UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 1O-Q

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

                  For the quarterly period ended August 1,
1998

                                       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: 1-10089

                           FAMILY BARGAIN CORPORATION
             (Exact name of registrant as specified in its charter)

         Delaware                                       51-0299573
         (State or other jurisdiction of             (I.R.S. Employer
         incorporation or organization)             Identification No.)


         4000 Ruffin Road, San Diego, CA                92123-1866
         (Address of principal executive office)        (Zip Code)

                                 (619) 627-1800
              (Registrant's telephone number, including area code)


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

The number of shares  outstanding  of the  registrant's  of common stock,  as of
August 1, 1998, was 5,004,122 shares.




<PAGE>  2


                           FAMILY BARGAIN CORPORATION

             FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 1, 1998

                                      INDEX


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

        Family Bargain Corporation and Subsidiaries Consolidated Balance
        Sheets as of August 1, 1998 (Unaudited) and January 31, 1998........F-1

        Family Bargain Corporation and Subsidiaries Consolidated Statements
        of Operations (Unaudited) for the 13 weeks ended August 1, 1998 and
        August 2, 1997......................................................F-3

        Family Bargain Corporation and Subsidiaries Consolidated Statements
        of Operations (Unaudited) for the 26 weeks ended August 1, 1998 and
        August 2, 1997......................................................F-4

        Family  Bargain  Corporation  and  Subsidiaries   Consolidated
        Statements  of Cash Flows  (Unaudited)  for the 26 weeks ended
        August 1, 1998 and August 2, 1997...................................F-5

        Family Bargain Corporation and Subsidiaries Notes to Consolidated
        Financial Statements (Unaudited)....................................F-7

Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations.................................................3

PART II.OTHER INFORMATION

Item 1. Legal Proceedings.....................................................8
Item 2. Changes in Securities.................................................8
Item 3. Defaults Upon Senior Securities.......................................8
Item 4. Submission of Matters to a Vote of Security Holders...................8
Item 5. Other Information.....................................................8
Item 6. Exhibits and Reports on Form 8-K......................................8
        Signatures............................................................9
        Exhibit Index........................................................10


<PAGE>  F-1




                                     PART I

Item 1.   Financial Statements

                   FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                        (in thousands, except share data)


                                                       August 1,     January 31,
                                                          1998          1998
                                                      (Unaudited)
                  Assets

Current assets:
         Cash                                         $   4,483       $   3,167
         Merchandise inventories                         40,864          29,820
         Prepaid expenses and other assets                2,966             727
                                                      ----------      ----------


                  Total current assets                   48,313          33,714

Leasehold improvements and equipment, net                15,578          15,066

Other assets, net                                         2,819           3,326

Excess of cost over net assets acquired,
 less accumulated amortization of
 $7,736 and $6,935 at August 1, 1998 and
 January 31, 1998, respectively                          31,910          32,711
                                                      ----------      ----------

                  Total assets                         $ 98,620        $ 84,817
                                                      ==========      ==========

                                   (continued)
















                                       F-1



<PAGE>  F-2


                   FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                        (in thousands, except share data)
                                   (continued)

                                                       August 1,     January 31,
                                                         1998           1998
                                                      (Unaudited)
Liabilities and Stockholders' Equity

Current liabilities:
       Current maturities of long-term debt
              and capital lease obligations          $   4,440        $   4,873 
       Accounts payable                                 24,358           19,003
       Accrued expenses                                 13,263           12,587
                                                     ----------       ----------
              Total current liabilities                 42,241           36,463

Revolving credit notes                                  26,991           12,657
Long-term debt, less current maturities                 14,648           12,922
Capital lease and other long-term obligations            2,905            3,306
Deferred rent                                            2,172            2,251
                                                     ----------       ----------
              Total liabilities                         88,957           67,599

Stockholders' equity:

   Series A convertible preferred stock,
     $.01 par value, 4,500,000 shares authorized,
     3,638,690 shares issued and outstanding
     (aggregate liquidation preference of $36,387)
     at August 1, 1998 and January 31, 1998                 36               36

