- The Washington Times - Monday, November 10, 2003

PHILADELPHIA (AP) — Toy-store operator FAO Inc. said yesterday it was trying to resolve issues that prompted its lenders to deliver a notice of default, but the company said it couldn’t guarantee that it would be able to negotiate better loan terms.

The default notice said lenders no longer considered themselves obligated to give FAO — the owner of FAO Schwarz toy stores, including the flagship FAO Schwarz on Fifth Avenue in New York, as well as the Right Start and Zany Brainy stores — further loans or letters of credit, the company said.

Shares in FAO plunged 56 cents, or 32 percent, to close at $1.17 on the Nasdaq Composite Index.

The King of Prussia, Pa.-based company, which emerged from bankruptcy just over six months ago, said Friday it was exploring a sale of the company.

FAO said its holiday marketing efforts hadn’t brought expected sales, that it might not be able to continue normal operations through the end of the month, and that its liquidity in December would depend on whether sales improved.

The company asked some vendors to reduce shipments and extend payment dates but had no assurances they would agree to relax their terms.

FAO filed for Chapter 11 bankruptcy protection in January as it struggled to compete with discount chains such as Wal-Mart that sold some of the same toys at lower prices. It emerged from bankruptcy in April.

The company said in September its sales for the quarter ended Aug. 2 had dropped 49 percent to $46.3 million from $90 million a year earlier, and reported an $18.8 million loss for the quarter.

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