Vise Tightens on FAO Schwarz

Shares in FAO Schwarz parent FAO Inc. (FAOO Quote) fell sharply Monday for a second straight session as the children's retailer's cash crisis deepened.

The stock was down 34 cents, or 20%, to $1.39, having plunged about 60% Friday, after the Pennsylvania-based company, best known for its flashy Manhattan toy store, said it received default notices from lenders.

The company added it is in discussions with the lenders, who have effectively closed its lines of credit, but wouldn't speculate on the outcome.

On Friday, FAO said it would not have adequate liquidity for normal operations in November because recent sales were significantly below forecasts. The company also asked some vendors to reduce deliveries while also seeking delays in payment.

On Nov. 3, the company said it had hired an investment bank with the initial goal of helping it raise capital. FAO has since asked the bank to also consider the sale of the company.

In late October, FAO denied a report in the New York Post that it was experiencing a cash crunch or having credit problems with suppliers.

FAO had a loss of $18.8 million, or $4.05 a share, in its second quarter ended Aug. 2, compared to a loss of $18.2 million, or $8.01 a share, loss in the same quarter a year ago. At the end of its second quarter, the company reported $265,000 in cash or cash equivalents -- one-tenth of its year-ago level. FAO had an operating loss of $56.7 million in the first half of 2003.