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eToys unable to pay some bills

The toy e-tailer stops paying some creditors and suppliers, including a staffing agency that says it will take a $2 million charge in its first quarter as a result of the nonpayment.

Struggling online company eToys acknowledged Thursday that it has stopped paying some creditors, and one temporary staffing agency says it is owed $2 million.

"We said last month that we didn't sell as much product in all the quarters as we had hoped," said eToys spokesman Gary Gerdemann, who confirmed that some creditors have not been paid. "And we didn't have the extensive cash reserves that we hoped to raise by this time."

RemedyTemp, which supplied seasonal workers to eToys, issued a news release Wednesday saying it stopped receiving payments from eToys last week. The Aliso Viejo, Calif.-based company said eToys' debt will force it to reduce its per-share earnings by 14 cents. The company was expected to report per-share profits of between 45 cents and 47 cents, said Alan M. Purdy, chief financial officer of RemedyTemp.

"We are extremely disappointed that eToys suddenly stopped making its payments under an explicit plan, particularly following their history of consistent, prompt payments," Purdy said in a statement. "The one-time charge, which we believe is a cautious and prudent measure, represents the entire remaining amount due."

Gerdemann would not confirm whether RemedyTemp is among the creditors that have not been paid. He did note that eToys has formed a committee of its largest creditors to coordinate with its lawyers.

Purdy said RemedyTemp is not on the committee, which he said includes Hasbro, Mattel and Newell Rubbermaid.

Last month, eToys warned that its sales may be half of what analysts expected and that it would run out of cash by March.

Purdy said in an interview that eToys told his company a few months ago that it had enough money to keep going until March. "But that's when they expected Christmas sales would be much larger than they turned out to be," he said.

This is only the latest signal that the one-time e-commerce flagship is sinking faster than anyone had anticipated. Earlier this month, the Los Angeles-based company cut its work force by 70 percent and shuttered its European operations.

Analysts said last month that the only way for eToys to survive was to find a buyer. Tuesday, eToys' stock price tripled on speculation that the company was close to being acquired.

But a deal has yet to materialize. At the end of the regular trading session Thursday, the stock was down 19 cents, or more than 27 percent, to 50 cents.

eToys was once considered a premier online retailer with good customer service, strong branding, and a robust Web site. But it and countless other e-tailers have fallen out of favor with investors who have grown impatient with unprofitable Net companies.

"They developed the technology at a time when nobody else was making it," said IDC retail analyst Jonathan Gaw. "Now that kind of technology is pretty common. I don't see a lot of people buying the company just to get their hands on the technology."

The online toy industry, one of the hardest hit in e-commerce, has seen some of its brightest stars fade because of paper-thin margins, grueling competition, and investor apathy. Last spring,, backed by Disney, and closed down.

In September, the nation's second-largest toy merchant, Toys "R" Us, gave up running its own Web site and launched a joint toy-selling venture with