   Series B junior convertible, exchangeable
     preferred stock, $.01 par value,
     40,000 shares authorized,
     35,360 and 33,714 shares issued and outstanding
     (aggregate liquidation preference of $35,360 and
     $33,714) at August 1, 1998 and January 31, 1998,
          respectively                                       -                -

   Common stock, $.01 par value, 80,000,000
          shares authorized, 5,004,122 and 4,929,122
          shares issued and outstanding at August 1,
          1998 and January 31, 1998, respectively           50               49

Additional paid-in capital                              85,532           83,312
Accumulated deficit                                    (75,955)         (66,179)
                                                     ----------       ----------

              Total stockholders' equity                 9,663           17,218
                                                     ----------       ----------

Total liabilities and stockholders' equity            $ 98,620         $ 84,817
                                                     ==========       ==========

          See accompanying notes to consolidated financial statements.

                                       F-2


<PAGE>  F-3


                   FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Operations
                      (in thousands, except per share data)
                                   (Unaudited)

                                                             13 Weeks Ended
                                                         -----------------------
                                                         August 1,     August 2,
                                                           1998          1997
                                                      

Net sales                                              $  73,455      $  69,375
Cost of sales                                             48,492         48,155
                                                       ----------     ----------
       Gross profit                                       24,963         21,220

Selling and administrative expenses                       24,332         21,781
Amortization of intangibles                                  590            530
Special charges                                                -          1,750
                                                       ----------     ----------

       Operating income                                       41         (2,841)

Other income (expense):
       Interest expense                                   (1,093)        (1,329)
                                                       ----------     ----------

Loss before income taxes                                  (1,052)        (4,170)

Income taxes                                                 (25)             -
                                                       ----------     ----------

       Loss before dividends                              (1,077)        (4,170)

Preferred stock dividends - Series A                        (864)          (864)

Preferred stock dividends - Series B                        (728)          (635)
                                                       ----------     ----------

       Net loss available to common stockholders       $  (2,669)     $  (5,669)
                                                       ==========     ==========

Basic and diluted earnings per share:
Net loss per common share                              $   (0.53)     $   (1.15)

Weighted average common shares outstanding                 5,004          4,929




          See accompanying notes to consolidated financial statements.

                                       F-3

<PAGE>  F-4



                   FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Operations
                      (in thousands, except per share data)
                                   (Unaudited)

                                                            26 Weeks Ended
                                                       -------------------------
                                                        August 1,      August 2,
                                                          1998           1997

Net sales                                              $ 139,951      $ 129,811
Cost of sales                                             93,142         89,586

       Gross profit                                       46,809         40,225

Selling and administrative expenses                       45,526         40,339
Amortization of intangibles                                1,179          1,060
Special charges                                            1,500          1,750
                                                       ----------     ----------

       Operating income                                   (1,396)        (2,924)

Other income (expense):
       Interest expense                                   (2,372)        (2,606)
                                                       ----------     ----------

Loss before income taxes and
       extraordinary item                                 (3,768)        (5,530)

Income taxes                                                 (99)             -
                                                       ----------     ----------

       Loss before extraordinary item                     (3,867)        (5,530)

Extraordinary item - debt extinguishment
       (less applicable income taxes of $0)               (2,750)             -
                                                       ----------     ----------

       Loss before dividends                              (6,617)        (5,530)

Preferred stock dividends - Series A                      (1,728)        (1,728)

Preferred stock dividends - Series B                      (1,431)        (1,292)
                                                       ----------     ----------

       Net loss available to common stockholders       $  (9,776)     $  (8,550)
                                                       ==========     ==========

Basic and diluted earnings per share:
Loss before extraordinary item                         $   (1.42)     $   (1.75)
Extraordinary item                                     $   (0.55)     $       -
Net loss per common share                              $   (1.97)     $   (1.75)

Weighted average common shares outstanding                 4,967          4,873




          See accompanying notes to consolidated financial statements.

