Form 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

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


(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 0-19536

                              THE RIGHT START, INC.
                              ---------------------
             (Exact name of registrant as specified by its charter)


       California                                       95-3971414
       ----------                                       ----------
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organiztion)                           Identification No.)


         5388 Sterling Center Drive, Unit C, Westlake Village, CA 91361
         --------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (818) 707-7100
                                 --------------
              (Registrant's telephone number, including area code)


--------------------------------------------------------------------------------
(Former  name,  former  address and former  fiscal year,  if changed  since last
report.)

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. Yes X No_______

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date:

Common Stock Outstanding as of August 1, 1998 - 10,103,639 shares



<PAGE>

                              THE RIGHT START, INC.

                               INDEX TO FORM 10-Q
                 FOR THE THIRTEEN AND TWENTY - SIX WEEK PERIODS
                              ENDED AUGUST 1, 1998




                         PART I - FINANCIAL INFORMATION

Item 1.      Financial Statements (unaudited)

             Balance Sheet                                             3
             Statement of Operations                                   4
             Statement of Cash Flows                                   5
             Notes to Financial Statements                             6


Item 2.      Management's Discussion and Analysis of Financial
             Condition and Results of Operations                       9





                           PART II - OTHER INFORMATION

Item 6.      Exhibits and Reports on Form 8-K                         13


SIGNATURES                                                            14


























                                        2
<PAGE>
<TABLE>

                              THE RIGHT START, INC.
                                  BALANCE SHEET
                                   (unaudited)
<CAPTION>

                                                    August 1,      January 31,
                                                      1998            1998
                                                  ------------    ------------
<S>                                               <C>             <C>
ASSETS
Current assets:
     Cash                                         $    276,000    $    240,000
     Accounts and other  receivables                   404,000         405,000
     Merchandise inventories                         6,132,000       6,602,000
     Prepaid catalog expenses                          390,000         297,000
     Other current assets                            1,019,000       1,364,000
                                                  ------------    ------------

         Total current assets                        8,221,000       8,908,000


Property, plant and equipment, net                   7,737,000       8,115,000
Other non-current assets                                73,000          39,000
Deferred income tax benefit                          1,400,000       1,400,000
                                                  ------------    ------------

                                                  $ 17,431,000    $ 18,462,000
                                                  ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable and accrued expenses        $  2,024,000    $  2,372,000
     Accrued salaries and bonuses                      214,000         380,000
     Advance payments on orders                         32,000          30,000
     Note payable                                                    2,014,000
                                                  ------------    ------------

         Total current liabilities                   2,270,000       4,796,000


Note payable long term                               3,000,000       3,000,000
Senior subordinated notes due May 6, 2000            3,717,000
Senior subordinated notes due May 6, 2000            2,770,000       2,734,000
Subordinated convertible debentures due
     May 31, 2002                                    3,000,000       3,000,000
Deferred rent                                        1,455,000       1,625,000


Shareholders' equity:
     Common stock (25,000,000 shares authorized
         at no par value; 10,103,639 issued and
         outstanding)                               22,337,000      22,337,000
     Paid in capital                                   203,000
     Accumulated deficit                           (21,321,000)    (19,030,000)
                                                  ------------    ------------

                                                  $ 17,431,000    $ 18,462,000
                                                  ============    ============
</TABLE>
                                      3
<PAGE>
<TABLE>


                              THE RIGHT START, INC.
                             STATEMENT OF OPERATIONS
                                   (unaudited)


<CAPTION>

                                                        Thirteen weeks ended                    Twenty-six weeks ended
                                                 ---------------------------------  -------------------------------------
                                                  August 1, 1998    August 2, 1997    August 1, 1998     August 2, 1997
                                                 ---------------   ---------------  ------------------  ------------------
<S>                                               <C>               <C>               <C>              <C>
Net sales:
    Retail                                        $  7,791,000      $  8,171,000       $ 15,120,000    $ 15,585,000
    Catalog                                            964,000         1,782,000          2,676,000       4,304,000
                                                  ------------      ------------       ------------    ------------
                                                     8,755,000         9,953,000         17,796,000      19,889,000

Costs and expenses:
    Cost of goods sold                               4,571,000         5,314,000          9,156,000      10,231,000
    Operating expense                                3,836,000         4,560,000          8,049,000       9,668,000
    General and administrative expense                 855,000           876,000          1,777,000       1,939,000
    Pre-opening cost amortization                       19,000           160,000             50,000         377,000
    Depreciation and amortization expense              326,000           397,000            674,000         791,000
    Other (income) expense                              39,000           293,000           (113,000)        293,000
                                                  ------------      ------------       ------------    ------------

