Toys issued  11,430  shares of Toys'  common stock to the
         software  developer.  These shares were valued at $100,000 based on the
         fair  value of  consulting  services  received  by Toys.  The number of
         shares was determined based on the US $9.00 market value for the shares
         on the date of the agreement to issue the shares.  Such amount has been
         included in the capitalized costs for website development.

         In June 2000, Toys entered into a memorandum of understanding  with the
         software  developer  for  ongoing  development  of the  next-generation
         concept.  This memorandum  summarizes  several key points of an ongoing
         business  relationship:  (a) the intellectual property belongs to Toys;
         (b) the software  developer will invoice Toys as expenses are incurred,
         based on budgets that must be  preapproved by Toys; (c) Toys will grant
         options  for  200,000  shares  of Toys'  common  stock  that  will vest
         pro-ratably  over three  years,  10 Euros per share,  with an  exercise
         price.

         President and Chief Operating Officer of Toys Subsidiary

         On  June  18,  2000,   Toys  hired  a new president and chief operating
         officer  under a  three-year   employment  agreement  (the  "Employment
         Agreement").  The Employment   Agreement calls for a stock option grant
         of 225,000 of Toys' common   stock with an exercise  price of $9.00 (as
         calculated  at 85% of the fair  market  value of Toys'  common stock on
         the  date of the  Employment   Agreement).  The  option  grant is for a
         10-year  period  and  vests  as   follows:  (a) on or after  the  first
         anniversary  date,  up to 50,000   shares;  (b) on or after the  second
         anniversary  date, an additional   75,000  shares;  (c) on or after the
         third  anniversary date, an additional   100,000 shares.  The intrinsic
         value of the option will be  recognized  as  compensation  expense over
         the required three-year service period.



                                      F-56