                                       F-4

<PAGE>  F-5



                   FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                 (in thousands)
                                   (Unaudited)

                                                             26 Weeks Ended
                                                         -----------------------
                                                         August 1,     August 2,
                                                           1998          1997
 Cash Flows from Operating Activities:
    Loss before dividends                               $  (6,617)    $  (5,530)
    Adjustments to reconcile net loss to net
        cash used in operating activities:
           Depreciation and amortization                    3,494         2,479
           Debt discount amortization                         881         1,050
           Extraordinary loss on debt extinguishment        2,750             -
           Loss on disposal of equipment                      148             -
           Deferred rent expense                              (79)          235
           Changes in operating assets and liabilities:
                Merchandise inventories                   (11,044)      (10,123)
                Prepaid expenses                           (2,178)         (601)
                Accounts payable and accrued expenses       4,949         5,590
                Other                                         408           954
                                                        ----------    ----------

Net cash used in operating activities                      (7,288)       (5,946)
                                                        ----------    ----------

Cash Flows from Investing Activities:
   Purchase of leasehold improvements
      and equipment                                        (1,979)       (2,952)
                                                        ----------    ----------
Net cash used in investing activities                      (1,979)       (2,952)
                                                        ----------    ----------

Cash Flows from Financing Activities:
   Borrowings on revolving credit notes                   163,854       161,219
   Payments on revolving credit notes                    (149,520)     (154,931)
   Payments on notes payable and capital
      lease obligations                                    (1,977)       (3,158)
   Payment of deferred debt issuance costs                    (46)         (113)
   Net proceeds from issuance of preferred
      stock                                                     -         9,596
   Payment of dividends on Series A preferred stock        (1,728)       (1,728)
                                                        ----------    ----------

Net cash provided by financing activities                  10,583        10,885
                                                        ----------    ----------

                                   (continued)


                                       F-5

<PAGE>  F-6


                   FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                 (in thousands)
                                   (Continued)

                                                             26 Weeks Ended
                                                         -----------------------
                                                         August 1,     August 2,
                                                           1998          1997
                                                        ----------    ----------

Net increase in cash                                     $  1,316       $ 1,987

Cash at the beginning of the period                         3,167         3,261
                                                        ----------    ----------

Cash at the end of the period                            $  4,883       $ 5,248
                                                        ==========    ==========
Supplemental disclosure of cash flow information:

   Cash paid during the period for interest               $ 1,243       $ 1,453

   Cash paid during the period for income taxes           $    74       $     -

Supplemental disclosure of non-cash investing activities:

   Capital lease purchases                                $   882       $   649

Supplemental disclosure of non-cash financing activities:

   Series B preferred stock dividends                     $ 1,431       $ 1,292


          See accompanying notes to consolidated financial statements.





















                                       F-6

<PAGE>  F-7

                   FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

(1)      Unaudited Interim Financial Statements

         The accompanying  unaudited  consolidated  financial  statements do not
         include all of the  information  and  footnotes  required by  generally
         accepted  accounting  principles  for annual  financial  statements and
         should be read in  conjunction  with the financial  statements  for the
         fiscal  year ended  January 31,  1998  included  in the Family  Bargain
         Corporation  and  Subsidiaries'  (the  Company) Form 10-K and 10-K/A as
         filed  with the  Securities  and  Exchange  Commission.  The  unaudited
         consolidated  financial  statements  include  the  accounts  of  Family
         Bargain Corporation and its subsidiaries.  All significant intercompany
         transactions have been eliminated in consolidation.

         In the opinion of  management,  the  unaudited  consolidated  financial
         statements  as of and for the 13 and 26 weeks ended  August 1, 1998 and
         August 2, 1997 reflect all adjustments  (which include normal recurring
         adjustments)  necessary  to  present  fairly  the  financial  position,
         results of operations and cash flows for the periods presented.  Due to
         the  seasonal  nature  of  the  Company's  business,   the  results  of
         operations for the interim period may not  necessarily be indicative of
         the results of operations for a full year.

