On May 23, 2005, the Court entered the Order and Final Judgment signed by U.S. District Judge Michael M. Baylson approving the settlement. Further, the Court awarded plaintiff’s counsel attorneys’ fees in the amount of 33 ½% of the settlement fund and $45,707.60 in reimbursement of expenses. On June 13, 2006, the Court entered the Order approving the distribution of settlement funds.

According to a press release dated February 24, 2005, the law firms Berger & Montague and Vianale & Vianale announce a Pendency and Proposed Settlement of Class Action and Hearing in FAO, Inc. Class Action Lawsuit. The action has been certified as a class action and that a settlement for $1,750,000 has been proposed. A hearing will be held before the Honorable Michael M. Baylson in the United States Courthouse on May 16, 2005, to determine whether the proposed settlement should be approved by the Court as fair, reasonable, and adequate, and to consider the motion of Plaintiffs' Counsel for attorneys' fees and reimbursement of expenses.

The Complaint alleges that defendants violated Section 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between August 27, 2003 and November 7, 2003. More specifically, according to the Complaint, throughout the class period, defendants engaged in a fraudulent scheme to deceive the public as to FAO’s true financial condition. Defendants allegedly issued positive statements regarding FAO’s business and operations, and overall growth in publicly disseminated press releases and SEC filings and claimed that they were a fair presentation of FAO’s business. According to the Complaint, defendants failed to disclose material adverse facts regarding FAO’s business. As a result of defendants’ fraudulent scheme, FAO stock became artificially inflated during the Class period, thereby causing damages to Class Period purchasers of FAO securities.

NOTE: FAO filed for bankruptcy on December 4, 2003, and is therefore not named as a defendant in this action.