FAO Inc., the retail toy company that operates 253 toy stores including 23 FAO Schwartz outlets, 61 Right Start stores and 169 Zany Brainy shops, is teetering on the edge of bankruptcy. It reported its third quarter results this week, which included a precipitous 20% drop in same-store sales from last year--sales at Zany Brainy stores are down 25% from last year, while sales at the flagship FAO Schwartz shops are down 10%. FAO Inc. was put together by The Right Start Inc., which changed its name to FAO Inc. after acquiring FAO Schwartz for $55 million and Zany Brainy for $100 million during the past 14 months. FAO has asked its bank to relax recently imposed borrowing restrictions, stating that it will be forced into bankruptcy under current conditions.