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|UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K



[X] ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
ACT OF 1934 
For the fiscal year
ended December 31, 2006 OR[   ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
EXCHANGE ACT OF 1934
For the transition
period from _______________ to _______________


Commission File No.
0-7843



4Kids Entertainment,
Inc.(Exact name of
registrant as specified in its charter)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|New York
      (State or other jurisdiction of 
      incorporation or organization) | 13-2691380
      (I.R.S. Employer
      Identification No.)
|------------------------------------------------------------------------------------ | -----------------------------------------------------------

|1414 Avenue of the Americas
      New York, New York
      (Address of principal executive offices) | 10019
      (Zip Code)
|--------------------------------------------------------------------------------------------------- | ----------------------

|Registrants telephone number, including area code:  (212) 758-7666Securities registered pursuant to Section 12(b) of the Act:
|------------------------------------------------------------------------------------------------------------------------------

|Title of Class

      Common Stock, $0.01 par value | Name of each exchange on which registered

      New York Stock Exchange
|--------------------------------------------------- | ------------------------------------------------------------------------

|Securities registered pursuant to the Section 12(g) of the Act:  None
|---------------------------------------------------------------------

| | Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes___ No X
| | ------------------------------------------------------------------------------------------------------------------------------------

| | Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ___ No X
| | ------------------------------------------------------------------------------------------------------------------------------------------

| | Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to file such reports), and
(2) has been subject to the filing requirements for the past 90 days. Yes X No ___
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of the Registrants
knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. |   |
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act   (Check One):
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Large accelerated filer                
Accelerated filerX                Non-accelerated filer
| | -----------------------------------------------------------------------------------------------

| | Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes____ No X
| | -----------------------------------------------------------------------------------------------------------------------------

| | The
aggregate market value of the voting stock held by non-affiliates of the Registrant,
based on the closing price of the Common Stock on June 30, 2006 as reported on the New
York Stock Exchange Market, was approximately $165,919,968. Shares of Common Stock held
by each officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded from this computation in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Indicate
the number of shares outstanding of each of the Registrants classes of common
stock, as of the latest practicable date.
| | ---------------------------------------------------------------------------------------------------------------------------------

|Common Stock, $.01 Par Value
      (Title of Class) | 13,183,218
      (No. of Shares Outstanding at March 15, 2007)
|--------------------------------------------------- | --------------------------------------------------------------

| | 
| | 

| | Portions
of the Registrants Proxy Statement for the Annual Meeting of Stockholders to be
held on May 25, 2007 are incorporated by reference into Part III of this Annual Report on Form 10-K.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|FORM 10-K REPORT INDEX
|----------------------

|                      |  |                                                                                                                     |  |         
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------- |  | --------
|10-K Partand Item No. |  |                                                                                                                     |  | Page No.
|PART I                |  |                                                                                                                     |  |         
|Item 1                |  | Business                                                                                                            |  | 1       
|Item 1A               |  | Risk Factors                                                                                                        |  | 4       
|Item 1B               |  | Unresolved Staff Comments                                                                                           |  | 8       
|Item 2                |  | Properties                                                                                                          |  | 9       
|Item 3                |  | Legal Proceedings                                                                                                   |  | 9       
|Item 4                |  | Submission of Matters to a Vote of Security Holders                                                                 |  | 9       
|                      |  |                                                                                                                    
|PART II               |  |                                                                                                                     |  |         
|Item 5                |  | Market for the Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 9       
|Item 6                |  | Selected Consolidated Financial Data                                                                                |  | 10      
|Item 7                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                               |  | 12      
|Item 7A               |  | Quantitative and Qualitative Disclosures About Market Risk                                                          |  | 23      
|Item 8                |  | Financial Statements and Supplementary Data                                                                         |  | 23      
|Item 9                |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                                |  | 23      
|Item 9A               |  | Controls and Procedures                                                                                             |  | 23      
|Item 9B               |  | Other Information                                                                                                   |  | 24      
|                      |  |                                                                                                                    
|PART III              |  |                                                                                                                     |  |         
|Item 10               |  | Directors and Executive Officers of the Registrant                                                                  |  | 25      
|Item 11               |  | Executive Compensation                                                                                              |  | 25      
|Item 12               |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                      |  | 25      
|Item 13               |  | Certain Relationships and Related Transactions                                                                      |  | 25      
|Item 14               |  | Principal Accountant Fees and Services                                                                              |  | 25      
|                      |  |                                                                                                                    
|PART IV               |  |                                                                                                                     |  |         
|Item 15               |  | Exhibits and Financial Statement Schedules                                                                          |  | 26      

|PART I


Throughout this Annual Report on Form
10-K, we incorporate by reference certain information in parts of other
documents filed with the Securities and Exchange Commission (the SEC). The SEC
allows us to disclose important information by referring to it in that manner. Please
refer to such information.


This Annual Report on Form 10-K,
including the sections titled Item 1A.Risk Factors and Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that relate to future events or our
future financial performance. We may also make written and oral forward-looking statements
in our Securities and Exchange Commission (SEC) filings and otherwise. We have
tried, where possible, to identify such statements by using words such as
believe, expect, intend, estimate,
anticipate, will, project, plan and
similar expressions in connection with any discussion of future operating or financial
performance. Any forward-looking statements are and will be based upon our then-current
expectations, estimates and assumptions regarding future events and are applicable only as
of the dates of such statements. By their nature, forward-looking statements involve risks
and uncertainties that could cause actual results to differ materially from those
anticipated in any forward-looking statements. Such risks and uncertainties include those
described in Item 1A. Risk Factors below as well as other factors. We
undertake no obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.


Item 1. Business


General Development and
Narrative Description of Business  4Kids Entertainment, Inc., together with the
subsidiaries through which the Companys businesses are conducted (the
Company), is a diversified entertainment and media company specializing in the
youth oriented market with operations in the following business segments: (i) Licensing;
(ii) Advertising Media and Broadcast; (iii) Television and Film Production/Distribution;
and (iv) Trading Card and Game Distribution.  The Company was organized as a New York
corporation in 1970.


Licensing 
The Licensing business segment consists of the results of operations of the following
wholly-owned subsidiaries of the Company: 4Kids Entertainment Licensing, Inc. (4Kids
Licensing); 4Sight Licensing Solutions, Inc. (4Sight Licensing); 4Kids
Entertainment International, Ltd. (4Kids International); and 4Kids Technology,
Inc. (4Kids Technology). 4Kids Licensing is engaged in the business of
licensing the merchandising rights to popular childrens television series,
properties and product concepts (individually the Property or collectively the
Properties). 4Kids Licensing typically acts as exclusive merchandising agent
in connection with the grant to third parties of licenses to manufacture and sell all
types of merchandise, including toys, video games, trading cards, apparel, housewares,
footwear, books and other published materials, based on such Properties. 4Sight Licensing
is engaged in the business of licensing properties and product concepts to adults, teens
and tweens. 4Sight Licensing focuses on brand building through licensing.
4Kids International based in London, manages the Properties represented by the Company in
the United Kingdom and European marketplaces. 4Kids Technology develops ideas and concepts
for licensing which integrate new and existing technologies with traditional game and toy
play patterns.


The Licensing segment accounted for
approximately 44%, 47% and 50% of consolidated net revenues for the years ended December
31, 2006, 2005 and 2004, respectively. The Yu-Gi-Oh! and Teenage Mutant
Ninja Turtles Properties continue to be the two largest contributors in this
business segment.


Advertising Media and
Broadcast  The Company, through a multi-year agreement with Fox
Broadcasting Corporation (Fox), leases Foxs Saturday morning programming
block from 8am to 12pm eastern/pacific time (7am to 11am central time). In January 2005,
the Company changed the name of the Saturday morning programming block from Fox
Box to 4Kids TV. The Company provides substantially all programming
content to be broadcast on 4Kids TV. 4Kids Ad Sales, Inc. (4Kids Ad Sales), a
wholly-owned subsidiary of the Company, retains all of the revenue from its sale of
network advertising time for the four-hour time period leased from Fox.


Effective June 30, 2006, the
Companys wholly-owned subsidiary, The Summit Media Group, Inc. (Summit
Media), which previously provided print and broadcast media planning and buying
services for clients principally in the childrens toy and game business, terminated
its operations. As a consequence of the termination of its operations, Summit Media no
longer serves as a media buying agency for third parties.


The Advertising Media and Broadcast
segment accounted for 23%, 23% and 20% of consolidated net revenues for the years ended
December 31, 2006, 2005 and 2004, respectively.

1
Television and Film
Production/Distribution  The Television and Film
Production/Distribution business segment consists of the results of operations of the
following wholly-owned subsidiaries of the Company: 4Kids Productions, Inc. (4Kids
Productions); 4Kids Entertainment Music, Inc. (4Kids Music); and 4Kids
Entertainment Home Video, Inc. (4Kids Home Video). 4Kids Productions produces
and adapts animated and live-action television programs and theatrical motion pictures for
distribution to the domestic and international television, home video and theatrical
markets. 4Kids Music composes original music for incorporation into television programming
produced by 4Kids Productions and markets and manages such music. 4Kids Home Video
distributes home videos associated with television programming produced by 4Kids
Productions. The Television and Film Production/Distribution segment accounted for 33%,
30% and 30% of consolidated net revenues for the years ended December 31, 2006, 2005 and
2004, respectively.


Trading Card and Game
Distribution Through its wholly-owned subsidiary, 4Kids Digital
Games, Inc., (4Kids Digital), the Company owns 53% of TC Digital Games LLC, a
Delaware limited liability company (TC Digital), that will produce, market and
distribute the Chaotic trading card game. On December 11, 2006, 4Kids Digital
and Chaotic USA Digital Games LLC (CUSA LLC), a wholly owned subsidiary of
Chaotic USA Entertainment Group, Inc. (CUSA) entered into the TC Digital
operating agreement (TCD Agreement) which contains terms and conditions
governing the operations of TC Digital. Under the TCD Agreement, 4Kids Digital and
CUSA are each entitled to elect two managers to TC Digitals Management Committee with
4Kids Digital having the right to break any dead-locks.


Through its wholly-owned subsidiary,
4Kids Websites, Inc., the Company owns 50% of TC Websites LLC, a Delaware limited
liability company (TC Websites), that will own and operate
www.chaoticgame.com, the companion website for the Chaotic trading card game.
4Kids Websites purchased its 50% membership interest in TC Websites from CUSA on December
11, 2006. Under the terms of TC Websites operating agreement (TCW Agreement),
4Kids Websites and CUSA are each entitled to elect two managers to TC Websites
Management Committee, with 4Kids Websites having the right to break any dead-lock relating
to advertising and marketing issues and CUSA having the right to break any dead-lock
relating to operational matters.


TC Digital and TC Websites are the
exclusive licensees of patents covering the uploading of coded trading cards to a website
where online game play and community activities occur. The Company believes that its
ownership interests in TC Digital and TC Websites represent a potentially significant
addition to its business strategy. These two businesses should enable the Company to offer
traditional trading card game play with an online digital play experience. In addition, it
is anticipated that TC Digital and TC Websites will diversify their product lines and will
ultimately distribute and sell, and create websites for, other trading card games. The
Trading Card and Game Distribution segment accounted for no revenues for the year ended
December 31, 2006.


