FAO, Inc. is a holding company for entities such as the toy stores FAO Schwarz.

This lawsuit involves allegations concerning representations made by the Defendants regarding revenue and earnings forecasts for FAO, and its prospects as a successful ongoing concern after the integration of The Right Start, Inc., Zany Brainy, Inc. and FAO Schwarz. Plaintiffs allege that Defendants made misrepresentations concerning these issues that caused the price of FAO stock to trade at artificially inflated levels during the Class Period, but that when the truth was revealed – that the Company’s revenue for fiscal 2002 would be $95 million less than projected and that FAO was filing for bankruptcy – the stock price fell, resulting in harm to the Class Members.

On April 23, 2003, the Court entered the Stipulation and Order consolidating all related actions. On June 2, 2003, the Court entered the Order appointing the lead Plaintiff and approved the selection of co-lead Counsel. On August 5, 2003, the Plaintiff filed an Amended Class Action Complaint and the Defendants responded by filing a motion to dismiss. On January 12, 2005, a Stipulation and Agreement of Settlement was filed.

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

According to the Notice of Proposed Settlement of Class Action, a Settlement Fund of $2,250,000 has been established. The Court scheduled a Fairness Hearing for May 16, 2005, at the United States District Court for the Eastern District of Pennsylvania in Philadelphia. At this hearing the Court considered whether the Settlement is fair, reasonable, and adequate.

On May 23, 2005, the Court entered the Order signed by U.S. District Judge Michael M. Baylson awarding attorneys’ fees in the amount of 30% of the settlement fund. The Court further entered the Order and Final Judgment certifying the action and approving the settlement. On February 13, 2006, the Court entered the Order authorizing the distribution of the class settlement fund.