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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): October 14, 1998
The Right Start, Inc.
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(Exact name of registrant as specified in charter)
California 0-19536 95-3971414
____________________ _______________________ ____________________
(State of other (Commission file number) (IRS employer
jurisdiction of identification
incorporation) number)
5388 Sterling Center Drive, Unit C
Westlake Village, California 91361
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(Address of principal executive offices) (Zip code)
(818) 707-7100
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(Registrant's telephone number, including area code)
Not applicable
____________________________________________________________
(Former name or former address, if changed since last report)
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Item 5. Other Events
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The Press Release dated October 14, 1998 of The Right Start, Inc.,
which is filed as Exhibit 99.1 to this form 8-K, is incorporated herein by
reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(a) Financial Statements of Businesses Acquired
Not applicable.
(b) Pro Forma Financial Information
Not applicable.
(c) Exhibits
99.1 Press Release dated October 14, 1998.
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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.
THE RIGHT START, INC.
Date: October 14, 1998 /s/ Jerry R. Welch
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Jerry R. Welch
Chief Executive Officer and
Chairman of the Board
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EXHIBIT INDEX
99.1 Press Release dated October 14, 1998.
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EXHIBIT 99.1
Contact: Jerry R. Welch
Chief Executive Officer
Gina M. Shauer
Chief Financial Officer
The Right Start, Inc.
(818)707-7100
FOR IMMEDIATE RELEASE
THE RIGHT START, INC. ANNOUNCES ACCOUNTING TREATMENT OF RECAPITALIZATION
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TRANSACTION
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Westlake Village, California - October 14, 1998 - The Right Start, Inc.
(Nasdaq:RTST) announced today that it will restate the accounting treatment for
its previously announced recapitalization transaction after discussions with the
SEC in connection with the preparation of a proxy statement for the transaction.
As previously announced, in April 1998 the Company initiated a series of related
transactions (the "recapitalization transaction") designed to bring additional
capital into the Company to strengthen its financial position. The
recapitalization transaction included a private placement of $3,850,000 of
subordinated notes and warrants to purchase 3,850,000 shares of the Company's
common stock. Further, each of the holders of the Company's subordinated debt
($9,850,000 in aggregate principal amount) entered into an agreement whereby
each of the holders of the Company's subordinated debt agreed to exchange their
debt securities (together with any warrants issued in connection therewith) for
preferred stock of the Company. The exchange of the subordinated debt and
warrant securities for preferred stock is conditioned only upon shareholder
approval of preferred stock of the Company. Because holders of a majority of
the Company's voting stock are party to the agreements setting forth the
recapitalization transaction and are contractually obligated to vote in favor of
the recapitalization transaction, the Company expects to receive shareholder
approval to complete such transaction.
While there has been no change in the economics or the terms of the
recapitalization, the subordinated debt and warrants issued in April 1998 for
consideration to the Company of $3,850,000 will be treated as convertible debt
in the restated financial statements. Such treatment will result in the
recording of a capital contribution to the Company equal to the difference
between the exercise price of the warrants issued and the market value of the
Company's common stock underlying the warrants as of the date of issuance. The
capital contribution will be reflected in shareholders' equity and as a discount
on the subordinated notes. For accounting purposes, the discount on the
subordinated notes is then amortized over the expected term of such notes and a
non-cash accounting charge to interest expense is recorded. The term of the
subordinated notes is the period from the date of issuance of the subordinated
notes to the date of completion of the recapitalization transaction which is
anticipated to occur in November.
As a result of the accounting adjustments discussed above, the Company will
report an increase in total shareholders' equity to $5,950,000 at May 2, 1998
from $2,251,000 as previously reported. The Company will also report an
increase in total shareholders' equity to $4,932,000 at August 1, 1998 from
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$1,219,000 as previously reported. The accounting treatment also will result in
a non-cash accounting charge which will increase interest expense by
approximately $1.3 million for the quarter ending October 31, 1998 and by
approximately $2.5 million for the fourth quarter when the Company's annual
meeting is anticipated to be held. Finally, after shareholder approval is
obtained at the Company's annual meeting in November, the recapitalization
transaction will be completed when remaining subordinated debt of $6,000,000
principal amount is exchanged for Series A and Series B preferred stock.
The Company stated that although the accounting for the transaction is different
than was originally anticipated for the interim period, between April of this
year when agreement was reached with its subordinated debt holders and November
when shareholder approval will be obtained for the transaction, ultimately there
is no effect on the Company's total shareholders' equity or cash flow as a
result of the change in accounting treatment.
The Right Start, Inc. is a leading merchant of unique, high quality products for
infants and young children up to age four. The Company was founded in 1985 and
capitalizes on the increasing number of baby boomers who have become middle- to
upper-income new parents. The Company's products are distributed through its 35
retail stores and The Right Start Catalog.
Statements in this announcement that are not purely historical are forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements with respect to the
financial condition and results of operations of the Company involve risks and
uncertainties which are detailed further in the filings of the Company with the
Securities and Exchange Commission, including, but not limited to, the Company's
Registration Statement on Form S-3 (File No. 333-08157), its Annual Report on
Form 10-K for the year ended January 31, 1998 and its quarterly report on Form
10-Q for the thirteen weeks ended August 1, 1998.
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