Certain of the Companys
executive officers have interests in CUSA, CUSA LLC and certain other entities in which TC
Digital and TC Websites have engaged in transactions since their formation. Information
regarding these relationships can be found in Note 17 of the Notes to the Companys
consolidated financial statements.


Financial Information About
Industry Segments  Financial information regarding industry segments can be
found in Note 18 of the Notes to the Companys consolidated financial statements.


Dependence on a Few Sources of
Revenues The Company typically derives a substantial portion of its revenues
from a small number of Properties, which usually generate revenues for only a limited
period of time. The Companys revenues are highly subject to changing trends in the
toy, game and entertainment businesses, causing dramatic increases and decreases from year to year
due to the popularity of particular Properties. It is not possible to accurately predict the length of time that a Property
will be commercially successful and/or if a Property will be commercially successful at
all. Due to these factors, the Company must continually seek new properties from which it
can derive revenues. In addition, the Company also does not control the timing of the
release of products by licensees which can affect both the amount of licensing revenues
earned and the periods during which such revenues are recognized.


Two Properties, Yu-Gi-Oh!
and Teenage Mutant Ninja Turtles represented 37% of consolidated net revenues
for fiscal 2006. One licensee, Konami Corporation, represented 15% of consolidated net
revenues for fiscal 2006. For more information on Revenues/Major Customers, please see
Note 9 of the Notes to the Companys consolidated financial statements.



2

Trademarks and Copyrights
 Except as provided below, the Company generally does not own any trademarks or
copyrights in Properties which the Company represents as a merchandising agent. The
trademarks and copyrights are typically owned by the creators of the Properties or by
other entities, which may have expended substantial amounts of resources in developing or
promoting the Properties.


The Company owns the copyrights and
trademarks to Charlie Chan and the WMAC Masters live action
television series. The Company is also a joint copyright holder of the Cubix
CGI television series and the episodes of the Teenage Mutant Ninja Turtles and
Chaotic animated television series produced by 4Kids Productions.


The Company is also a joint copyright
holder of the new Chaotic trading card artwork for the Chaotic
trading card game, scheduled to be released to the comic and hobby store distribution
channel in Spring 2007. The Company also jointly owns the copyright to the
Chaotic trading card game as it relates to revisions to the
original Chaotic trading card game previously sold in Denmark.  The
Company, through its 50% ownership interest in TC Websites, jointly owns the intellectual
property rights to the website engine and related proprietary software which enables
Chaotic website visitors to play the Chaotic trading card game
online at www.chaoticgame.com.


Seasonal Aspects  A
substantial portion of the Companys revenues and net income are subject to the
seasonal and trend variations of the toy and game industry. Typically, a majority of toy
orders are shipped in the third and fourth calendar quarters. Historically, the
Companys net revenues from toy and game royalties during the second half of the year
have generally been greater than during the first half of the year. Additionally,
advertising revenues derived from the sale of commercial time on 4Kids TV is generally
higher in the fourth quarter due to higher advertising rates derived from childrens
advertisers for advertising during the holiday season.


Competition  The
Companys principal competitors in the area of merchandise licensing are the large
media companies (e.g., Disney, Time Warner and Nickelodeon, which is owned by Viacom) with
consumer products/merchandise licensing divisions, toy companies, other licensing
companies, and numerous individuals who act as merchandising agents. There are also many
independent product development firms with which the Company competes. Many of these
companies have substantially greater resources than the Company and represent properties
which have been commercially successful for longer periods than the Properties represented
by the Company. The Company believes it would be relatively easy for a potential
competitor to enter its market in light of the relatively small investment required to
commence operations as a merchandising agent.


The Companys Advertising Media
and Broadcast segment also operates in a highly competitive marketplace against large
media companies (e.g., Disney, Time Warner, CBS, NBC and Nickelodeon, which is owned by Viacom)
 with substantially greater resources and distribution networks than the Company. The
Companys ability to derive advertising revenue from the sale of commercial time on
4Kids TV depends, in substantial part, on the popularity of the television shows that the
Company broadcasts on 4Kids TV. The Company also faces significant competition from other
television broadcasters and cable networks, which also broadcast childrens
television shows on Saturday mornings.


The Companys Television and
Film Production/Distribution segment competes with all forms of entertainment directed at
children. There are a significant number of companies that produce and/or broadcast
television programming and distribute theatrical motion pictures and home videos for the
childrens audience. The Company also competes with these companies to obtain
creative talent to write, adapt, score, provide voice-overs and produce the television
programs and theatrical motion pictures marketed by the Company and its subsidiaries.


The Companys Trading Card and
Game Distribution segment will also be operating in a highly competitive market against
strong competition such as: (i)Wizards of the Coast which is owned by Hasbro and
distributes the popular Magic the Gathering trading card game; (ii) Upper
Deck, a company that distributes Yu-Gi-Oh! trading cards and sports cards;
(iii) Topps, a company that distributes sports cards; and (iv) Nintendo of America and
Pokémon USA, Inc., the companies that distribute the Pokémon
trading card game. The Chaotic website which is part of the Companys
Trading Card and Game Distribution segment will also be competing with popular online
multiplayer game websites such as World of Warcraft, the website run by
Blizzard Entertainment, a subsidiary of Vivendi.


Employees  As of March
15, 2007, the Company had a total of 209 full-time employees in its domestic and
international operations. Of the total, 95 employees were primarily rendering services for
the Licensing segment, 28 were primarily rendering services for the Advertising Media and
Broadcasting segment, 81 were primarily rendering services for the Television and Film
Production/Distribution segment and 5 were primarily rendering services for the Trading
Card and Game Distribution segment. The Company also hires additional employees on a
program-by-program basis whose compensation is typically allocated to the capitalized cost
of the related programming.



3

Available Information 
The Companys Annual Report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and all amendments to those reports, and the Proxy Statement for its
Annual Meeting of Stockholders are made available, free of charge, through its website,
http://www.4kidsentertainment.com, as soon as reasonably practicable after such
reports have been filed with or furnished to the Securities and Exchange Commission (the
SEC). In addition, you may read and copy any materials the Company files with
the SEC at the SECs Public Reference Room at 450 Fifth Street N.W., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC maintains an Internet site, www.sec.gov that contains
reports, proxy and information statements, and other information regarding issuers that
file electronically with the SEC.


Executive Officers of the Company
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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|Name              | Age | Employed By
Registrant
Since | Recent Position(s) Held As Of March 15, 2007                                                                      
|----------------- | --- | ---------------------------- | ------------------------------------------------------------------------------------------------------------------
|Alfred R. Kahn    | 60  | 1987                         | Chairman of the Board of Directors and Chief Executive Officer (since 1991)                                       
|                  |     |                              |                                                                                                                   
|Bruce R. Foster   | 47  | 2002                         | Executive Vice President and Chief Financial Officer (since 2005); Senior Vice President of Finance (2002 to 2005)
|                  |     |                              |                                                                                                                   
|Norman Grossfeld  | 43  | 1994                         | President of 4Kids Productions, Inc.                                                                              
|                  |     |                              |                                                                                                                   
|Samuel R. Newborn | 52  | 2000                         | Executive Vice President and General Counsel                                                                      
|                  |     |                              |                                                                                                                   
|Brian Lacey       | 56  | 2003                         | Executive Vice President, International                                                                           
|                  |     |                              |                                                                                                                   
|Daniel Barnathan  | 52  | 2002                         | President of 4Kids Ad Sales, Inc.                                                                                 
|                  |     |                              |                                                                                                                   
|Bryan Gannon      | 49  | 2006                         | Chief Executive Officer of TC Digital Games LLC and TC Websites LLC                                               
|                  |     |                              |                                                                                                                   
|John Milito       | 33  | 2006                         | Executive Vice President of TC Digital Games LLC and TC Websites LLC                                              
|                  |     |                              |                                                                                                                   

|Item 1A. Risk Factors


The following significant factors, as
well as others of which we are unaware or deem to be immaterial at this time, could
materially adversely affect our business, financial condition or operating results in the
future. Therefore, the following information should be considered carefully together with
other information contained in this report. Past financial performance may not be a
reliable indicator of future performance, and historical trends should not be used to
anticipate results or trends in future periods.


The changing entertainment
preferences of consumers could adversely affect our business.


Our business and operating results depend
upon the appeal of our Properties, product concepts and programming to consumers.
Consumers entertainment preferences, as well as industry trends and demands are
continuously changing and are difficult to predict as they vary over time. In addition, as
entertainment properties often have short life cycles, there can be no assurances that:




4
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | our current  Properties,  product  concepts or programming will continue to be popular for any significant
         period of time;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------

| | (ii) | new  Properties,  product  concepts or  programming  we  represent  or produce will achieve and or sustain
         popularity in the marketplace;
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | a Propertys life cycle will be sufficient to permit us to recover revenues
               in excess of the costs of advance payments, guarantees, development, marketing,
               royalties and other costs relating to such Property; or
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iv) | we will successfully anticipate, identify and react to consumer preferences.
| | ---- | ----------------------------------------------------------------------------

|Our failure to accomplish any of
these events could result in reduced overall revenues, which could have a material adverse
effect on our business, financial condition and results of operations. In addition, the
volatility of consumer preferences could cause our revenues and net income to vary
significantly between comparable periods.


Revenues from our Licensing
segment are largely derived from a small number of Properties and are subject to changing
industry trends.


We have historically derived a
substantial portion of our licensing revenues from a small number of Properties which
usually generate revenues only for a limited period of time. For the year ended December
31, 2006, we derived approximately 50% of our licensing revenues from two Properties. Our licensing
revenues are also subject to the changing trends in the toy, game and entertainment
industries. Consequently, our licensing revenues may be subject to dramatic increases and
decreases from particular sources over time. In addition, we do not control the timing of
the release of products by licensees which can affect both the amount of licensing
revenues earned and the periods during which such revenues are recognized. A significant
decrease in our licensing revenues could have a significant adverse impact on our
financial condition and results of operations.


Revenues from our Licensing
segment are directly impacted by the amount of retail shelf space dedicated to our
Properties.


As an exclusive merchandising agent,
we grant licenses to third parties to manufacture and sell all types of merchandise based
on the Properties that we represent. The ability of these third parties to design,
manufacture, and ultimately market and sell this merchandise through various distribution
channels has a direct impact on our revenues. If these third parties are not successful in
obtaining adequate shelf space for this merchandise at retail, the performance of certain
Properties could suffer which could have a material adverse impact on our financial
condition and results of operations.


Our operating margins could be
adversely impacted by the mix of Properties we represent.


Historically, the majority of the television
episodes produced by our production studio were English language dubbed versions of
previously produced foreign language programming. We were able to license television
broadcast rights, home video rights and merchandising rights to such foreign language
programming for rights fees that were substantially below the cost of producing original
programming. Over the past several years, we have begun shifting our strategic focus
toward the production of more original animated programming in an effort to obtain a higher
percentage of revenue from the series and build the
value of our programming library. The investment required to produce original animated
programming is substantially greater than our historical cost of dubbing and adapting
existing foreign language animated programming. Our production of original programming
funded in whole or in part by us will result in a substantial increase in capitalized film
costs that will be amortized based on overall market acceptance and projected revenues. To
the extent that a Property performs at a level lower than our expectations, the ratio of
amortization expense will increase and may adversely impact our operating margins and
results of operations. If our original programming is not successful, we may be required to
write down millions of dollars of capitalized film costs associated with the unsuccessful
series, which will have a material adverse impact on our financial condition and results of
operations.


