Roger Knight, managing director of Kudlian Soft, which has produced early years and primary software for over 13 years, said sales had plummeted by 70 per cent in November.
He believed adverts for Curriculum Online and e-learning credits in October prompted schools to stop spending on software in anticipation of new funding from the Department for Education and Skills.
Other small firms have seen sales and turnover drop by between 60 and 80 per cent in the last quarter of 2002, Mr Knight said. "It's just killed the software market dead."
Schools were confused about what e-learning credits could buy, he claimed, and many teachers did not realise they could be spent on software as well as online resources.
He felt that certain local education authorities were misleading schools and trying to ring-fence funds.
The credits were released in November ahead of the Curriculum Online portal, where products can be purchased. The launch of Curriculum Online is expected at next week's BETT exhibition.
Mr Knight said becoming a registered Curriculum Online supplier and ensuring products were compatible had forced extra costs on small software companies like his own.
Kudlian will have a stand at BETT but Mr Knight was uncertain if it could survive. "Even if sales picked up immediately, it will take weeks for invoices to be paid," he said.
The DfES declined to comment.