                                                     9,646,000        11,600,000         19,593,000      23,299,000
                                                  ------------      ------------       ------------    ------------

Operating loss                                        (891,000)       (1,647,000)        (1,797,000)     (3,410,000)
Interest expense                                       173,000           285,000            504,000         490,000
                                                  ------------      ------------       ------------    ------------

Loss before income taxes and extraordinary item     (1,064,000)       (1,932,000)        (2,301,000)     (3,900,000)
Income tax provision                                     5,000            10,000             17,000          20,000
                                                  ------------      ------------       ------------    ------------

Loss before extraordinary item                      (1,069,000)       (1,942,000)        (2,318,000)     (3,920,000)
Extraordinary gain on debt restructuring                                                     27,000
                                                  ------------      ------------       ------------    ------------

Net loss                                          $ (1,069,000)     $ (1,942,000)      $ (2,291,000)   $ (3,920,000)
                                                  ============      ============       ============    ============

Basic and diluted loss per share                  $      (0.11)   $      (0.23)        $      (0.23)   $      (0.46)
                                                  ============    ============         ============    ============

Weighted average number of shares
     outstanding                                    10,103,639       8,593,639           10,103,639       8,546,496
                                                  ============    ============         ============    ============
</TABLE>
                                       4
<PAGE>
<TABLE>


                                                  THE RIGHT START, INC.
                                                 STATEMENT OF CASH FLOWS
                                                       (unaudited)
<CAPTION>

                                                                     Twenty-six weeks ended
                                                                  ------------------------------
                                                                  August 1, 1998  August 2, 1997
                                                                  --------------  --------------
<S>                                                                 <C>            <C>
Cash flows from operating activities:
       Net loss                                                     $(2,291,000)   $(3,920,000)
       Adjustments to reconcile net loss
         to net cash used in operating activities:
           Depreciation and amortization                                725,000      1,168,000
           Imputed interest                                              49,000
           Loss on store closings                                        39,000
           Amortization of discount on subordinated notes                57,000         26,000
           Changes in assets and liabilities affecting operations       107,000       (743,000)
           Extraordinary gain on debt restructuring                     (27,000)
                                                                    -----------    -----------

               Net cash used in operating activities                 (1,341,000)    (3,469,000)
                                                                    -----------    -----------

Cash flows from investing activities:
       Additions to property, plant and equipment                      (459,000)    (1,317,000)
                                                                    -----------    -----------

Cash flows from financing activities:
       Net borrowings (payments) under revolving line of credit      (2,014,000)       527,000
       Proceeds from issuance of senior subordinated notes            3,850,000
       Proceeds from common stock issued upon
           exercise of stock options                                                 1,320,000
       Proceeds from issuance of subordinated notes                                  3,000,000
                                                                    -----------    -----------

               Net cash provided by  financing activities             1,836,000      4,847,000
                                                                    -----------    -----------


Net increase in cash                                                     36,000         61,000
Cash at beginning of period                                             240,000        313,000
                                                                    -----------    -----------

Cash at end of period                                               $   276,000    $   374,000
                                                                    ===========    ===========
</TABLE>
                                       5
<PAGE>

                              THE RIGHT START, INC.
                        NOTES TO THE FINANCIAL STATEMENTS


NOTE 1:  Description of Business and Significant Accounting Policies

     The Right Start, Inc. is a specialty merchant offering unique, high-quality
juvenile  products  for infants  and young  children.  The  Company  markets its
products through its retail stores and through The Right Start Catalog.

         There  have been no  changes in the  Company's  significant  accounting
policies as set forth in the Company's  financial  statements for the year ended
January 31, 1998. These unaudited financial  statements as of August 1, 1998 and
for the thirteen and  twenty-six  week periods then ended have been  prepared in
accordance with generally accepted  accounting  principles for interim financial
information.  Accordingly,  they  do not  include  all of  the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring  adjustments)  considered  necessary for a fair presentation
have been included.  Certain  reclassifications  have been made to conform prior
year amounts to current year presentation.

         Operating  results for the thirteen and  twenty-six  week periods ended
August  1,  1998  are not  necessarily  indicative  of the  results  that may be
expected for the year ending January 30, 1999.