We must continually seek new
Properties from which we can derive revenues.


It is difficult to predict whether a
Property will be successful, and if so, for how long. Because of this, we are constantly
seeking new Properties that are already successful or that we believe are likely to become
successful in the future. If we are unable to identify and acquire the rights to
successful new Properties, our revenues, financial condition and results of operations
could be adversely affected.



5

Our business is seasonal and
highly dependent on our performance during the holiday season.


A high percentage of our annual operating
results have historically depended on our performance during the holiday season. Sales of
our licensed toy and game concepts are seasonal and most retail sales of these products
occur during the third and fourth fiscal quarters. Also, as a result of the increased
demand for commercial time by childrens advertisers during the holiday season, a
significant portion of the revenues generated by 4Kids Ad Sales occur during the fourth
fiscal quarter. The financial results of 4Kids TV are also affected by how successful it
is in attracting viewers during the holiday season. As a result of the seasonal nature of
our business, we would be significantly and adversely affected by unfavorable economic
conditions and other unforeseen events during the holiday season, such as a terrorist
attack or a military engagement, that negatively affect the retail environment or consumer
buying patterns. In addition, a failure by us to supply programming to 4Kids TV during the
holiday season could have a material adverse impact on our financial condition and results
of operations.


We operate in a highly
competitive marketplace.


     Licensing.    
          Our principal competitors in the area of merchandise licensing are the large
          media companies (e.g., Disney, Time Warner and Nickelodeon, which is owned by
          Viacom) with consumer products/merchandise licensing divisions, toy companies,
          other licensing companies, and numerous individuals who act as merchandising
          agents. There are also many independent product development firms with which we
          compete. Many of these companies have substantially greater resources than we do
          and represent properties which have been commercially successful for longer
          periods than our Properties. We believe that it would be relatively easy for a
          potential competitor to enter into this market in light of the relatively small
          investment required to commence operations as a merchandising agent.


Advertising Media and
Broadcast. Our Advertising Media and Broadcast segment also operates in a highly
competitive marketplace against large media companies (e.g., Disney, Time Warner, CBS, NBC and Nickelodeon, which is owned by Viacom)
 with substantially greater resources
and distribution networks than we have. Our ability to derive advertising revenue from the
sale of commercial time on 4Kids TV depends, in substantial part, on the popularity of the
television shows that we broadcast on 4Kids TV. We also face significant competition from
other television broadcasters and cable networks, which also broadcast childrens
television shows on Saturday mornings. Broadcast television for children has been losing
popularity over the last few years to the childrens cable television channels such
as Nickelodeon, Cartoon Network and the Disney Channel. In addition, the popularity of the
internet, video on demand, digital video recording of programming and other trends have
caused a fragmentation of the audience. Both of these trends have resulted in lower advertising
revenues from our sale of our advertising time on 4Kids TV. This reduction of
advertising revenues would adversely affect our business and the results of operations.


Our agreement with Fox for 4Kids TV
is set to expire at the end of the 2007-2008 broadcast season. There can be no assurance
that Fox will renew the agreement or that we will be able to negotiate an extension of the
term of the agreement with Fox. If we were unable to extend the term of the agreement and
were not able to secure substitute broadcast time for the broadcast of the programming
produced by us for the 2008-2009 broadcast season and beyond, many of our Properties may
not be able to get the regular television exposure that we believe is necessary to sustain
the popularity of such Properties. Consequently, a lack of regular television exposure
could adversely affect our business and results of operations.


Television and Film
Production/Distribution. Our Television and Film Production/Distribution segment
competes with all forms of entertainment directed at children. There are a significant
number of companies that produce and/or broadcast television programming and distribute
theatrical motion pictures and home videos for the childrens audience. We also
compete with these companies to obtain creative talent to write, adapt, score, provide
voice-overs and produce the television programs and theatrical motion pictures marketed by
us.


Trading Card and Game
Distribution. Our Trading Card and Game Distribution segment will also be operating in
a highly competitive market against strong competition such as: (i)Wizards of the Coast
which is owned by Hasbro and distributes the popular Magic the Gathering
trading card game; (ii) Upper Deck, a company that distributes Yu-Gi-Oh!
trading cards and sports cards; (iii) Topps, a company that distributes sports cards; and
(iv) Nintendo of America and Pokémon USA, Inc., the companies that distribute the
Pokémon trading card game. The Chaotic website which is
part of our Trading Card and Game Distribution segment will also be competing with
popular online multiplayer game websites such as World of Warcraft, the
website run by Blizzard Entertainment, a subsidiary of Vivendi.





6

Our broadcasting costs may
increase or our advertising revenues may decrease due to events beyond our control.


The success of our Advertising Media
and Broadcastsegment is largely dependant on the amount of advertising revenues
generated from sales of network advertising on 4Kids TV. Recently, there has been
increased scrutiny of food advertising directed at children as a result of childhood
obesity concerns. In response to these concerns, several significant food advertisers have
reduced or eliminated advertising of food products directed toward children resulting in a
reduction in the advertising dollars spent in the childrens advertising marketplace.
In addition, international, political and military developments may result in increases in
broadcasting costs or loss of advertising revenue due to, among other things, the
preemption of 4Kids TV programming.


Our Trading Card and Game
Distribution segment presents certain risks.


Our trading card business is a new
business and has no operating history.We expect to invest between approximately $10
and $20 million in TC Digital and TC Websites in the aggregate. Neither of these companies has any
operating history and both will be operating in a highly competitive trading card marketplace.
TC Digital will initially distribute one product, the Chaotic trading card
game. If the Chaotic trading card game is not successful, we will incur
substantial losses, including possibly the loss of our entire investment in TC Digital and
TC Websites.


We expect to distribute the
Chaotic trading card game to the comic book and hobby store distribution
channels beginning in the Spring of 2007. Additionally, we expect to distribute the
Chaotic trading card game to mass market distribution channels beginning in
the Fall of 2007. If the trading card game is not successful in the comic book and hobby
store distribution channels, it is possible that we will not receive substantial orders
from the mass market distribution channel. If such events were to occur, it is likely that
our investment in TC Digital and TC Websites would be significantly impaired which would
adversely impact our business and results of operations.


TC Digital is in the process of
seeking and hiring staff with experience in the trading card industry. It is possible that
TC Digital will be unable to hire experienced employees in a timely manner which may
result in delays in the distribution of the Chaotic trading card game to
market. Any such delays may result in our inability to fulfill orders and properly
market the Chaotic trading card game. These delays could adversely impact our business and results of operations.




Card  production  delays or
shortfalls and card  inventory  risk. Raw materials  required for production of
the Companys  products are generally  available.  However,  the  unavailability  of
certain  raw  materials  or a  significant  increase in their cost could have a
material adverse affect on our future plans and operating  results.  Our production
of cards to meet  anticipated  retailer demand could cause an  inventory  surplus  and
  result in  markdowns  and  increased  inventory  carrying  costs  for us on even our most  successful
products.  Additionally,  if we  underestimate  demand  for our  products,
we may be unable to  provide  adequate  supplies  of popular products to retailers in a
 timely fashion, and may consequently lose sales opportunities.




There may be issues with the
functionality of the Chaotic website.Each Chaotic trading
card will have a unique code which will enable the Chaotic card collector to
enter or upload the Chaotic trading card codes to the companion website,
www.chaoticgame.com. It is expected that the Chaotic website will enable each
Chaotic card collector to battle online using the Chaotic cards
that have been uploaded to the card collectors online account. The
Chaotic website is in the final stages of development but has not yet been
completed or fully tested. There can be no assurance that the Chaotic website
will be completed and fully operational in a timely manner or that the website will
operate properly. If the Chaotic website were not to be fully operational when
the trading card game is released or if the website were not to operate properly after the
website goes live, the success of the trading card game would be adversely affected. Such
circumstances could significantly impair our investment in TC Digital and TC Websites and
could require that we invest additional amounts in TC Websites in order to complete
the Chaotic trading game companion website.


Advertising revenues from the
Chaotic website may be less than anticipated. We do not expect that
visitors to the Chaotic website will be charged a fee for playing the
Chaotic trading card game online. It is anticipated that the website will be
supported by advertising revenues. There can be no assurance that advertising revenues
will be sufficient to support the costs expected to be incurred in the operation of the
website and in the periodic upgrades of the website. If advertising revenues are not
sufficient to cover the costs of operating the website, the losses incurred by TC Websites
may significantly impair our investment in TC Websites and adversely impact our business
and the results of operations.



7

Dependence on limited number of customers and distributors.
 We expect our Trading Card and Game
Distribution segment to be dependent on several large customers, certain of which are
serviced by a single distributor. The loss of any of these customers or distributors could
materially adversely affect our future plans and results in this segment.







Our future success is
dependent on certain key employees.


The success of our business depends
to a significant extent upon the skills, experience and efforts of a number of senior
management personnel and other key employees. In many instances, we have employment
agreements in place as a method of retaining the services of these
key employees. The loss of the services of any of the senior management personnel and
other key employees could have a material adverse effect on our business, results of
operations or financial condition.


We may not be able to successfully
protect our intellectual property rights.


We rely on a combination of
copyright, trademark, patent and other proprietary rights laws to protect the intellectual
property rights that we own or license. It is possible that third parties may challenge
our rights to such intellectual property. In addition, there is a risk of third parties
infringing upon our or our licensors intellectual property rights and producing
counterfeit products. These events may result in lost revenue as well as litigation, which
may be expensive and time-consuming even if a favorable outcome is obtained. There can be
no assurance that there are adequate remedies for any infringement. Any such failure to
successfully protect our intellectual property rights may have a material adverse effect
on our competitive position.


We may be negatively affected by
adverse general economic and other conditions.


Conditions in the domestic and global
economies are extremely unpredictable and our business has been and in the future may be,
impacted by changes in such conditions. Softening global economies, stock market
uncertainty and wavering consumer confidence caused by the threat or occurrence of
terrorist attacks, war or other factors generally affecting economic conditions may
adversely affect our business, financial condition and results of operations.


We must be able to respond to
rapidly changing technology occurring within our industry.


Our success will depend, in part, on
our ability to anticipate and adapt to numerous changes in our industry resulting from
technological developments such as the internet, broadband distribution of entertainment
content and the adoption of digital television standards. These new distribution
technologies may diminish the size of the audience watching broadcast television and
require us to fundamentally change the way we market and distribute our Properties. For
example, digital technology is likely to accelerate the convergence of broadcast,
telecommunications, internet and other media and could result in material changes in the
regulations, intellectual property usage and technical platforms on which our business
relies. These changes could significantly decrease our revenues or require us to incur
significant capital expenditures.


Potential labor disputes may lead
to increased costs or disrupt the operation of our business.


The success of our business is
dependant on our employees who are involved with our domestic and international
operations. Any labor dispute may adversely affect one or more of our business segments
through increased costs of operating such segment or disruption of the operations of such
segment which could adversely affect our results of operations.


Item 1B. Unresolved
Staff Comments


None.



