Toysmart.com, the online educational toy seller in which Walt Disney owns a 60 per cent stake, has become the latest hi-tech casualty as the dotcom bubble shows signs of bursting.
Disney invested $20m in Toysmart last year and at the time pledged to provide another $25m in web and outside marketing campaigns.
But a spokesman for Go.com, which oversees Disney's online business, said that after much thought the decision was made to close the Toysmart operation and maximise assets.
The online toy market has become increasingly cut-throat with big players such as eToys, Toysrus.com and Amazon.com taking the lion's share of business.
Michael May, an analyst at researcher Jupiter Communications, said: "To make an impact in this market companies have to diversify. Toysmart selling educational toys wasn't different enough."
Toysmart is not the first online toy retailer to cease trading. Redrocket.com, run by Nickelodeon, closed down at the beginning of this month, and KBToys.com recently made major cuts in its staffing levels.
David Lord, Toysmart's chief executive, said the collapse followed an aggressive reorganisation effort. "While a plan to fund the company's activities as a business-to-business operation was actively underway, negotiations collapsed at the last minute. When negotiations broke down, the board determined to cease operations and is now seeking to sell the company," he said.
Toysmart said it would fulfil all orders taken before midnight Eastern Time on 19 May.
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