In May private equity firm, Archer, bought a 19 per cent stake in Funtastic and indicated it might buy the remaining shares, in what would have been a $132 million deal.
Archer shares reached 73 cents soon after the company took its stake, but gradually slipped as doubts grew that the scheme would proceed.
That was confirmed with a statement to the market that the Archer proposal had been terminated after the parties failed to reach an agreement.
Archer remains a substantial shareholder, but has not yet decided what it will do with its holding. It is possible the syndicate could make a new, lower offer.
Despite earlier fears the company held excess inventory, Funtastic said it was on track to meet its guidance of $31 million in earnings when it delivers its annual results tomorrow.
The company said it would provide an update on what it termed "strategic initiatives".
A spokesman for Funtastic said: "The company remains cautious of the current retail environment and the state of consumer demand in the lead-up to the pivotal Christmas period."
Funtastic markets toys, games and DVDs and owns film distributor Madman. www.funtastic.com.au