(2)      Long-term Debt and Revolving Credit Notes

         On July 31, 1998 the  company's  two  operating  subsidiaries,  General
         Textiles  and  Factory  2-U,  Inc.,  merged  to  form  a  new  Delaware
         corporation named General Textiles, Inc. As a result of the merger, the
         Company  and  its  lender  have  agreed  to  amend  certain  terms  and
         conditions of its revolving  credit  facility.  Under the amended terms
         and conditions, covenants will be reset to be reflective of anticipated
         earnings, capital expenditures and cash flow over the remaining term of
         the revolving credit facility for General Textiles, Inc.

         General  Textiles, Inc. finances its operations through credit provided
         by suppliers, amounts borrowed under its $50.0 million revolving credit
         facility and internally generated cash flow.

         General Textiles, Inc. may borrow up to 65% of eligible inventory, as
         defined, subject to a maximum of $50.0  million of amounts outstanding
         at any time.  As of August 1, 1998,  General Textiles, Inc. had $27.0
         million outstanding and $8.1 million available to borrow under its
         revolving credit facility.

         Effective  April  30,  1998 the  Company  entered  into  agreements  to
         exchange the subordinated and junior  subordinated notes for new notes.
         The new  notes  removed  an  estimated  excess  cash  flow  calculation
         previously  used to  determine  the  timing  and  amount  of  payments.
         Further,  the new notes  provide a fixed  schedule  for debt  principal
         payments.  In  accordance  with EITF 96-19,  the Company  recorded  the
         exchange of the subordinated  debt agreements as an  extinguishment  of
         debt, and in connection therewith,  recorded an extraordinary loss, net
         of taxes,  of $2.75  million.  This loss  represents  increases  in the
         present  value of the  principal  amount  of debt and fees  paid to the
         lenders.  The fees  included  the  issuance of 75,000  shares of common
         stock and warrants to purchase  274,418  shares of common  stock,  both
         stated at fair market value.

<PAGE>  F-8

         The new subordinated notes total $3.3 million and bear interest at 9.2%
         per annum. Principal payments in the amount of $0.2 million are payable
         on December 31, 1999 and  December  31, 2000,  with $0.4 million due on
         December  31, 2001 and  December  31, 2002 and a final  payment May 28,
         2003 for $2.1 million.  If any principal balance remains outstanding on
         April 1, 1999,  the  interest  rate will  increase  on such  date,  and
         thereafter on the first day of each successive  calendar quarter by one
         percent (1%) provided, however, that the interest rate shall not exceed
         13.2% per annum.

         The new junior  subordinated  notes total $17.3 million with  principal
         payments at December 31, 1999 and  December 31, 2000 for $1.0  million,
         December 31, 2001 and December 31, 2002 for $2.0 million,  December 31,
         2003 and December 31, 2004 for $3.0 million and a final payment May 28,
         2005 for $5.335 million.


(3)      Earnings per Share

         In February  1997,  the  Financial  Accounting  Standards  Board issued
         Statement of Financial  Accounting Standard No. 128, Earnings per Share
         (SFAS No. 128),  which the Company adopted as of January 31, 1998. This
         Statement sets forth the basis for the computation of "basic"  earnings
         per share and "diluted"  earnings per share from the previous method of
         computing both "primary" and "fully diluted" earnings per share.  The
         statement requires retroactive adoption for all prior periods
         presented.

         The  preferred  stock  and  other  common  stock  equivalents  were not
         considered as converted because the calculation was anti-dilutive.

