Industry insiders say the gun maker - which has already gone bankrupt once - is having trouble paying its bills. Colt blames the move on a rash of lawsuits against gun makers which seek to recover the medical costs associated with treating gunshot victims.
The West Hartford, Conn., company faces 28 lawsuits from cities and counties blaming it for gun violence.
In a letter to its distributors announcing it will no longer sell many of its products, Colt said, "We have had to face the harsh reality of the impact our (legal)costs are having on our ability to operate competitively."
The move won't have much impact on the U.S. gun market. While Colt has sold an estimated 30 million pistols and rifles since Samuel Colt first introduced his revolutionary revolving cylinder, the company lately has seen its market share dwindle.
Production has steadily dropped since 1994. And in 1997, the last year records are available, Colt produced less than 90,000 handguns, or just a bit over six percent of the national total.
Industry insiders said the company will likely reorganize and concentrate on developing the so-called "smart gun," which uses a radio signal to prevent unauthorized people from firing it.
"Colt has always been teetering on the edge of bankruptcy. What we're seeing today is really almost positioning themselves for the future. They are basically betting the farm on the smart gun," said Josh Sugarmann, Executive Director of the Violence Policy Center.
If that's the case, Colt may be betting some taxpayer dollars as well. The smart gun is far from being proven technology - and Colt's ability to attract new government grants to fund its research may be the key to its own long-term survival.