KongZhong Corporation is a provider of advanced second-generation (2.5G) wireless interactive entertainment, media and community services. In addition, the Company has begun to provide wireless value-added services on the networks of China United Telecommunications Corporation (China Unicom), China Telecommunications Corporation (China Telecom) and China Network Communications Group Corporation (China Netcom). In March 2004, the Company changed its name from Communication Over The Air Inc. to KongZhong Corporation.

A class action lawsuit was filed on August 19, 2004 on behalf of all purchasers of KongZhong's (NASDAQ: KONG) American Depositary Shares ("ADSs") during the period between July 9, 2004 and August 17, 2004.

The Complaint alleges that KongZhong and certain of its officers and directors violated Sections 11, 12 and 15 of the Securities Act of 1933 by issuing a materially false and misleading prospectus with the Securities & Exchange Commission in connection with the initial public offering of KongZhong common stock, which took place on or about July 9, 2004. Also named as Defendants are the underwriters for the IPO. The Prospectus, which forms part of the Registration Statement, became effective on or about July 9, 2004, and 10 million of the Company's ADSs were sold to the public, raising approximately $100 million.

The Complaint alleges that the Prospectus failed to disclose and misrepresented the following adverse facts, among others: (1) that in early June 2004, KongZhong had carried inappropriate content on its interactive voice response service, which was in violation of the Company's agreement with China Mobile; (2) that in response to such violation, KongZhong would be subject to sanctions that could materially impact its business; and (3) because of the above, KongZhong's relationship with China Mobile would be negatively impacted.

On August 9, 2004, KongZhong issued a press release announcing its financial results for the second quarter of 2004, ending June 30, 2004. It reported earnings of $0.19 per ADS. On August 18, 2004, KongZhong issued a press release announcing that it had been notified by China Mobile of a sanction imposed on the Company. In addition to suspending the Company's new applications for new products, according to the press release, China Mobile also suspended the approval of KongZhong's applications, if any, to operate in new platforms until June 30, 2005. In response to this announcement, the price of KongZhong ADSs declined to $5.59 per ADS.

A press release dated September 14, 2005, announced that KongZhong has reached an agreement in principle to settle a securities class action pending against it, certain of its officers and other co-Defendants in the United Stated District Court for the Southern District of New York and arising out of the Company's 2004 initial public offering. The tentative settlement, which is subject to completion of final documentation and preliminary and final court approval, is reflected in a Memorandum of Understanding, dated as of September 13, 2005, between the lead Plaintiff, the Company and the other Defendants. Under the proposed settlement, the Company will pay $3.5 million into a settlement fund for persons who purchased or sold the Company's ADSs between July 9, 2004 and August 17, 2004. At this time, there can be no assurance that the parties will be able to agree on final documentation or that the settlement will receive preliminary or final court approval.

According to a press release dated April 24, 2006, on April 14, 2006, Judge Shira A. Scheindlin of the United States District Court for the Southern District of New York approved the settlement agreement reached by KongZhong to resolve a securities class action arising out of the Company's 2004 initial public offering. Under the settlement, the Company will pay $3.5 million to resolve all claims asserted against it and the other Defendants in this action. Persons who purchased or sold the Company's ADSs between July 9, 2004 and August 17, 2004 may be eligible to recover pursuant to the settlement. The Company set aside the settlement amount of $3.5 million in an escrow account and made a provision during the third quarter 2005.