(4)      Provision for Income Taxes

         An amount for federal  alternate  minimum taxes was recorded for the 26
         weeks ended  August 1, 1998.  No other  provision  for income taxes has
         been  reflected  in  the   accompanying   consolidated   statements  of
         operations  for the 26 weeks  ended  August 1, 1998 and  August 2, 1997
         since the Company  generated tax losses during these periods.  Although
         such losses  would  increase the  Company's  net  operating  loss carry
         forwards  (NOLs),  realization  of such NOLs is less than likely due to
         limitations on utilization of NOLs and the Company's history of losses.
         As a result, a full valuation allowance has been recognized against the
         net deferred tax assets  arising from the increased NOLs and no benefit
         for  income  taxes  is  reflected  in  the  accompanying   consolidated
         statements of operations.

<PAGE>  F-9


(5)      Dividends

         The Series B Junior Convertible,  Exchangeable  Preferred Stock pays no
         dividend through  December 31, 2001.  Beginning in 2002, the Company is
         obligated to pay a dividend to holders of the Series B Preferred  Stock
         in the amount of $60 per share  subject to  increases  of $20 per share
         every year thereafter until 2005 up to a maximum of $120 per share. The
         Company imputes dividends on the Series B Preferred Stock utilizing the
         effective  interest method to provide a level yield until the permanent
         dividend of $120 per share is payable.  The accreted dividends increase
         the carrying value of the additional  paid in capital  attributable  to
         the Series B Preferred Stock.

(6)      In June 1997, the Financial Accounting Standards Board issued SFAS No.
         130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures
         about Segments of an Enterprise and Related Information."  SFAS No. 130
         establishes standards for reporting and display of comprehensive income
         and its components in a full set of general purpose financial
         statements.  SFAS No. 131 requires reporting certain information about
         operating segments in condensed financial statements of interim periods
         issued to shareholders.  Effective February 1, 1998 the Company adopted
         SFAS No. 130 and SFAS No. 131.  The adoption of these standards did not
         have a material effect on the Company's financial position or results
         of operations.

(7)      Reclassifications

         Certain  reclassifications  have  been  made to the  January  31,  1998
         amounts to conform to the August 1, 1998 presentation.


<PAGE>  3


Item 2.   Management's Discussion and Analysis
            of Financial Condition and Results of Operations

General

Management's  discussion of the results of operations  provides  analysis of the
Company's  operations during the 13 and 26 weeks ended August 1, 1998 and August
2, 1997.

Results of Operations

The following  discussion and analysis  should be read in  conjunction  with the
Company's Consolidated Financial Statements and notes thereto included elsewhere
in this Form  10-Q.  As of August 1, 1998  there  were 162  stores in  operation
versus 165 at August 2, 1997.

13 Weeks Ended August 1, 1998 Compared to the 13 Weeks Ended August 2, 1997

Net sales were $73.5  million for the 13 weeks ended August 1, 1998  compared to
$69.4  million  for the 13 weeks  ended  August 2,  1997,  an  increase  of $4.1
million, or 5.9%. Comparable store sales increased 5.4%.

Gross profit was $25.0 million for the 13 weeks ended August 1, 1998 compared to
$21.2   million  for  the  13  weeks  ended  August  2,  1997,  an  increase  of
approximately $3.8 million,  or 17.9% increase.  As a percentage of sales, gross
profit was 34.0% for the 13 weeks ended August 1, 1998 compared to 30.6% for the
13 weeks  ended  August 2, 1997.  The  increase  in the gross  profit  margin is
primarily attributable to a higher markup and lower shrinkage.

Selling and  administrative  expenses  were $24.3 million for the 13 weeks ended
August 1, 1998  compared to $21.8 million for the 13 weeks ended August 2, 1997,
an increase of $2.5 million,  or 11.5%.  As a percentage  of sales,  selling and
administrative  expenses  were  33.1%  for the 13 weeks  ended  August  1,  1998
compared  to 31.4% for the 13 weeks  ended  August 2, 1997.  The  increase  as a
percentage of sales is primarily a result of higher wage rates in stores due, in
part, to an increase in the minimum wage and increased central staffing to
complete the Company's infrastructure initiatives.