NOTE 2:  Recapitalization

         In order to enhance  the  Company's  liquidity  and improve its capital
structure, effective April 13, 1998 the Company completed a private placement of
non-interest  bearing senior subordinated notes in an aggregate principal amount
of  $3,850,000,  together with  detachable  warrants to purchase an aggregate of
3,850,000  shares of  common  stock  exercisable  at $1.00  per  share.  The new
securities  were sold for an aggregate  purchase  price of  $3,850,000  and were
purchased  principally by affiliates of the Company. In connection with the sale
of the new  securities,  the Company  entered into an agreement  with all of the
holders  of  the  Company's   existing   subordinated   debt   securities   (the
"Agreement"), representing an aggregate principal amount of $6,000,000. Pursuant
to the Agreement, each holder (of new and old securities) agreed to exchange all
of its  subordinated  debt  securities  together  with any  warrants  issued  in
connection  therewith,  for newly issued  preferred  stock.  Ten shares of newly
issued  preferred  stock  will be issued  for each  $1,000  principal  amount of
subordinated debt securities exchanged.  The total number of shares to be issued
are  30,000,  30,000  and  38,500  for  Preferred  Stock  Series  A,  B  and  C,
respectively.  Holders of $3,000,000  principal amount of existing  subordinated
debt  securities  elected to receive Series A Preferred Stock which will have no
fixed  dividend  rights,  will not be  convertible  into common  stock,  will be
mandatorily  redeemable by the Company in May 2002 and will not accrue dividends
unless  the  Company is unable to redeem  the  Series A  Preferred  Stock at the
required redemption date, at which point dividends would begin to accumulate and
accrue at a rate of $15 per share per  annum.  Holders of  $3,000,000  principal
amount of existing  subordinated  debt  securities  elected to receive  Series B
convertible preferred stock which will have no fixed dividend rights and will be
convertible  into  common  stock at a price per share of $1.50.  Holders  of the
$3,850,000  principal  amount of new  subordinated  debt  securities  elected to
receive Series C convertible  preferred  stock which will have no fixed dividend
rights and will be convertible  into common stock at a price per share of $1.00.
The Series B Preferred  Stock and the Series C Preferred  Stock was  mandatorily
redeemable upon the occurrence of a change of control of the Company, as defined
in the Agreement. Pursuant to a letter agreement dated July 7, 1998, the Company
has  received  consent  from all but one of the parties  that will hold Series B
Preferred  Stock to remove  the  mandatory  redemption  feature  of the Series B
Preferred Stock upon a change of control of the Company. Additionally,  pursuant
to such  letter  agreement,  the Company has  received  consent  from all of the
parties  that  will  hold  Series C  Preferred  Stock to  remove  the  mandatory
redemption  feature of the Series C  Preferred  Stock upon the  occurrence  of a
change of control of the Company.  The issuance of the shares of preferred stock
upon exchange of the subordinated  debt securities is subject to the approval of
the Company's shareholders,  which approval the Company expects to obtain at its
annual meeting scheduled to be held in September 1998.

                                       6
<PAGE>

NOTE 2: (Continued)

         The proceeds of the issuance of the $3.85 million  senior  subordinated
notes  were  allocated  between  the notes and  detachable  warrants  based on a
valuation  performed of the fair value of the debt security without the warrants
and the fair value of the warrants at the date of issuance.  The value  assigned
to the  warrants  was  $154,000.  The  resulting  debt  discount is amortized to
interest expense over the term of the notes. Interest expense will be imputed on
the non-interest bearing notes to the extent the transaction is with a principal
shareholder.

         The exchanges of the  subordinated  debt  securities  for the preferred
stock will be recorded at the date of issuance of the preferred  stock. The fair
value of each preferred  stock series will be determined as of the issuance date
of the stock.  The  difference  between  the fair value of the  preferred  stock
series  granted  and  the  carrying  amount  of the  related  subordinated  debt
security's  balance plus accrued interest exchanged will be recognized as a gain
or loss on the extinguishment of debt. If the convertible preferred stock series
B and C  conversion  feature  is "in the  money"  at the  date of  issue  of the
preferred stock, a portion of the fair value of the preferred stock equal to the
beneficial  conversion  feature will be allocated to additional paid in capital.
The beneficial  conversion  feature amount  allocated to paid in capital will be
recognized  as a return  to the  preferred  shareholders  immediately  through a
charge to accumulated deficit and a credit to preferred stock.

         The  estimated  gain or  loss  to be  recorded  on the  total  proposed
recapitalization  is not determinable at this time as the  transactions  will be
measured and recorded at the date of issuance of the preferred stock.

         In connection with the above restructuring, the holders of $6.0 million
principal amount of subordinated debt permanently waived their rights to receive
interest  payments  and  agreed  to  exchange  such  debt for  preferred  stock,
resulting in the  elimination of  approximately  $.6 million in annual  interest
payments.  In addition,  the proceeds  from the Company's  private  placement of
$3,850,000 were used to pay off the Company's revolving line of credit. Further,
the  Company's  lender  amended the  existing  loan  agreement  to provide  more
favorable terms which are consistent with management's financial and operational
plans.  These plans include the closure of certain  unprofitable mall stores and
opening of other store locations.

