NEW YORK (CNN/Money) - FAO Inc., the owner of the FAO Schwarz, Zany Brainy and Right Start chains of stores, said Tuesday that it may be forced to file for bankruptcy protection.

The struggling company said in a brief statement that unless its bank, Wells Fargo Retail Finance, relaxed borrowing restrictions on the company, it would have to file for bankruptcy protection from creditors in order to reorganize.

FAO announced a net loss of $23.7 million for its most recent quarter on Monday, and there were reports last week that two suppliers had stopped shipments to the company because they had not been paid.

FAO (FAOO: Research, Estimates), which is most well known for its flagship FAO Schwarz store in Manhattan, has been hit hard by the weak economy. Same-store sales for FAO Schwarz declined 10 percent in the most recent quarter while same-stores sales for Zany Brainy plunged 25.1 percent.

The company, formerly known as The Right Start, changed its name to FAO after acquiring FAO Schwarz. It acquired Zany Brainy in August 2001 and FAO Schwarz in January of this year. This buying binge has hurt the company's balance sheet. According to the company's latest earnings report, FAO had more than $115 million in long-term debt on its balance sheet and just $4.5 million in cash.

The company was not immediately available for comment. But during FAO's conference call on Monday, CEO Jerry Welch said that the company plans on closing some stores next year and will begin major sales promotions the day after Christmas in order to reduce inventory.

FAO's shares took a huge hit on Tuesday, plunging 42.4 percent to close at $1.10, after hitting a new 52-week low of $1.04. The stock has fallen 61.3 percent year-to-date.