Amortization  of  intangibles  was $0.6 million for the 13 weeks ended August 1,
1998  compared  to $0.5  million  for the 13 weeks  ended  August 2,  1997.  The
increase is attributable to a non-compete agreement with the former president.

Interest expense was $1.1 million for the 13 weeks ended August 1, 1998 and $1.3
million for the 13 weeks ended August 2, 1997. The exchange of the  subordinated
and junior  subordinated  notes for new notes,  discussed in the  "Liquidity and
Capital Resources"  section,  resulted in a lower debt discount  amortization in
the current year.

Federal income taxes were accrued in  anticipation  of an alternate  minimum tax
for fiscal 1998.

The net loss available to common  stockholders was $2.7 million for the 13 weeks
ended August 1, 1998 compared to a net loss available to common  stockholders of
$5.7 million for the 13 weeks ended August 2, 1997. The decrease in net loss for
the 13 weeks ended  August 1, 1998 is a result of the  operating  factors  cited
above.

<PAGE>  4

26 Weeks Ended August 1, 1998 Compared to the 26 Weeks Ended August 2, 1997

Net sales were $140.0  million for the 26 weeks ended August 1, 1998 compared to
$129.8  million  for the 26 weeks  ended  August 2, 1997,  an  increase of $10.2
million, or 7.8%. Comparable store sales increased 4.5%.

Gross profit was $46.8 million for the 26 weeks ended August 1, 1998 compared to
$40.2  million  for the 26 weeks  ended  August 2,  1997,  an  increase  of $6.6
million,  or 16.4%. As a percentage of sales,  gross profit was 33.4% for the 26
weeks ended  August 1, 1998  compared to 31.0% for the 26 weeks ended  August 2,
1997.  The increase in the gross profit  margin is primarily  attributable  to a
higher markup and lower shrinkage.

Selling and  administrative  expenses  were $45.5 million for the 26 weeks ended
August 1, 1998  compared to $40.3 million for the 26 weeks ended August 2, 1997,
an increase of approximately  $5.2 million,  or 12.9%. As a percentage of sales,
selling and administrative  expenses were 32.5% for the 26 weeks ended August 1,
1998 compared to 31.1% for the 26 weeks ended August 2, 1997.  The increase as a
percentage of sales is primarily a result of higher wage rates in stores due, in
part, to an increase in the minimum wage.

Amortization  of  intangibles  was $1.2 million for the 26 weeks ended August 1,
1998  compared  to $1.1  million  for the 26 weeks  ended  August 2,  1997.  The
increase is attributable to the non-compete agreement with the former president.

The special charge of $1.5 million in fiscal 1998  represents  various  expenses
incurred in  connection  with hiring the  current  President  and CEO of General
Textiles.  In fiscal 1997, a charge of $1.8 million was incurred when the former
president resigned.

Interest expense was $2.4 million for the 26 weeks ended August 1, 1998 and $2.6
million for the 26 weeks ended August 2, 1997. The exchange of the  subordinated
and junior  subordinated  notes for new notes,  discussed in the  "Liquidity and
Capital Resources"  section,  resulted in a lower debt discount  amortization in
the current year.

Federal  income  taxes  of $0.1  million  were  accrued  in  anticipation  of an
alternate minimum tax for fiscal 1998.

An  extraordinary  charge of $2.8  million was  incurred  for the 26 weeks ended
August 1, 1998  because  notes  payable  associated  with the  General  Textiles
bankruptcy were  extinguished  and new notes with terms favorable to the Company
were issued.

The net loss available to common  stockholders was $9.8 million for the 26 weeks
ended August 1, 1998 compared to a net loss available to common  stockholders of
$8.6 million for the 26 weeks ended August 2, 1997. The increase in net loss for
the 26 weeks ended  August 1, 1998 is a result of the  operating  factors  cited
above.