         As a result of the above,  management  believes that it has  sufficient
liquidity to execute its current plan.  However,  the Company's  ability to fund
its operations,  open new stores and maintain compliance with its loan agreement
is dependent on its ability to generate sufficient cash flow from operations and
obtain additional  financing as described above.  Historically,  the Company has
incurred  losses  and  expects  to  continue  to incur  losses in the near term.
Depending on the success of its business  strategy,  the Company may continue to
incur losses beyond such period.  Losses could negatively affect working capital
and the extension of credit by the Company's  suppliers and impact the Company's
operations.


NOTE 3:  Extraordinary Gain

         Effective  April 13, 1998,  the holders of the  Company's  $3.0 million
subordinated notes and $3.0 million subordinated  convertible  debentures agreed
to waive their right to receive any and all interest  payments accrued and owing
after  February  28,  1998.  This   modification  of  terms  was  accounted  for
prospectively,  from the effective date, under Statement of Financial Accounting
Standards  No. 15  "Accounting  by  Debtors  and  Creditors  for  Troubled  Debt
Restructurings" as follows.

         The  carrying  amount of the notes as of April 13, 1998 was not changed
as the carrying amount of the debt did not exceed the total future cash payments
of $3.0 million specified by the new terms.  Interest expense was computed using
the interest method to apply a constant  effective  interest rate to the payable
balance  between the  modification  date of April 13,  1998 and  maturity of the
payable in May 2000.

         The  total  future  cash  payments  specified  by the new  terms of the
convertible  debentures of $3.0 million is less than the carrying  amount of the
liability to the debenture holders of $3,027,000, therefore, the carrying amount
was reduced to an amount  equal to the total future cash  payments  specified by
the new terms and the Company  recognized  a gain on  restructuring  of payables
equal to the amount of the reduction as of April 13, 1998.  No interest  expense
shall be recognized on the payable for any period between the modification  date
of April 13, 1998 and maturity of the payable in May 2002.

                                       7
<PAGE>

NOTE 4:  Per Share Data

         Basic per share data is computed by dividing income available to common
shareholders  by the  weighted  average  number  of common  shares  outstanding.
Diluted  per share data is  computed  by  dividing  income  available  to common
shareholders  plus income  associated  with dilutive  securities by the weighted
average  number of shares  outstanding  plus any  potential  dilution that could
occur if securities or other  contracts to issue common stock were  exercised or
converted into common stock in each year.

         Securities that could  potentially  dilute basic EPS in the future that
were not included in the  computation of diluted EPS because to do so would have
been  antidilutive  for the periods  presented  include  options  outstanding to
purchase 644,000 and 652,000 shares of common stock at August 1, 1998 and August
2, 1997, respectively, debt issued with detachable warrants in May 1997 enabling
the holder to  purchase  475,000  shares of common  stock at $3.00 per share and
debentures  issued in October 1996  convertible  into  750,000  shares of common
stock.  Additionally,  $3,850,000 of subordinated debt was issued with 3,850,000
detachable  warrants in April 1998  enabling  the holder to  purchase  3,850,000
shares of common stock at $1.00 per share. This could  potentially  dilute basic
EPS in the future.


NOTE 5:  Supplemental Disclosure of Cash Flow Information

         Interest  paid  amounted to $332,000 and  $394,000  for the  twenty-six
weeks  ended  August 1, 1998 and  August 2,  1997,  respectively.  Cash paid for
income taxes was $5,000 and $4,000 for the twenty-six weeks ended August 1, 1998
and August 2, 1997, respectively.

         Changes in assets and liabilities which increased  (decreased) cash are
as follows:


                                             Twenty-six weeks ended
                                        --------------------------------
                                        August 1, 1998    August 2, 1997
                                        --------------    --------------
Accounts and other receivables          $     1,000       $   699,000
Merchandise inventories                     470,000           393,000
Prepaid catalog expenses                    (93,000)         (418,000)
Other current assets                        295,000          (198,000)
Other non-current assets                    (34,000)            1,000
Accounts payable and accrued expenses      (331,000)       (1,413,000)
Accrued salaries and bonuses               (166,000)          (70,000)
Advance payments on orders                    2,000            39,000
Deferred rent                               (37,000)          224,000
                                        -----------       -----------

                                        $   107,000       $  (743,000)
                                        ===========       ===========