8

Item 2. Properties


The following table sets forth, with
respect to properties leased (none are owned) by the Company at December 31, 2006, the
location of the property, the date on which the lease expires and the use which the
Company makes of such facilities:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Address                                                 | Expiration
of Lease | Use                                            | Approximate
Square
Feet
|------------------------------------------------------- | ------------------- | ---------------------------------------------- | -----------------------
|1414 Avenue of the Americas New York, New York          | September 30, 2010  | Executive, Marketing, Sales and Administrative | 29,000                 
|                                                        |                     |                                                |                        
|53 West 23rd Street New York, New York                  | June 30, 2007       | Production Facilities                          | 25,000                 
|                                                        |                     |                                                |                        
|1st Floor Mutual House70 Conduit Street London, England | June 23, 2009       | International Sales Office                     | 2,400                  
|                                                        |                     |                                                |                        

|The executive, marketing, sales and
administrative offices are utilized by the Licensing, Advertising Media and Broadcast and
Trading Card and Game Distribution segments. The international sales office is utilized
primarily by the Licensing Segment.  The production facility is utilized by the Television
and Film Production/Distribution segment. On February 1, 2007, the Company signed a lease
expiring on July 31, 2009 for 23,500 sq. ft. of office space in San Diego, California, which
is primarily utilized by the Trading Card and Game Distribution segment. The Company
considers that, in general, its physical properties are well maintained, in good operating
condition and adequate for its purposes.


Item 3. Legal Proceedings


The Company from time to time is
involved in litigation arising in the ordinary course of its business. The Company does
not believe that such litigation to which the Company or any subsidiary of the Company is
a party or of which any of their Properties is the subject will, individually or in the
aggregate, have a material adverse effect on the Companys financial position or the
results of its operations.


Item 4. Submission of
Matters to a Vote of Security Holders


During the Companys fiscal
quarterly period ended December 31, 2006, there were no matters submitted to a vote of
security holders.


PART II


Item 5. Market for the
Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of
Equity Securities


     (a)       
          Market Information  The Companys Common Stock is listed for
          trading on the New York Stock Exchange under the symbol KDE. The
          following table indicates high and low sales quotations for the periods
          indicated based upon information supplied by the New York Stock Exchange.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2006           | Low    | High  
|-------------- | ------ | ------
|First Quarter  | $15.60 | $17.90
|Second Quarter | 15.07  | 17.55 
|Third Quarter  | 14.09  | 17.29 
|Fourth Quarter | 16.19  | 19.65 

|2005           | Low    | High  
|-------------- | ------ | ------
|First Quarter  | $17.50 | $23.00
|Second Quarter | 18.45  | 22.48 
|Third Quarter  | 16.00  | 20.73 
|Fourth Quarter | 15.46  | 17.75 

|9

(b)       
          Holders  The number of holders of record of the Companys
          Common Stock on March 15, 2007 was 7,992.


     (c)       
          Dividends  There were no dividends or other distributions made by
          the Company during 2006 or 2005. Future dividend policies will be determined by
          the Board of Directors based on the Companys earnings, financial
          condition, capital requirements and other existing conditions. It is anticipated
          that cash dividends will not be paid to the holders of the Companys Common
          Stock in the foreseeable future.


     (d)       
          Equity Compensation Plan Information  Information regarding the
          Companys equity compensation plans is incorporated by reference to Item 12
          in Part III of this Form 10-K.


     (e)       
          Performance Graph The following graph compares the cumulative
          total shareholders return of our common stock with the cumulative return of the
          Standard & Poors Small Cap 600 Index (S&P 600), the
          Russell 2000 Index (Russell 2000) and a group of companies,
          consisting of The Walt Disney Company, Time Warner, Inc., World Wrestling
          Entertainment, Inc., Marvel Entertainment, Inc. and Mattel, Inc. (Peer Group) for the period
          beginning December 31, 2001 and ending December 31, 2006. The graph assumes that
          $100 was invested on December 31, 2001, and that any dividends were reinvested.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|             | December 31,
|------------ | ------------
|
|4Kids        | $100.00     
|S&P 600      | $100.00     
|Russell 2000 | $100.00     
|Peer Group   | $100.00     

|(f) Purchases of Equity Securities by the Issuer In November
          2005, the Board of Directors authorized the Company to purchase up to 1,000,000
          shares of the Companys common stock from time to time through December 31,
          2006 in the open market or through negotiated prices. Such purchases were to
          have been made out of the Companys surplus. No purchases of shares were
          made in 2006 under this authorization.


Item 6. Selected Consolidated
Financial Data (in thousands of dollars, except per share data)


Our selected consolidated financial
data presented below has been derived from our audited consolidated financial statements
and should be read in conjunction with the related notes thereto and Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations.



10
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                         | Year Ended December 31,
|---------------------------------------- | -----------------------
|
|Net revenues                             |                        
|                                         |                        
|Selling, general, and                    |                        
|administrative expenses                  |                        
|Production service costs                 |                        
|Amortization of television and           |                        
|film costs                               |                        
|Amortization of 4Kids TV                 |                        
|broadcast fee                            |                        
|                                         |                        
|Total costs and expenses                 |                        
|                                         |                        
|(Loss) income from operations            |                        
|                                         |                        
|Interest income                          |                        
|Gain on sale of investment               |                        
|in equity securities                     |                        
|                                         |                        
|Total other income                       |                        
|                                         |                        
|(Loss) income before income taxes        |                        
|                                         |                        
|(Benefit from) provision                 |                        
|for income taxes                         |                        
|Loss from unconsolidated                 |                        
|operations - net of a tax                |                        
|benefit of $218                          |                        
|Minority interest - net                  |                        
|of tax of $30                            |                        
|                                         |                        
|(Loss) income from                       |                        
|continuing operations                    |                        
|                                         |                        
|Income from discontinued                 |                        
|Operations                               |                        
|                                         |                        
|Net (loss) income                        |                        
|                                         |                        
|Per share amounts:                       |                        
|Basic (loss) earnings per common share   |                        
|Continuing operations                    |                        
|Discontinued operations                  |                        
|                                         |                        
|Basic (loss) earnings                    |                        
|per common share                         |                        
|                                         |                        
|Diluted (loss) earnings per common share |                        
|Continuing operations                    |                        
|Discontinued operations                  |                        
|                                         |                        
|Diluted (loss) earnings                  |                        
|per common share                         |                        
|                                         |                        
|Weighted average common                  |                        
|shares outstanding - basic               |                        
|                                         |                        
|Weighted average common                  |                        
|shares outstanding - diluted             |                        
|                                         |                        

|11
|--

|                                 | Year Ended December 31,
|-------------------------------- | -----------------------
|
|Other Operating Data:            |                        
|Cash flow (used in) provided by:
|Operating activities             | $(1,057)               
|Investing activities             | (18,047)               
|Financing activities             | 1,445                  

|December 31,         | 2006     | 2005     | 2004     | 2003     | 2002    
|-------------------- | -------- | -------- | -------- | -------- | --------
|Total assets         | $181,395 | $183,938 | $205,015 | $193,280 | $162,839
|Working capital      | 126,460  | 129,576  | 139,377  | 137,929  | 114,298 
|Stockholders' equity | 154,737  | 153,397  | 163,978  | 160,487  | 132,671 

|The Company did not declare or pay
any cash dividends during the five-year period ended December 31, 2006.





Item 7. Managements Discussion and Analysis of Financial
Condition and Results of
Operations              (In thousands of dollars unless otherwise specified)



The following is a discussion and
analysis of our financial position and results of operations for each of the three years
in the period ended December 31, 2006. This commentary should be read in conjunction with
our consolidated financial statements and the notes thereto which begin on page F-1 under
Item 8. Financial Statements and Supplementary Data.


Overview


The Companys operating results
for the year ended December 31, 2006 reflect an overall decrease in licensing revenues
from the Properties and lower network advertising revenues as compared to the year ended
December 31, 2005. The decline in licensing revenues for the Teenage Mutant Ninja
Turtles, Yu-Gi-Oh! and American Kennel Club properties, were
partially offset by revenues from the new Viva Piñata property, as
compared to the same period in 2005. The 2006 results were also negatively impacted by
increased selling, general and administrative expenses associated with the operations of
the business partially offset by decreased amortization costs related to the 4Kids TV
broadcast fee and amortization costs related to television and film costs.


General


The Company receives revenues from
the following three of its business segments: (i) Licensing; (ii) Advertising, Media and
Broadcasting; and (iii) Television and Film Production/Distribution, and expects to
receive revenue in the future from the Trading Card and Game Distribution business
segment. The Company typically derives a substantial portion of its licensing revenues
from a small number of Properties, which usually generate revenues for only a limited
period of time. The Companys revenues are highly subject to changing trends in the
toy, game and entertainment businesses, causing dramatic increases and decreases from year to year
due to the popularity of particular Properties. It is not possible to accurately predict the length of time a property will
be commercially successful and/or if a property will be commercially successful at all.
Popularity of properties can vary from months to years. As a result, the Companys
revenues from particular Properties may fluctuate significantly between comparable
periods.


The Companys licensing revenues
have historically been derived primarily from the licensing of toy and game concepts. As a
result, a substantial portion of the Companys revenues and net income are subject to
the seasonal variations of the toy and game industry. Typically, a majority of toy orders
are shipped in the third and fourth calendar quarters resulting in increased royalties
earned by the Company during such calendar quarters. The Company recognizes revenue from
the sale of advertising time on 4Kids TV as more fully described in Note 2 to the
Companys consolidated financial statements. The Companys advertising sales
subsidiary, 4Kids Ad Sales, sells advertising time on 4Kids TV at higher rates in the
fourth quarter due to the increased demand for commercial time by childrens
advertisers during the holiday season. As a result, much of the revenues of 4Kids Ad Sales
are earned in the fourth quarter when the majority of toy and video game advertising
occurs. As a result of the foregoing, the Company has historically experienced greater
revenues during the second half of the year than during the first half of the year.



12

The Companys media buying
subsidiary, Summit Media, which previously provided print and broadcast media planning and
buying services for clients principally in the childrens toy and game business,
terminated its operations effective June 30, 2006. In connection with the closing of
Summit Media, the media buying operations have been classified as a discontinued
operation. As further discussed in Notes 8 and 16, the consolidated financial statements
have been reclassified to accommodate the reporting of this business as a discontinued
operation.


Critical Accounting
Policies


The Companys accounting
policies are fully described in Note 2 of the Notes to the Companys
consolidated financial statements. Below is a summary of the critical accounting policies,
among others, that management believes involve significant judgments and estimates used in
the preparation of its consolidated financial statements.


Accounting for Film and Television
Costs -  In accordance with accounting principles generally accepted in the
United States and industry practice, the Company amortizes the costs of production for
film and television programming using the individual-film-forecast method under which such
costs are amortized for each film or television program in the ratio that revenue earned
in the current period for such title bears to managements estimate of the total
revenues to be realized from all media and markets for such title. All exploitation costs,
including advertising and marketing costs, are expensed as incurred.


Management regularly reviews, and
revises when necessary, its total revenue estimates on a title-by-title basis, which may
result in a change in the rate of amortization and/or a write-down of the film or
television asset to estimated fair value. The Company determines the estimated fair
value for individual film and television Properties based on the estimated future ultimate
revenues and costs in accordance with Statement of Position No. 00-2, Accounting by
Producers and Distributors of Film (SOP No. 00-2).