<PAGE>  5

Liquidity and Capital Resources

Family Bargain Corporation

As of August 1, 1998, Family Bargain  Corporation (the "Parent") had outstanding
indebtedness  in the principal  amount of $0.7 million,  no material change from
its debt  obligations at January 31, 1998.  The entire $0.7 million  outstanding
principal amount is due during the next twelve months.

General Textiles, Inc.

On July 31, 1998 the company's two operating subsidiaries,  General Textiles and
Factory 2-U,  Inc.,  merged to form a new  Delaware  corporation  named  General
Textiles, Inc. As a result of the merger, the Company and its lender have agreed
to amend certain terms and conditions of its revolving  credit  facility.  Under
the amended  terms and  conditions  covenants  will be reset to be reflective of
anticipated earnings, capital expenditures and cash flow over the remaining term
of the revolving credit facility for General Textiles, Inc.

General  Textiles, Inc. finances its operations through credit provided by
suppliers, amounts borrowed under its $50.0 million revolving credit facility
and internally generated cash flow.

General  Textiles, Inc. may borrow up to 65% of eligible inventory, as defined,
subject to a maximum of $50.0 million of amounts outstanding at any time.  As of
August 1, 1998, General Textiles, Inc. had $27.0 million outstanding and $8.1
million available to borrow under its revolving credit facility.

Effective  April 30, 1998 the Company  entered into  agreements  to exchange the
subordinated and junior  subordinated notes for new notes. The new notes removed
an estimated  excess cash flow  calculation  previously  used to  determine  the
timing and amount of payments.  Further,  the new notes provide a fixed schedule
for debt principal payments. In accordance with EITF 96-19, the Company recorded
the exchange of the subordinated  debt agreements as an  extinguishment of debt,
and in connection  therewith,  recorded an extraordinary  loss, net of taxes, of
$2.75  million.  This loss  represents  increases  in the  present  value of the
principal  amount of debt and fees paid to the  lenders.  The fees  included the
issuance of 75,000  shares of common  stock and  warrants  to  purchase  274,418
shares of common stock, both stated at fair market value.

The new  subordinated  notes total $3.3  million  and bear  interest at 9.2% per
annum.  Principal payments in the amount of $0.2 million are payable on December
31, 1999 and December  31, 2000,  with $0.4 million due on December 31, 2001 and
December  31, 2002 and a final  payment May 28,  2003 for $2.1  million.  If any
principal  balance remains  outstanding on April 1, 1999, the interest rate will
increase  on such  date,  and  thereafter  on the first  day of each  successive
calendar quarter by one percent (1%) provided,  however,  that the interest rate
shall not exceed 13.2% per annum.

<PAGE>  6

The new junior subordinated notes total $17.3 million with principal payments at
December 31, 1999 and December 31, 2000 for $1.0 million,  December 31, 2001 and
December 31, 2002 for $2.0 million,  December 31, 2003 and December 31, 2004 for
$3.0 million and a final payment May 28, 2005 for $5.335 million.

At August 1, 1998,  General Textiles was obligated to  non-affiliate  holders of
its  subordinated  and  junior  subordinated  notes in the face  amount of $20.6
million with a carrying value of $13.7 million,  of which  management  estimates
principal  payments in the amount of approximately  $3.3 million will be paid in
the next twelve months.

Capital Expenditures

The Company's  planned  future  capital  expenditures  include costs to open new
stores,  to renovate  and/or  relocate  existing  stores,  to expand its central
administrative  and  distribution  facilities  and to  upgrade  its  information
systems.  Management  believes  that future  expenditures  will be financed from
internal cash flow and the revolving credit  facilities.  Through August 1, 1998
the  Company  has spent  approximately  $2.9  million  on  capital  expenditures
(including capital leases). The Company anticipates spending  approximately $4.0
million during the remainder of the current fiscal year.

Inflation

In general,  the Company  believes that it will be able to offset the effects of
inflation  by  increasing  operating  efficiency,   monitoring  and  controlling
expenses and increasing prices to the extent permitted by competitive factors.