                                       8
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS


Thirteen weeks ended August 1, 1998 compared with August 2,  1997

         Net sales for the thirteen  weeks ended August 1, 1998  declined 12% to
$8.8 million from $10.0 million for the same period last year.  For the quarter,
retail net sales  declined 5% to $7.8  million as compared to $8.2  million last
year,  while  catalog net sales  decreased 46% to $1.0 million from $1.8 million
last year.  Retail sales  reflect  sales  increases  due to four store  openings
during and since the second  quarter of the prior  fiscal  year  offset by eight
closings  during the first half of the current  fiscal  year.  The  reduction in
catalog  net sales is due to the  Company's  decision  to  significantly  reduce
circulation and operate the catalog at a smaller and more profitable level.

         Cost of goods sold  decreased $.7 million or 14%,  resulting in a gross
margin of 48% as compared to 47% last year. The margin improvement  reflects the
introduction of higher margin products and product lines including developmental
toys, books, videos and other media.

         Operating  expense  was $3.8  million in the second  quarter of 1998 as
compared  to $4.6  million in the second  quarter  of 1997,  representing  a 16%
decrease. Retail operating expense decreased 14%, primarily due to reductions in
merchandise   warehousing   and   handling   costs  and  reduced   labor  costs.
Additionally,  catalog operating expense decreased 46% in line with the decrease
in catalog sales.

         General and administrative  expense decreased 2% to $855,000 during the
second  quarter of 1998 from  $876,000  during the same  period  last year.  The
Company  has  continued  its  trend  of   significantly   reduced   general  and
administrative expenses.

         Depreciation and amortization  expense decreased to $326,000 during the
second  quarter of 1998 from $397,000  during the same period last year. The 18%
decrease is primarily due to the expense reduction  associated with fixed assets
that were  written  off in  conjunction  with the closure of eight  stores,  the
relocation of the Company's  distribution facility and the move of the Company's
corporate office. These decreases were offset by the expense associated with the
fixed asset additions for the new stores opened in fiscal 1997.

         Other expense is comprised of store closing costs in the second quarter
of fiscal 1998. In the same period of the prior year,  other expense  represents
the write-off of fixed assets  abandoned in  conjunction  with the relocation of
the Company's distribution facility and severance expense.

         Interest  expense  decreased  to $173,000  from  $285,000 in the second
quarter of the prior year.  The 39%  decrease  results  from a decrease in total
outstanding  borrowings,  including $3.85 million of senior  subordinated  notes
with warrants issued during the first quarter of fiscal 1998. In addition to the
amortization of the discount  associated with these senior  subordinated  notes,
interest expense is also imputed at the estimated market rate to the extent that
these  senior  subordinated  notes  are held by  principal  shareholders  of the
Company with a corresponding  contribution to equity recorded. See Liquidity and
Capital Resources.


Twenty-Six Weeks Ended August 1, 1998 Compared With August 2, 1997

         Net sales for the twenty-six weeks ended August 1, 1998 declined 11% to
$17.8 million from $19.9 million for the same period last year. Retail net sales
declined  3% to $15.1  million as  compared to $15.6  million  last year,  while
catalog net sales  decreased  38% to $2.7  million  from $4.3 million last year.
Retail sales reflect sales  increases due to six store openings during and since
the second quarter of the prior fiscal year offset by eight closings  during the
first half of the current fiscal year. The reduction in catalog net sales is due
to the Company's  decision to significantly  reduce  circulation and operate the
catalog at a smaller and more profitable level.

         Cost of goods sold decreased $1.1 million or 11%,  resulting in a gross
margin of 49% as  compared  to 49% last year.  The margin is flat with the prior
year and includes a positive  trend toward  improvement as compared to the prior
year. This reflects the introduction of higher margin products and product lines
including  developmental  toys,  books,  videos and other  media,  offset by the

                                       9
<PAGE>

impact of certain  marketing and  promotional  programs  introduced in the first
quarter of fiscal 1998.

         Operating  expense  was  $8.1  million  in the  first  half  of 1998 as
compared to $9.7 million in the first half of 1997, representing a 16% decrease.
Retail  operating   expense   decreased  6%,  primarily  due  to  reductions  in
merchandise   warehousing   and   handling   costs  and  reduced   labor  costs.
Additionally,  catalog operating expense decreased 42% in line with management's
plan to operate a smaller, more profitable catalog.

         General and  administrative  expense  decreased 8% to $1,777,000 during
the first half of 1998 from  $1,939,000  during the same period  last year.  The
Company  has  continued  its  trend  of   significantly   reduced   general  and
administrative expenses.