Any revisions to ultimate revenues
can result in significant quarter-to-quarter and year-to-year fluctuations in film and
television write-downs and amortization. A typical film or television series recognizes a
substantial portion of its ultimate revenues within the first three years of release. By
then, the film or television series has been exploited in the domestic and international
television (network and cable) and home video markets. In addition, a significant portion
of licensing revenues associated with the film or television series will have been
realized. A similar portion of the films or television series capitalized
costs should be expected to be amortized accordingly, assuming the film or television
series is profitable.


The commercial potential of
individual films and television programming varies dramatically, and is not directly
correlated with production or acquisition costs. Therefore, it is difficult to predict or
project the impact that individual films or television programming will have on the
Companys results of operations. However, the likelihood that the Company will report
losses, particularly in the year of a television series initial release, is increased as
the applicable accounting literature requires the immediate recognition of all of the
production or acquisition costs (through increased amortization) in instances where it is
estimated that the ultimate revenues of a film or television series will not recover those
costs. Conversely, the profit from a film or television series must be deferred and
recognized over the entire revenue stream generated by that film or television series. As
a result, significant fluctuations in reported income or loss can occur, particularly on a
quarterly basis, depending on release schedules and broadcast dates, the timing of
advertising campaigns and the relative performance of individual film or television
series.


Other
Estimates -   The Company estimates reserves for future returns of
product in the home video markets as well as provisions for uncollectible receivables. In
determining the estimate of home video product sales that will be returned, the Company
performs an analysis that considers historical returns, changes in customer demand and
current economic trends. Based on this information, a percentage of each sale is reserved
provided that the customer has the right to return unsold home video inventory. The
Company estimates the amount of uncollectible receivables for licensing and advertising by
monitoring delinquent accounts and estimating a reserve based on contractual terms and
other customer specific issues.


Revenue Recognition  The
Companys revenue recognition policies for its four business segments are appropriate
to the circumstances of each segments business. See Note 2 of the Notes to the
Companys consolidated financial statements for a discussion of these revenue
recognition policies.



13

4Kids TV Broadcast Agreement
 The Company broadcasts certain of its Properties on 4Kids TV, the Saturday morning
programming block that the Company leases from Fox. The cost of 4Kids TV has been and will
continue to be capitalized and amortized over each broadcast year based on estimated
advertising revenue. In developing future estimated revenues, the Company has made certain
assumptions with regard to the anticipated popularity of the television series that the
Company broadcasts on 4Kids TV and the general market demand and pricing of advertising
time for Saturday morning childrens broadcast television. The popularity of such
series impacts audience levels and the level of the network advertising rates that the
Company can charge. These estimates are based on historical trends, as well as the
Companys subjective judgment of future customer demand and acceptance of its
television programming. Differences may result in the amount and timing of revenue for any
period if actual performance varies from the Companys estimates. See Note 13 of the
Notes to the Companys consolidated financial statements for additional information.


Managements Discussion and
Analysis of Financial Condition and Results of Operations discusses the Companys
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities
as of the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company continually evaluates the policies and
estimates that it uses to prepare its consolidated financial statements. In general,
managements estimates and assumptions are based on historical experience, known
trends or events, information from third-party professionals and other factors that are
believed to be reasonable under the circumstances, the results of which form the basis for
making the judgments about carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under
different assumptions and conditions.


Recently Issued Accounting
Pronouncements Share-Based Payments In December 2004, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based
Payments (SFAS No. 123-R). SFAS No. 123-R is a revision of SFAS
No. 123, as amended, Accounting for Stock-Based Compensation, and supersedes
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock
Issued to Employees. SFAS No.123-R eliminates the alternative to use the
intrinsic value method of accounting that was provided in SFAS No.
          123, which generally resulted in no compensation expense recorded in the
          financial statements related to the issuance of equity awards to employees.
          SFAS No. 123-R requires that the cost resulting from all share-based
          payment transactions be recognized in the financial statements. SFAS No.
          123-R establishes fair value as the measurement objective in accounting for
          share-based payment arrangements and requires all companies to apply a
          fair-value-based measurement method generally in accounting for all share-based
          payment transactions with employees.


SFAS No. 123-R is effective for
fiscal years beginning after June 15, 2005. The Company adopted SFAS No. 123-R
effective January 1, 2006, using a modified prospective application. This application
requires the Company to record compensation expense for all awards granted after January
1, 2006 and for the unvested portion of previously granted awards that remain outstanding
as of such date. The Companys adoption of SFAS No. 123-R did not result in the
recording of compensation expense in 2006 with respect to options previously granted since
all of the Companys outstanding options were fully vested at December 31, 2005. The
adoption of this pronouncement did not have a material effect on the Companys
consolidated financial position or results of operations.


Accounting Changes and Error
Corrections In June 2005, the FASB issued SFAS No. 154, Accounting Changes
and Error Corrections (SFAS No. 154). SFAS No. 154 replaces APB No.
20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes
in Interim Financial Statements, and changes the requirements for the accounting for,
and reporting of, a change in accounting principles.  SFAS No. 154 applies to all
voluntary changes in accounting principles and to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include specific
transition provisions.  SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. The adoption
of this pronouncement did not have a material effect on the Companys consolidated
financial position or results of operations.




14

Determining the Amortization
Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a
Business Combination  In June 2005, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 05-6, Determining the Amortization Period
for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business
Combination (EITF No. 05-6). EITF No. 05-6 provides that
leasehold improvements that are placed in service significantly after, and not
contemplated at or near the beginning of the lease term should be amortized over the
shorter of the useful life of the assets or a term that includes required lease periods
and renewals that are deemed to be reasonably assured at the date the leasehold
improvements are purchased. Leasehold improvements acquired in a business combination
should be amortized over the shorter of the useful life of the assets or a term that
includes required lease periods and renewals that are deemed to be reasonably assured at
the date of acquisition. The Company is required to apply EITF No. 05-6 to leasehold
improvements that are purchased or acquired in reporting periods beginning after June 30,
2005. The adoption of this Issue did not have a material effect on the Companys
consolidated financial position or results of operations.


Accounting for Uncertainty in
Income Taxes In June 2006, the FASB issued SFAS Interpretation
No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), an
interpretation of SFAS No. 109 Accounting for Income Taxes(SFAS
No. 109). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in accordance with SFAS
No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for
financial statement recognition and measurement of a tax provision taken or expected to be
taken in a tax return. FIN 48 also provides guidance on the derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and transition. The
adoption of FIN 48 is effective for fiscal periods beginning after December 15, 2006.
The Company does not expect that the adoption of FIN 48 will a have a material effect on
its consolidated financial position or results of operations.


Fair Value Measurements In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement
(SFAS 157). SFAS 157 defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value measurements. SFAS 157
applies under other accounting pronouncements that require or permit fair value
measurements and is effective for fiscal years beginning November 15, 2007. The Company is
currently evaluating the impact the adoption of SFAS 157 will have on its consolidated
financial position and results of operations.


In September 2006, the SEC
issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements
(SAB No. 108). This bulletin expresses the SECs views regarding the
process of quantifying financial statement misstatements. The interpretations in this
bulletin were issued to address diversity in practice in quantifying financial statement
misstatements and the potential under current practice for the build up of improper
amounts on the balance sheet. The Company adopted the provisions of SAB No. 108
for the year ended December 31, 2006. The adoption had no impact on the
Companys consolidated financial position and results of operations.




In September 2006, the FASB issued
SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement PlansAn Amendment of FASB No. 87, 88, 106 and 132(R)
(SFAS 158). SFAS 158 requires that the funded status of defined
benefit postretirement plans be recognized on companies balance sheets and that
changes in the funded status be reflected in comprehensive income, effective for fiscal
years ending after December 15, 2006. SFAS 158 also requires companies to measure the
funded status of each such plan as of the date of its fiscal year-end, effective for
fiscal years ending after December 15, 2008. Since the Company does not currently
have a defined benefit postretirement plan, the adoption of SFAS 158 will not have any
impact on its consolidated financial position and results of operations.


In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities,(SFAS 159). SFAS 159 provides companies with an option to report selected
financial assets and financial liabilities at fair value. Unrealized gains and losses on
items for which the fair value option has been elected are reported in earnings at each
subsequent reporting date. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the impact that the adoption
of SFAS 159 will have on its consolidated financial position and results of operations.



15

Results of Operations


The following table sets forth our
results of operations expressed as a percentage of total net revenues for the three years
ended December 31, 2006, 2005 and 2004.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 | 2006 | 2005 | 2004
|------------------------------------------------ | ---- | ---- | ----
|Net revenues                                     |      | 100  | %   
|                                                 |      |      |     
|Selling, general & administrative                |      | 55   | %   
|Production service costs                         |      | 16   | %   
|Amortization of television and film costs        |      | 11   | %   
|Amortization of 4Kids TV broadcast fee           |      | 31   | %   
|                                                 |      |      |     
|Total costs and expenses                         |      | 113  | %   
|                                                 |      |      |     
|(Loss) income from operations                    |      | (13  | )%  
|                                                 |      |      |     
|Interest income                                  |      | 6    | %   
|Gain on sale of investment in equity securities  |      | --   | %   
|                                                 |      |      |     
|Total other income                               |      | 6    | %   
|                                                 |      |      |     
|(Loss) income before income taxes                |      | (7   | )%  
|                                                 |      |      |     
|(Benefit from) provision for income taxes        |      | (5   | )%  
|                                                 |      |      |     
|Loss from unconsolidated operations - net of tax |      | --   | %   
|                                                 |      |      |     
|Minority interest - net of tax                   |      | --   | %   
|                                                 |      |      |     
|(Loss) income from continuing operations         |      | (2   | )%  
|Income from discontinued operations              |      | 1    | %   
|                                                 |      |      |     
|                                                 |      |      |     
|Net (loss) income                                |      | (1   | )%  
|                                                 |      |      |     

|Year Ended December 31,
2006 as compared to Year Ended December 31, 2005


Revenues


Revenues for the years ended December
31, 2006 and 2005, by reportable segment and for the Company as a whole, were as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            | 2006 | 2005    | $ Change | % Change
|------------------------------------------- | ---- | ------- | -------- | --------
|Licensing                                   |      | $31,677 |          | $37,616 
|Advertising Media & Broadcast               |      | 16,153  |          | 18,660  
|Television and Film Production/Distribution |      | 23,951  |          | 24,331  
|Trading Card and Game Distribution          |      | --      |          | --      
|                                            |      |         |          |         
|                                            |      |         |          |         
|Total                                       |      | $71,781 |          | $80,607 
|                                            |      |         |          |         
|                                            |      |         |          |         

|The decrease in consolidated net
revenues for 2006, as compared to 2005, was due to a number of factors. In the Licensing
segment, decreased revenues were primarily attributable to:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | reduced licensing revenues on the Teenage Mutant Ninja Turtles,
               Yu-Gi-Oh!", American Kennel Club and Winx
               Club properties domestically; partially offset by
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | increased revenues attributable to the Viva Piñata property
               domestically, and the Winx Club property internationally.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------

|16

The
Yu-Gi-Oh! property continues to be the largest contributor to the
Companys revenues in this business segment. The Company recorded revenues of
approximately $2,800 for the Yu-Gi-Oh! property during the year ended December
31, 2006, resulting from changes in the manner in which sales are calculated by a licensee
for purposes of computing the amount of certain marketing fees due to the Company from
such licensee. In addition, revenues for the Teenage Mutant Ninja Turtles
property, despite lower licensing revenues as compared to 2005, along with the
Cabbage Patch property, are also amongst the largest contributors in this
segment.