Seasonality and Quarterly Fluctuations

The Company  historically  has  realized  its highest  level of sales and income
during the third and fourth  quarters of the fiscal year (the quarters ending in
fiscal  October  and  January)  as a result of the "Back to School"  (August and
September) and Christmas (November and December) seasons. If the Company's sales
are  substantially  below  seasonal  expectations  during  the third and  fourth
quarters, the Company's annual operating results will be adversely affected. The
Company  historically has realized lower sales in its first two quarters,  which
often has resulted in the Company incurring losses during those quarters.

Deferred Tax Assets

The  Company  has net  operating  loss  ("NOL")  carryforwards  for  Federal and
California income tax purposes.  The utilization of these NOLs will be partially
limited  due to  restrictions  imposed  under the  Federal and State laws upon a
change in ownership.

At August 1,  1998,  the  Company's  total net  deferred  income tax  assets,  a
significant  portion  of  which  relates  to NOLs  discussed  above,  have  been
subjected to a 100% valuation  allowance since realization of such assets is not
likely in light of the Company's recurring losses from operations.

<PAGE>  7

Year 2000 Issue

The Company uses various computer programs that would fail to perform accurately
if not replaced before the year 2000 affects any  transactions.  The Company has
selected and is currently  implementing  a new  integrated  software  package to
support future growth and which is capable of addressing  the issues  associated
with  the  year  2000.  As  part of its  capital  expenditure  plans  previously
discussed,  the Company  anticipates the new software  installation in 1998 will
cost  approximately  $2 to $3 million and does not  anticipate  that  conversion
issues will materially influence operations or operating results.

Cautionary Statement Regarding Forward-Looking Information

Statements,   other  than  those  based  on  historical  facts,   which  address
activities,  events or developments  that the Company expects or anticipates may
occur in the future are forward-looking statements which are based upon a number
of assumptions  concerning  future  conditions  that may ultimately  prove to be
inaccurate.  Actual events and results may  materially  differ from  anticipated
results  described in such  statements.  The  Company's  ability to achieve such
results  is  subject  to certain  risks and  uncertainties,  including,  but not
limited to,  economic and weather  conditions that affect buying patterns of the
Company's  customers,  changes in consumer spending and the Company's ability to
anticipate  buying  patterns and  implement  appropriate  inventory  strategies,
continued  availability of capital and financing,  competitive factors and other
factors  affecting  the  Company's   business  beyond  the  Company's   control.
Consequently,  all of the  forward-looking  statements  are  qualified  by these
cautionary  statements  and  there  can be no  assurance  that  the  results  or
developments  anticipated by the Company will be realized or that they will have
the expected effects on the Company or its business or operations.



<PAGE>  8


                           PART II - OTHER INFORMATION

Item 1.    Legal Proceedings

The Company is at all times  subject to pending and  threatened  legal  actions,
which arise out of the normal course of business.  In the opinion of management,
based in part on the advice of legal counsel,  the ultimate disposition of these
matters will not have a material  adverse  effect on the  financial  position or
results of operations of the Company.

Item 2.    Changes in Securities
                  None.

Item 3.     Defaults Upon Senior Securities
                  None.

Item 4.    Submission of Matters to a Vote of Security Holders
                  None.

Item 5.    Other Information
                  None.

Item 6.  Exhibits and Reports on Form 8-K

(a)       Exhibits

11.1     Computation of per share loss (1 page)

27       Financial Data Schedule (1 page)

(b)      Reports on Form 8-K
                  None.




<PAGE>  9


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


FAMILY BARGAIN CORPORATION

Date: September 3, 1998




By: /s/  Jonathan W. Spatz
  Name:  Jonathan W. Spatz
 Title:  Executive Vice President and Chief Financial Officer
         (duly authorized officer and principal financial officer)




<PAGE>  10



                                  EXHIBIT INDEX

Exhibit
Number   Description Page

11.1     Computation of per share loss                                     11
27       Financial Data Schedule (for EDGAR filing only)                   12