         Depreciation and amortization  expense decreased to $674,000 during the
first half of 1998 from  $791,000  during  the same  period  last year.  The 18%
decrease is primarily due to the expense reduction  associated with fixed assets
that were  written  off in  conjunction  with the closure of eight  stores,  the
relocation of the Company's  distribution facility and the move of the Company's
corporate office. These decreases were offset by the expense associated with the
fixed asset additions for the new stores opened in fiscal 1997.

         Other  (income)  expense is comprised of net  revenues  generated  from
store closings in the first half of fiscal 1998. In the same period of the prior
year,  other  expense  represents  the  write-off of fixed  assets  abandoned in
conjunction  with the  relocation  of the  Company's  distribution  facility and
severance expense.

         Interest  expense  remained  relatively  flat between the first half of
fiscal 1998 compared to the first half of fiscal 1998. This results from a first
quarter  increase  offset  by a second  quarter  decrease  in total  outstanding
borrowings,  including $3.85 million of senior  subordinated notes with warrants
issued  late in the  first  quarter.  In  addition  to the  amortization  of the
discount associated with these senior  subordinated  notes,  interest expense is
also  imputed  at the  estimated  market  rate to the extent  that these  senior
subordinated  notes are held by  principal  shareholders  of the Company  with a
corresponding  contribution  to  equity  recorded.  See  Liquidity  and  Capital
Resources.

         The Company has a deferred tax asset of $9.4 million, which is reserved
by a valuation allowance of $8.0 million, for a net tax benefit of $1.4 million.
Management expects that the Company will generate at least $4 million of taxable
income  within  the next 15 years to utilize  the net  deferred  tax asset.  The
taxable  income will be generated  through a combination  of improved  operating
results  and tax  planning  strategies.  Rather  than  lose the  benefit  of the
Company's net operating  loss ("NOL")  carryforward  if the Company's  operating
results alone are  insufficient  to realize such tax benefit,  the Company could
implement  certain tax planning  strategies  including the sale of the Company's
catalog  operation,  since such  operations  generally  operate on a  break-even
basis.  Alternatively,  the  Company  could  also sell its  catalog  operation's
mailing  lists in order to generate  income to enable the Company to realize its
NOL carryforward.  Based on the above operating  improvements  combined with tax
planning  strategies in place,  management believes that adequate taxable income
will  be  generated  over  the  next  15  years  in  which  to  utilize  the NOL
carryforward.


Liquidity and Capital Resources

         During the first half of Fiscal 1998, the Company's  primary sources of
liquidity were from borrowings under its $13 million senior credit facility (the
"Credit  Facility") and proceeds from the sale of approximately  $3.9 million of
senior  subordinated  notes with  warrants.  The Credit  Facility  consists of a
$10,000,000  revolving line of credit for working capital (the "Revolving Line")
and a $3,000,000 capital expenditure  facility (the "Capex Line").  Availability
under the Revolving Line is subject to a defined borrowing base. As of August 1,
1998, borrowings of $3,000,000 were outstanding under the Capex Line. There were
no borrowings and approximately $2.8 million available under the Revolving Line.
The  Credit  Facility  terminates  on  November  19,  1999 and on such  date all
borrowings  thereunder are  immediately  due and payable.  Borrowings  under the
Credit Facility are secured by substantially all of the Company's assets.

         The Credit Facility,  as amended,  requires the Company at all times to
maintain net worth (defined to include equity and subordinated debt) of at least
$8 million.  The Credit  Facility  also  limits the  Company's  earnings  before
interest,  taxes,  depreciation and amortization  (EBITDA) to the following loss
amounts:  $1.2 million for the three months ended May 2, 1998 and the six months

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<PAGE>

ended August 1, 1998,  $900,000  for the nine months ended  October 31, 1998 and
the twelve  months ended  January 31, 1999 and  $500,000  for the twelve  months
ended April 30, 1999.  Minimum  EBITDA of zero is required for the twelve months
ended July 31, 1999 and $400,000 for the twelve  months ended  October 31, 1999.
In addition, capital expenditures are limited to $1,750,000 in fiscal years 1998
and 1999.

         The  Company's  ability  to fund its  operations,  open new  stores and
maintain  compliance  with the Credit  Facility is  dependent  on its ability to
generate  sufficient cash flow from  operations.  Historically,  the Company has
incurred  losses  and  expects  to  continue  to incur  losses in the near term.
Depending on the success of its business  strategy,  the Company may continue to
incur losses beyond such period.  Losses could negatively affect working capital
and the extension of credit by the Company's  suppliers and impact the Company's
operations.