In the Advertising Media and
Broadcast segment, the decrease in revenues for 2006, as compared to 2005 was due to
reduced revenues from the sale of network advertising time on 4Kids TV caused by an
overall decrease in the 4Kids TV ratings.


In the Television and Film
Production/Distribution segment, the revenue decline for 2006, as compared to 2005
primarily resulted from:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | decreased domestic broadcast sales from the Pokémon,
               Yu-Gi-Oh!", Teenage Mutant Ninja Turtles and One
               Piece television series; partially offset by
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | increased production service revenue from the Viva Piñata and
               Chaotic television series; and
| | ---- | ---------------------------------------------------------------------------------------------------------------

| | (iii) | increased international broadcast sales of the Yu-Gi-Oh! television
               series.
| | ----- | --------------------------------------------------------------------------------------------

|Selling, General and
Administrative Expenses


Selling, general and administrative
expenses increased 16%, or $5,320 to $39,155 for the year ended December 31, 2006, when
compared to 2005. The increase was primarily due to the following:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | severance expenses
for certain former employees of approximately $1,800;
| | --- | ------------------------------------------------------------------------

| | (ii) | increased international
sales expenses and trade shows expenses totaling $946;
| | ---- | ------------------------------------------------------------------------------

| | (iii) | increased
bad debt expense of $448;
| | ----- | -----------------------------------

| | (iv) | the
write-off of developmental software totaling approximately $525;
| | ---- | --------------------------------------------------------------------

| | (v) | increased
compensation costs resulting from the issuance of restricted stock awards of $346; and
| | --- | ------------------------------------------------------------------------------------------------

| | (vi) | increased
various state taxes of $384; partially offset by
| | ---- | ----------------------------------------------------------

| | (vii) | decreased
professional fees of approximately $890.
| | ----- | --------------------------------------------------

|Production Service
and Capitalized Film Costs
|---------------------------------------------

|                                          | 2006 | 2005    | $ Change | % Change
|----------------------------------------- | ---- | ------- | -------- | --------
|Production Service Costs                  |      | $11,259 |          | $8,851  
|Amortization of Television and Film Costs |      | 8,041   |          | 9,790   

|The significant increase in
production service costs during the year ended December 31, 2006, as compared to the same
period in 2005, was primarily due to increased production costs for the work performed on
the Viva Piñata and Chaotic television series, partially
offset by decreased costs for the Pokémon and Teenage Mutant
Ninja Turtles television series. When the Company is entitled to be paid for such
production costs, the Company categorizes them as production service costs and reflects a
corresponding amount in revenue for the amount billed back to the property owners.


The decrease in the amortization of
television and film costs is principally due to a reduction in the realized revenue on the
Teenage Mutant Ninja Turtles, One Piece and Mew Mew
Power television series; partially offset by the increased amortization of
Viva Piñata and Funky Cops television series during 2006.


As of December 31, 2006, there were
$14,827 of capitalized film production costs in the Companys consolidated balance
sheet relating primarily to various stages of production on 282 episodes of animated
programming. Based on managements ultimate revenue estimates as of December 31,
2006, approximately 49% of the total completed and unamortized film and television costs
are expected to be amortized during the next year, and over 90% of the total completed and
unamortized film and television costs are expected to be amortized during the next three
years.



17

4Kids TV Broadcast Fee
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | 2006 | 2005    | $ Change | % Change
|-------------------------------------- | ---- | ------- | -------- | --------
|Amortization of 4Kids TV Broadcast Fee |      | $22,462 |          | $26,408 

|As a result of the broadcast year
(ending each year in September) being different than the Companys fiscal year
(ending each year in December), the amount of the amortization of the broadcast fee
recognized from period to period will vary based upon: (i) the amount of advertising
revenue recognized during the period; and (ii) the amount of advertising revenue already
recognized for the broadcast year as a percentage of the total amount expected to be
recognized for the full broadcast year. The Companys amortization of the 4Kids TV
broadcast fee decreased by $3,946 from $26,408 in 2005 to $22,462 in 2006 in conjunction
with the decreased fee for the 2006-2007 broadcast season of approximately $5,312, as well
as lower advertising revenues recognized by the Company for the year ended December 31,
2006.


In addition to advertising revenues,
the operating costs of 4Kids Ad Sales and the amortization of the 4Kids TV broadcast fee,
the overall impact of 4Kids TV on the Companys results of operations includes:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | revenues
generated from merchandise licensing, home videos and music publishing of 4Kids
TV Properties; and
| | --- | -----------------------------------------------------------------------------------------------------------

| | (ii) | production
and acquisition costs associated with the television programs broadcast on
4Kids TV.
| | ---- | -----------------------------------------------------------------------------------------------

|The ability of the Company to further
develop its merchandising and, to a lesser extent, home video and music publishing revenue
streams were significant components of its evaluation process which resulted in the
initial decision to lease the 4Kids TV Saturday morning programming block and to extend
the lease through the 2007-2008 broadcast season, as described in Note 13 under 4Kids TV
Broadcast Agreement of the Notes to the Companys consolidated financial statements.


Interest Income


Interest income increased 46%, or
$1,309 to $4,143 for the year ended December 31, 2006, as compared to 2005, as a result of
the increasing interest rate environment and higher average cash balances invested.


(Benefit from) Income
Tax Expense


Income tax expense decreased 299%, or
$5,268 to a benefit from income taxes of $3,506 from a provision for income taxes of
$1,762 for the year ended December 31, 2006, as compared to 2005. This decrease is
primarily due to decreased income from continuing operations and a shift in the
Companys investment strategy towards tax exempt and tax advantaged securities during
2006. The Companys effective tax rate was a benefit from income taxes of 70% for
2006 and provision for income taxes of 37% for 2005.




Net (Loss) Income


As a result of the above, the Company
had a net loss for the year ended December 31, 2006 of $1,006, as compared to net income
in 2005 of $5,069.


Discontinued Operations


Effective June 30, 2006, the
Companys wholly-owned subsidiary, Summit Media, which previously
provided print and broadcast media planning and buying services for clients principally in
the childrens toy and game business, terminated its operations. As a consequence of
the termination of its operations, Summit Media no longer serves as a media buying agency
for third parties.


The results of operations for Summit
Media are reported as a discontinued operation for the years ended December 31, 2006 and
2005, and accordingly, the accompanying consolidated financial statements have been
reclassified separately to report the assets, liabilities and operating results of this
business.



18

The following are the summarized
results of discontinued operations for the media buying business for the years ended
December 31, 2006 and 2005:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | 2006 | 2005   
|--------------------------------------- | ---- | -------
|Net Revenues                            |      | $2,852 
|                                        |      |        
|Income before income taxes              |      | 1,181  
|Provision for income taxes              |      | 459    
|                                        |      |        
|Net income from discontinued operations |      | $   722
|                                        |      |        

|Under the terms of the Settlement
Agreement entered into by Summit Media with The Beacon Media Group LLC
(Beacon), Sheldon Hirsch, Tom Horner and Paul Caldera (the Beacon
Defendants) on June 19, 2006, relating to the lawsuit filed by Summit Media in
Supreme Court, New York County against Beacon and the Beacon Defendants, Summit Media will
receive $2,000, in regularly scheduled payments through 2010, in exchange for Summit
Medias discontinuation of the lawsuit. As of December 31, 2006, the Company had
received $200 of the scheduled payments related to the lawsuit. The Company has included
approximately $1,800 in net revenues for the year ended December 31, 2006, relating to
this agreement. In connection with the termination of the Companys media buying
operations, the Company recorded charges for severance and termination benefits in the
amount of approximately $333 during the year ended December 31, 2006. The charges were
attributable to the elimination of ten positions, primarily representing sales and related
support functions in addition to certain other management positions.


Year Ended December 31,
2005 as compared to Year Ended December 31, 2004


Revenues


Revenues for the years ended December
31, 2005 and 2004, by reportable segment and for the Company as a whole, were as follows,
but excludes the Trading Card and Game Distribution segment which was not in existence
until 2006:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            | 2005 | 2004    | $ Change | % Change
|------------------------------------------- | ---- | ------- | -------- | --------
|Licensing                                   |      | $37,616 |          | $49,903 
|Advertising Media & Broadcast               |      | 18,660  |          | 19,996  
|Television and Film Production/Distribution |      | 24,331  |          | 29,290  
|                                            |      |         |          |         
|Total                                       |      | $80,607 |          | $99,189 
|                                            |      |         |          |         

|The decrease in consolidated net
revenues for 2005, as compared to 2004 was due to a number of factors. In the Licensing
segment, decreased revenues were primarily attributable to:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | reduced domestic and international licensing revenues and marketing fees on
               Yu-Gi-Oh! related merchandise, trading cards and video game sales;
               and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | reduced licensing revenues on the Kirby, Pokémon
               and Teenage Mutant Ninja Turtles properties; partially offset by
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | increased revenues attributable to the Cabbage Patch Kids and
               Winx Club properties.
| | ----- | ------------------------------------------------------------------------------------------------------

|Despite
lower licensing revenues, the Yu-Gi-Oh! and Teenage Mutant Ninja
Turtles properties continue to be the two largest contributors in this business
segment. Revenues for the Cabbage Patch property, the third largest
contributor in this segment, have increased over the prior year.




In the Advertising Media and
Broadcast segment, the decrease in revenues for 2005, as compared to 2004 was due to
reduced revenues from the sale of network advertising time on 4Kids TV.


In the Television and Film
Production/Distribution segment, the revenue decline for 2005, as compared to 2004
primarily resulted from:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | the absence of sales related to the theatrical release of the
               Yu-Gi-Oh! movie which occurred in August 2004 with no corresponding
               theatrical release in 2005;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | decreased domestic home video sales from the Yu-Gi-Oh! and
               Teenage Mutant Ninja Turtles television series; and
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------

| | (iii) | decreased domestic and international broadcast sales from the
               Yu-Gi-Oh! and Teenage Mutant Ninja Turtles television
               series; partially offset by
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|19
|--

| | (iv) | increased domestic and international broadcast sales from the One
               Piece television series.
| | ---- | -----------------------------------------------------------------------------------------------------------

|Selling, General and
Administrative Expenses


Selling, general and administrative
expenses increased 1%, or $398 to $33,835 for the year ended December 31, 2005, when
compared to 2004. The increase was primarily due to the following:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | increased advertising and promotional costs to support the re-branding of the
               Fox Box to 4Kids TV and for the September 2005 launch of the new broadcast year;
               partially offset by
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | decreased accounting and consulting fees incurred by the Company to comply with
               Section 404 of Sarbanes-Oxley.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------

# Production Service and
Capitalized Film Costs

|                                          | 2005 | 2004   | $ Change | % Change
|----------------------------------------- | ---- | ------ | -------- | --------
|Production Service Costs                  |      | $8,851 |          | $10,029 
|Amortization of Television and Film Costs |      | 9,790  |          | 9,639   

|The decrease in production service
costs for 2005, as compared to 2004, was primarily due to lower production costs
associated with the Yu-Gi-Oh! movie, which was completed during 2004, and
lower production costs attributable to the Teenage Mutant Ninja Turtles
television series resulting from the production of fewer episodes in 2005. These decreases
were partially offset by increased production costs for the work performed on producing
the One Piece and Chaotic television series. When the Company is
entitled to be paid for such production costs, the Company categorizes them as production
service costs and reflects a corresponding amount in revenue for the amount billed back to
the Property owners.


