FAO Inc., owner of fabled toy retailer FAO Schwarz as well as Zany Brainy and Right Start, may be forced to liquidate because it has failed to line up the financing needed for its expected emergence from bankruptcy protection this week, the company announced yesterday.

The financing involved a commitment of $77 million from a group of banks led by Fleet Retail Finance Inc. and $30 million from equity investors, led by Kayne Anderson Capital Advisors L.P., which agreed to purchase convertible preferred stock to help fund the retailer after its emergence from bankruptcy.

But the equity investors withdrew from the deal because of a disagreement with the bankers, said FAO spokesman Alan Marcus.

The retailer declined to disclose specifics. But without the money, FAO's future may be in jeopardy, the company and analysts acknowledged.

"It leaves the impression that upscale toy stores are no longer sufficiently in demand to warrant a lot of financing," said Kurt Barnard, president of Barnard's Retail Consulting Group.

FAO continued to cater to upscale shoppers even as competitors such as Wal-Mart, the nation's largest toy retailer, were offering the same or similar toys at rock-bottom prices.

Its troubles deepened when it failed to properly integrate FAO Schwarz, Right Start and Zany Brainy.

The branches were folded into one company after educational toy retailer Right Start Inc. bought a good portion of FAO Schwarz for $58.3 million in November 2001, took over its flagship operation on Manhattan's Fifth Avenue and renamed itself FAO Inc. Zany Brainy was part of the Right Start family.

After the acquisition, FAO Inc. struggled to meet terms of loan covenants on a $115 million credit line. It filed for bankruptcy in January and expected to emerge April 18.

In the past year, FAO has closed its Georgetown store. Another six Zany Brainy stores and one Right Start store in the Washington area have closed or will be closing soon, the company said.

If the company sells its assets, several industry analysts expect buyers to line up for a shot at gaining the revered FAO name or the better-known stores, such as the ones in New York and Los Angeles.