         In order to enhance  the  Company's  liquidity  and improve its capital
structure, effective April 13, 1998 the Company completed a private placement of
non-interest  bearing senior subordinated notes in an aggregate principal amount
of  $3,850,000,  together with  detachable  warrants to purchase an aggregate of
3,850,000  shares of  common  stock  exercisable  at $1.00  per  share.  The new
securities  were sold for an aggregate  purchase  price of  $3,850,000  and were
purchased  principally by affiliates of the Company. In connection with the sale
of the new  securities,  the Company  entered into an agreement  with all of the
holders of the Company's existing subordinated debt securities,  representing an
aggregate principal amount of $6,000,000. Pursuant to the agreement, each holder
(of old and new  securities)  agreed to exchange  all of its  subordinated  debt
securities together with any warrants issued in connection therewith,  for newly
issued  preferred  stock.  Ten shares of newly  issued  preferred  stock will be
issued  for  each  $1,000  principal  amount  of  subordinated  debt  securities
exchanged. The total number of shares to be issued are 30,000, 30,000 and 38,500
for  Preferred  Stock  Series A, B and C,  respectively.  Holders of  $3,000,000
principal amount existing subordinated debt securities elected to receive Series
A  Preferred  Stock  which  will  have no  fixed  dividend  rights,  will not be
convertible into common stock, will be mandatorily  redeemable by the Company in
May 2002 and will not accrue  dividends  unless the  Company is unable to redeem
the Series A Preferred  Stock at the required  redemption  date,  at which point
dividends  would begin to  accumulate  and accrue at a rate of $15 per share per
annum.  Holders  of  $3,000,000  principal  amount  existing  subordinated  debt
securities  elected to receive Series B convertible  preferred  stock which will
have no fixed  dividend  rights and will be  convertible  into common stock at a
price per share of $1.50.  Holders  of the  $3,850,000  principal  amount of new
subordinated debt securities  elected to receive Series C convertible  preferred
stock  which will have no fixed  dividend  rights and will be  convertible  into
common stock at a price per share of $1.00. The Series B Preferred Stock and the
Series C Preferred  Stock was  mandatorily  redeemable  upon the occurrence of a
change of control of the  Company,  as defined in the  agreement.  Pursuant to a
letter  agreement dated July 7, 1998, the Company has received  consent from all
but one of the parties  that will hold  Series B  Preferred  Stock to remove the
mandatory  redemption  feature of the Series B Preferred  Stock upon a change of
control of the Company.  Additionally,  pursuant to such letter  agreement,  the
Company has  receive  consent  from all of the  parties  that will hold Series C
Preferred  Stock to remove  the  mandatory  redemption  feature  of the Series C
Preferred  Stock upon the occurrence of a change of control of the Company.  The
issuance of the shares of preferred stock upon exchange of the subordinated debt
securities  is subject to the  approval  of the  Company's  shareholders,  which
approval  the Company  expects to obtain at its annual  meeting  scheduled to be
held in September 1998.

         The proceeds of the issuance of the $3.85 million  senior  subordinated
notes  were  allocated  between  the notes and  detachable  warrants  based on a
valuation  performed of the fair value of the debt security without the warrants
and the fair value of the warrants at the date of issuance.  Interest expense is
imputed on the non-interest  bearing notes to the extent the transaction is with
a principal shareholder.

         The exchanges of the  subordinated  debt  securities  for the preferred
stock will be recorded at the date of issuance of the preferred  stock. The fair
value of each preferred  stock series will be determined as of the issuance date
of the stock.  The  difference  between  the fair value of the  preferred  stock
series  granted  and  the  carrying  amount  of the  related  subordinated  debt
security's  balance plus accrued interest exchanged will be recognized as a gain
or loss on the extinguishment of debt. If the convertible preferred stock series
B and C  conversion  feature  is "in the  money"  at the  date of  issue  of the
preferred stock, a portion of the fair value of the preferred stock equal to the
beneficial  conversion  feature will be allocated to additional paid in capital.
The beneficial  conversion  feature amount  allocated to paid in capital will be
recognized  as a return  to the  preferred  shareholders  immediately  through a
charge to accumulated deficit and a credit to preferred stock.

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<PAGE>

         The  estimated  gain or  loss  to be  recorded  on the  total  proposed
recapitalization  is not determinable at this time as the  transactions  will be
measured and recorded at the date of issuance of the preferred  stock,  however,
management does not believe that the  transactions  will have a material adverse
effect on the Company's financial position or results of operations.