The increase in the amortization of
television and film costs is principally due to the incremental write-off of television
and film costs resulting from the reduction in the estimated ultimate revenues for the
One Piece and Mew Mew Power television series partially offset by
(i) the reduced write-off of television and film costs related to the Teenage Mutant
Ninja Turtles television series as costs were incurred in 2005 for episodes to be
shown in the upcoming broadcast season and (ii) the reduced write-offs related to other
Properties like Kirby that are nearing the end of their life cycle.


As of December 31, 2005, there was
$12,208 of capitalized film production costs in the Companys consolidated balance
sheet relating primarily to various stages of production on 335 episodes of animated
programming. Based on managements ultimate revenue estimates as of December 31,
2005, approximately 56% of the total completed and unamortized film and television costs
are expected to be amortized during the next year, and over 90% of the total completed and
unamortized film and television costs are expected to be amortized during the next three
years.



4Kids TV Broadcast Fee
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | 2005 | 2004    | $ Change | % Change
|-------------------------------------- | ---- | ------- | -------- | --------
|Amortization of 4Kids TV Broadcast Fee |      | $26,408 |          | $27,859 

|As a result of the broadcast year
(ending each year in September) being different than the Companys fiscal year
(ending each year in December), the amount of the amortization of the broadcast fee
recognized from period to period will vary based upon (i) the amount of advertising
revenue recognized during the period; and (ii) the amount of advertising revenue already
recognized for the broadcast year as a percentage of the total amount expected to be
recognized for the full broadcast year. The Companys amortization of the 4Kids TV
broadcast fee decreased $1,451 from $27,859 in 2004 to $26,408 in 2005 in conjunction with
lower advertising revenues recognized by the Company for the year ended December 31, 2005.


In addition to advertising revenues,
the operating costs of 4Kids Ad Sales and the amortization of the 4Kids TV broadcast fee,
the overall impact of 4Kids TV on the Companys results of operations includes:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | revenues generated from merchandise licensing, home videos and music publishing
               of 4Kids TV Properties, and
| | --- | --------------------------------------------------------------------------------------------------------------------------

| | (ii) | production and acquisition costs associated with the television programs
               broadcast on 4Kids TV.
| | ---- | --------------------------------------------------------------------------------------------------------------

|20

The ability of the Company to further
develop its merchandising and, to a lesser extent, home video and music publishing revenue
streams were significant components of its evaluation process which resulted in the
decision to lease the 4Kids TV Saturday morning programming block.


Interest Income


Interest income increased 93%, or
$1,365 to $2,834 for the year ended December 31, 2005, as compared to 2004, as a result of
the increasing interest rate environment, and higher average cash balances invested.


Gain on Sale of
Investment in Equity Securities


In October 2005, the Company sold its
interest in the Pokémon Company in equal shares to the remaining shareholders for
aggregate proceeds of $960 resulting in a gain of $234.


Income Tax Expense


Income tax expense decreased 78%, or
$6,145, to $1,762 for the year ended December 31, 2005, as compared to 2004, due to
decreased income before income taxes. The Companys effective tax rate remained
relatively consistent at approximately 37% and 40% for 2005 and 2004, respectively.


Net Income


As a result of the above, the Company
had net income for the year ended December 31, 2005 of $5,069, as compared to net income
in 2004 of $12,730.


Discontinued Operations


The following are the summarized
results of discontinued operations for the Summit Media business for the years ended
December 31, 2005 and 2004:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | 2005 | 2004  
|--------------------------------------- | ---- | ------
|Net Revenues                            |      | $6,055
|                                        |      |       
|Income before income taxes              |      | 3,454 
|Provision for income taxes              |      | 1,414 
|                                        |      |       
|Net income from discontinued operations |      | $2,040
|                                        |      |       

|Liquidity and Capital Resources

Financial Position
|---------------------------------------------------

|                          | 2006 | 2005      | $ Change
|------------------------- | ---- | --------- | --------
|Cash and cash equivalents |      | $  18,066 |         
|Investments               |      | 92,910    |         
|                          |      |           |         
|                          |      |           |         
|                          |      | $110,976  |         
|                          |      |           |         

|During 2006, the Companys cash
and cash equivalents and short-term investment balances decreased by $2,549 to $110,976,
primarily as a result of payments made to purchase a 50% membership interest in TC
Websites LLC, partially offset by an increase in investment income.


Sources and Uses of Cash


Cash flows for the three years ended
December 31, 2006, 2005 and 2004 were as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |         |   | $ Changes
|-------------------- |  | ------- | - | ---------
|
|Operating Activities |  | $(1,057 | ) | $   3,242
|Investing Activities |  | (18,047 | ) | (62,207  
|Financing Activities |  | 1,445   |   | (16,956  

|21

Working capital, consisting of
current assets less current liabilities, was $126,460 as of December 31, 2006 and $129,576
as of December 31, 2005. The reduction in cash flows between 2006 and 2005 from operating
activities was principally due to lower net income and decreased amortization of
television and film costs partially offset by lower 4Kids TV broadcast fees paid to Fox.


As of December 31, 2006, the Company
had $92,910 invested in auction-rate securities and short-term government obligations. The
increase in cash flows between 2006 and 2005 from investing activities is primarily due to
the Companys proceeds from the maturity of auction-rate securities that were
purchased as an investment. This increase was partially offset by the Companys
purchase of a 50% membership interest in TC Websites.


The 2006 increase in cash flows from
financing activities was primarily due to the fact that there were no treasury stock
purchases during the 2006 period.


During 2006, the Companys cash
flow from operations was impacted by consumer demand for a limited number of its licensed
Properties.  While the Company strives to further diversify its revenue streams,
management remains cognizant of changing trends in the toy, game and entertainment
business and the difficulty in predicting the length of time a property will be
commercially successful.  As a result, the Companys revenues, operating results
and cash flow from operations may fluctuate significantly from year to year and present
operating results are not necessarily indicative of future performance.


Historically, the majority of the
television-based Properties that the Company represented were existing episodes of foreign
programming that were adapted for the United States and other markets. The Companys
strategic focus has shifted toward Properties like Chaotic and Teenage
Mutant Ninja Turtles, where the Company is a joint copyright owner of the episodes.
Therefore, it is the Companys intention to allocate a larger portion of its capital
resources to the production costs associated with developing original animated programming
resulting in increased capitalized film and television costs. Following the commercial
release of a Property, its overall market acceptance and resulting revenues will directly
impact the Companys amortization of these capitalized film and television costs. To
the extent a Property performs at a level less than the Companys expectations, the
ratio of amortization expense to revenues realized will increase. While the Company
expects that the revenues associated with such Properties will be sufficient to maintain
its historical operating margins, there can be no assurance that the marketing plans
designed to achieve those revenues can be executed in a manner to achieve its objectives.


4Kids TV Broadcast
Agreement


In
January 2002, the Company entered into a multi-year agreement with Fox to lease Foxs
Saturday morning programming block. In December 2004, the Company rebranded the Fox
Box to 4Kids TV. The Company provides substantially all programming
content to be broadcast on 4Kids TV, which airs on Saturday mornings from 8am to 12pm
eastern/pacific time (7am to 11am central time) and retains all of the revenue from
network advertising sales for the four-hour time period. 4Kids Ad Sales,  Inc., a wholly-owned
subsidiary of the Company  manages and accounts for the ad revenue and costs
associated with 4Kids TV.


In March 2006, the multi-year
agreement was extended for two broadcast years through the 2007-2008 broadcast season. As
of December 31, 2006, $15,000 remains to be paid for the 2006-2007 broadcast season under
the amended agreement. The broadcast fee for each of the 2006-2007 and 2007-2008 broadcast
seasons will be $20,000, as compared to the $25,312 paid for each broadcast year during
the initial term of the multi-year agreement. The fee is payable in quarterly installments
of $5,000 each year beginning in October 2006. The extension also provides Fox with the
option to extend the agreement through the 2008-2009 broadcast season on the same terms
and conditions by providing notice to the Company no later than August 31, 2007.


In addition to the broadcast fee paid
to Fox, the Company will incur additional costs to program the four-hour block and sell
the related network advertising time. These costs will include direct programming costs to
acquire, adapt and deliver programming for the broadcast during the weekly four-hour block
as well as additional indirect expenses of advertising sales, promotion and
administration.


22

Contractual Commitments


The Company has commitments under
certain firm contractual arrangements (firm commitments) to make future
payments for goods and services. These firm commitments secure the future rights to
various assets and services to be used in the normal course of operations. The following
table summarizes the Companys material firm commitments as of December 31, 2006 and
the impact that such obligations are expected to have on the Companys liquidity and
cash flows in future periods. The Company expects to fund these commitments primarily with
operating cash flows generated in the normal course of business.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year Ending December 31, | 4Kids TV Broadcast
Agreement | Operating Leases
|------------------------ | ---------------------------- | ----------------
|2007                     |                              | $20,000         
|2008                     |                              | 15,000          
|2009                     |                              | --              
|2010                     |                              | --              
|                         |                              |                 
|Total                    |                              | $35,000         
|                         |                              |                 

|The Companys contractual
obligations and commitments are detailed in the Companys consolidated financial
statements, for additional information see Note 13.


Item 7A. Quantitative
and Qualitative Disclosures About Market Risk


Foreign Currency
Exchange Rate Fluctuations


From time to time, the Company may be exposed
to the risk of future currency exchange rate fluctuations, which is accounted for as an
adjustment to stockholders equity and changes in the exchange rates between various
foreign currencies and the U.S. dollar may, as a result, have an impact on the accumulated
other comprehensive income (loss) component of stockholders equity reported by the
Company, and such effect may be material in any individual reporting period. The Company
is currently not a party to any market risk sensitive instruments, or any derivative
contracts or other arrangements that may reduce such market risk.


Item 8.    Financial Statements and Supplementary Data





The Reports of Registered Public
Independent Accounting Firms, our Consolidated Financial Statements and Notes thereto
appear in a separate section of this Form 10-K (beginning on Page F-1 following Part IV).
The index to our Consolidated Financial Statements is included in Item 15.






Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure







None.




Item 9A.    Controls and Procedures





Evaluation of Disclosure
Controls and Procedures


We maintain a system of disclosure
controls and procedures, as defined in Exchange Act Rule 13a-15(e),which is designed
to provide reasonable assurance that information, which is required to be disclosed in our
reports filed pursuant to the Securities and Exchange Act of 1934, as amended (the
Exchange Act), is accumulated and communicated to management in a timely
manner. At the end of the period covered by this report, we carried out an evaluation,
under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, as of the date of such evaluation, our disclosure
controls and procedures were effective in timely alerting them to information relating to
us that is required to be included in our reports filed under the Exchange Act.