         Until such time that the company completes the exchange of subordinated
debt for preferred stock,  interest expense must be imputed on the $3,850,000 of
new securities to the extent that such amount is held by principal shareholders.
Further,  the discount  inherent in the  security  must be amortized to interest
expense over the term of the security.  This  treatment is required by generally
accepted accounting  principles.  In accordance with the agreement,  however, no
interest  payments  will be made and the  interest  expense  recorded  serves to
increase  the  carrying  value of the security  and  shareholders'  equity.  The
estimated  total  interest  expense  expected to be recorded,  assuming that the
exchange is completed by September 1998, is approximately $200,000.

         In connection with the above restructuring, the holders of $6.0 million
principal amount of subordinated debt permanently waived their rights to receive
interest  payments  and  agreed  to  exchange  such  debt for  preferred  stock,
resulting in the  elimination of  approximately  $.6 million in annual  interest
payments.  In addition,  the proceeds  from the Company's  private  placement of
$3,850,000 were used to pay off the Company's revolving line of credit. Further,
the  Company's  lender  amended the  existing  loan  agreement  to provide  more
favorable terms which are consistent with management's financial and operational
plans.  These plans include the closure of certain  unprofitable mall stores and
opening of other store locations.


Other Matters

Year 2000

         The Company is currently working to resolve the potential impact of the
year 2000 on the  processing  of  date-sensitive  information  by the  Company's
computerized  information  systems.  The year  2000  problem  is the  result  of
computer  programs  being written using two digits  (rather that four) to define
the  applicable  year.  Any of the Company's  programs that have  time-sensitive
software  may  recognize a date using "00" as the year 1900 rather that the year
2000  which  could  result  in  miscalculations  or  system  failures.  Based on
preliminary  information,   costs  of  addressing  potential  problems  are  not
currently expected to have a material adverse impact on the Company's  financial
position,  results of  operations or cash flows in future  periods.  The Company
plans to devote the  necessary  resources to resolve all  significant  year 2000
issues in a timely manner.

New Accounting Pronouncements

     In April 1998,  the  American  Institute of  Certified  Public  Accountants
issued   Statement  of  Position  98-5  "Reporting  on  the  Costs  of  Start-up
Activities"  ("SOP 98-5").  This  statement  requires that the costs of start-up
activities  and  organization  costs be expensed as incurred.  The impact of SOP
98-5 is not  expected  to be  material to the  Company's  financial  position or
results of operations.  Effective  October 1, 1997, the Company began  expensing
all store pre-opening costs as incurred.

Nasdaq Market Listing

     The Company has received  notice from the staff of The Nasdaq Stock Market,
Inc.  ("Nasdaq") that it was not in compliance with the Nasdaq's new minimum net
tangible assets  requirement of $4 million and that Nasdaq intends to delist the
Company's common stock. In accordance with the Nasdaq's procedures,  the Company
has filed an appeal with the Nasdaq's  Listings  Hearing  Department  which will
allow the  Company to  maintain  its listed  status  pending  the outcome of the
appeal.

  Although the Company  currently does not satisfy the Nasdaq's  minimum
net tangible asset  requirement,  the Company expects to regain compliance after
its annual  meeting of  shareholders  when the Company  expects to complete  its
previously   announced   recapitalization    transaction.    Pursuant   to   the
recapitalization  transaction,  the holders of all of the Company's subordinated
debt  securities  have agreed to exchange  their debt  securities  for preferred
stock. Had the recapitalization been completed as of August 1, 1998, the Company
estimates that its net tangible assets would have been approximately $9 million.

     The Company is unable to predict  whether  its appeal  will be  successful,
notwithstanding  the consummation of the  recapitalization  transaction.  If the
Company's  appeal is  unsuccessful,  the Company's common stock would be removed
from listing on the Nasdaq  National  Market.  If the Company's  common stock is
delisted from the Nasdaq National Market, it may become more difficult to buy or
sell the common  stock or to obtain  timely and  accurate  quotations  to buy or
sell.

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<PAGE>






                                     PART II


Item  6.  Exhibits and Reports on Form 8-K

The  Company  filed no Reports  of Form 8-K during the second  quarter of fiscal
1998.


The following exhibits of The Right Start, Inc. are included herein.


Exhibit
Number

27       Financial Data Schedule






































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<PAGE>


                                   SIGNATURES

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


                              THE RIGHT START, INC.

Date:  September 11, 1998                       /s/ JERRY WELCH
       ------------------                       ---------------
                                                Jerry Welch
                                                Chief Executive Officer


Date:  September 11, 1998                       /s/ GINA M. SHAUER
       ------------------                       ------------------
                                                Gina M. Shauer
                                                Chief Financial Officer


















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