23

Changes in Internal
Control over Financial Reporting


During the fourth quarter of 2006,
there were no significant changes in our internal control over financial reporting or in
other factors that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.


Managements Report
on Internal Control over Financial Reporting


Our management is responsible for
establishing and maintaining adequate internal control over financial reporting. Internal
control over financial reporting, as defined in Exchange Act Rule 13a-15(f), is a
process designed by, or under the supervision of, our principal executive and principal
financial officers and effected by our Board of Directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;
| | ------------------------------------------------------------------------------------------------------------------------------------------------

| | 
Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate. All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. The scope of managements
assessment of the effectiveness of internal control over financial reporting includes all
of our Companys consolidated subsidiaries.


Our management assessed the
effectiveness of our internal control over financial reporting as of December 31, 2006. In
making this assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment, management believes that, as
of December 31, 2006, our internal control over financial reporting was effective based on
those criteria.


Eisner LLP, the independent
registered public accounting firm that audited the Consolidated Financial Statements
included in this Annual Report on Form 10-K, has issued an auditors report on
our assessment of our internal control over financial reporting.




Item
9B.  Other Information


On December 11, 2006, TC Digital
entered into employment agreements (the Employment Agreements), with Bryan
Gannon and John Milito (each, an Executive), pertaining to Mr. Gannons
service as President and Chief Executive Officer of TC Digital and Mr. Militos
service as Executive Vice President of TC Digital. Under the terms of the Employment
Agreements, each of the Executives will be employed by TC Digital for an initial term
through December 31, 2009, which will be extended for successive one year periods unless
TC Digital or the Executive provides a written notice at least 180 days prior to the
expiration of the then-current term that such party does not intend to extend the term.
Each Executive will be entitled to receive an annual base salary of $350 with a one-time
signing bonus of $125 and is eligible to receive additional bonuses at the sole discretion
of TC Digitals Management Committee, on which they serve. Each Executive will receive
a minimum bonus of $100 and $200 in 2007 and 2008, respectively, if TC Digital attains 60%
of the projected revenues for those years approved by its Management Committee, which
projected revenues may not be more than 20% higher than the projected revenues contained in the annual budget submitted by TC
Digital management to such committee for approval (the Projected Revenues).



24

Under each of the Employment
Agreements, if TC Digital terminates an Executives employment without
Cause (as defined therein), or if the applicable Executive terminates his
employment for Good Reason (as defined therein), the applicable Executive will
receive his salary for the balance of the remaining term. If TC Digital terminates an
Executives employment without Cause or if an Executives employment terminates
due to his death, the Executive will receive a pro-rata share of any bonus payable to him
with respect to the year during which the termination occurred. If an Executive resigns
without Good Reason, or if his employment is terminated by TC Digital for cause, due to
his disability or as a result of the failure of TC Digital to achieve the Projected
Revenues, he will not receive any further salary, benefits or bonuses under his Employment
Agreement.


Each of the Employment Agreements
contains customary restrictions with respect to the non-disclosure of confidential
information and also provides that during the term of the applicable Executives
employment and for a period of one year thereafter; (a) the Executive will not solicit TC
Digitals clients, provide services of the type provided by TC Digital to its clients
or solicit TC Digitals employees and (b) the Executive terminates his employment
without Good Reason or if TC Digital terminates the Executives employment without
Cause, render services to a competitor of TC Digital without TC Digitals consent.


PART III


Item 10. Directors and
Executive Officers of the Registrant


Information concerning directors and
officers of the Company is incorporated by reference to the Companys Definitive
Proxy Statement on Schedule 14A to be filed with the Securities and Exchange Commission
within 120 days after the end of the Companys fiscal year.


On June 26, 2006, the Company filed
with the New York Stock Exchange the Annual CEO Certification regarding the Companys
compliance with the NYSEs Corporate Governance listing standards as required by
Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.


Item 11. Executive
Compensation


Information concerning executive and
director compensation is incorporated by reference to the Companys Definitive Proxy
Statement on Schedule 14A to be filed with the Securities and Exchange Commission within
120 days after the end of the Companys fiscal year.


Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


Information concerning security
ownership of each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, of each director of the Company and all officers and
directors as a group and of the Companys equity compensation plans is incorporated
by reference to the Companys Definitive Proxy Statement on Schedule 14A to be filed
with the Securities and Exchange Commission within 120 days after the end of the
Companys fiscal year.


Item 13. Certain
Relationships and Related Transactions


Information concerning certain
relationships and related transactions is incorporated by reference to the Companys
Definitive Proxy Statement on Schedule 14A to be filed with the Securities and Exchange
Commission within 120 days after the end of the Companys
fiscal year.


Item 14. Principal Accountant
Fees and Services


Information concerning principal
accountant fees and services is incorporated by reference to the Companys Definitive
Proxy Statement on Schedule 14A to be filed with the Securities and Exchange Commission
within 120 days after the end of the Companys fiscal year.


25

PART IV


Item 15. Exhibits and
Financial Statement Schedules


     (1)    
          Financial Statements:


The following Consolidated Financial
Statements of 4Kids Entertainment, Inc. and Subsidiaries are included in Item 8:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                               | Page
Number
|---------------------------------------------------------------------------------------------- | -----------
|Reports of Independent Registered Public Accounting Firms on Consolidated Financial Statements | F-1 to F-3 
|                                                                                              
|Consolidated Balance Sheets - December 31, 2006 and 2005                                       | F-4        
|                                                                                              
|Consolidated Statements of Operations - Years Ended                                           
|December 31, 2006, 2005 and 2004                                                               | F-5        
|                                                                                              
|Consolidated Statements of Stockholders' Equity and Comprehensive (Loss)Income                
|Years Ended December 31, 2006, 2005 and 2004                                                   | F-6        
|                                                                                              
|Consolidated Statements of Cash Flows - Years Ended                                           
|December 31, 2006, 2005 and 2004                                                               | F-7        
|                                                                                              
|Notes to Consolidated Financial Statements                                                     | F-8 to F-27

|(a)(2)  Financial Statement Schedules


All
schedules have been omitted because they are inapplicable, not required, or the
information is included in the financial statements or notes thereto.




          (a)(3) and (b) Exhibits.
          See Index of Exhibits annexed hereto.





26

SIGNATURES


Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4KIDS
ENTERTAINMENT, INC. Date: March 16, 2007
| | ----------------------------------------------

| | By:
/s/ Alfred R. Kahn
| | ----------------------

| | Alfred
R. Kahn, Chairman of the Board
| | -------------------------------------

| | Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Date: March 16, 2007
| | --------------------

| | By:
/s/ Alfred R. Kahn
| | ----------------------

| | Alfred
R. Kahn, Chairman of the Board, Chief Executive Officer andDirector
| | --------------------------------------------------------------------------

| | Date: March 16, 2007
| | --------------------

| | By:
/s/ Bruce R. Foster
| | -----------------------

| | Bruce R. Foster, Executive Vice President,Principal Financial and Accounting Officer
| | ------------------------------------------------------------------------------------

| | Date: March 16, 2007
| | --------------------

| | By:
/s/ Samuel R. Newborn
| | -------------------------

| | Samuel R. Newborn, Executive Vice President,General Counsel and  Director
| | -------------------------------------------------------------------------

| | Date: March 16, 2007
| | --------------------

| | By:
/s/ Richard Block
| | ---------------------

| | Richard Block, Director
| | -----------------------

| | Date: March 16, 2007
| | --------------------

| | By:
/s/ Jay Emmett
| | ------------------

| | Jay Emmett, Director
| | --------------------

| | Date: March 16, 2007
| | --------------------

| | By:
/s/ Michael Goldstein
| | -------------------------

| | Michael Goldstein,Director
| | --------------------------

| | Date: March 16, 2007
| | --------------------

| | By:
/s/ Randy O. Rissman
| | ------------------------

| | Randy O. Rissman, Director
| | --------------------------

|27
|--

|INDEX
OF EXHIBITS
|-----------------

|Exhibit
Number | Description                                                                                                                                                                                                                                                                                                                                                                                                      
|-------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            | Certificate of Incorporation of the Registrant filed on April 28, 1970, as amended on
October 12, 1971, as further amended on April 21, 1972, as further amended on July 17,
1979, as further amended on May 22, 1985, as further amended on July 30, 1986, as further
amended on July 19, 1989, as further amended on November 16, 1995 (changing the name of
the Corporation to 4Kids Entertainment, Inc.). (1)
|              
|3.2            | Certificate of Amendment to the Certificate of Incorporation of the Registrant, dated April 29,
              1999.(2)                                                                                                                                                                                                                                                                                           
|              
|3.3            | Certificate of Amendment to the Certificate of Incorporation of the Registrant, dated May 18,
              2000.(3)                                                                                                                                                                                                                                                                                             
|              
|3.4            | By-Laws of the Registrant adopted by the Board of Directors on March 28, 1991. (4)                                                                                                                                                                                                                                                                                                                               
|              
|4.1            | Form of Common Stock Certificate. (5)                                                                                                                                                                                                                                                                                                                                                                            
|              
|10.1           | 1992 Stock Option Plan (*) (7)                                                                                                                                                                                                                                                                                                                                                                                   
|              
|10.2           | 1997 Stock Option Plan (*) (9)                                                                                                                                                                                                                                                                                                                                                                                   
|              
|10.3           | 1998 Stock Option Plan (*) (10)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.4           | 1999 Stock Option Plan (*) (2)                                                                                                                                                                                                                                                                                                                                                                                   
|              
|10.5           | 2000 Stock Option Plan (*) (3)                                                                                                                                                                                                                                                                                                                                                                                   
|              
|10.6           | 2001 Stock Option Plan (*) (11)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.7           | 2002 Stock Option Plan (*) (12)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.8           | 2003 Stock Option Plan (*) (13)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.9           | 2004 Stock Option Plan (*) (14)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.10          | 2005 Long-Term Incentive Compensation Plan (*) (15)                                                                                                                                                                                                                                                                                                                                                              
|              
|10.11          | 2006 Long-Term Incentive Compensation Plan (*) (16)                                                                                                                                                                                                                                                                                                                                                              
|              
|10.12          | Agreement between Nintendo of America, Inc. and the Registrant dated December 17, 1987. (6)                                                                                                                                                                                                                                                                                                                      
|              
|10.13          | Agreement of Lease,  dated March 28,  1988,  between the  Registrant  and 1414 Avenue of the Americas
              Company   ("1414 Lease").  (4)                                                                                                                                                                                                                                                               
|              
|10.14          | Amendment, dated July 8, 1994, to the 1414 Lease.  (4)                                                                                                                                                                                                                                                                                                                                                           
|              
|10.15          | Amended and Restated Employment Agreement dated January 1, 2002, between 4Kids Entertainment Licensing,  Inc.
              and Alfred R. Kahn.  (*)(16)                                                                                                                                                                                                                                                         
|              
|10.16          | Second  Amended  and  Restated   Employment   Agreement,   dated  December  15,  2006,  among  4Kids   Entertainment
              Licensing, Inc., 4Kids Entertainment, Inc. and Alfred R. Kahn.  (*)(25)                                                                                                                                                                                                       
|              
|10.17          | Employment  Agreement,  dated January 1, 2002,  between  4Kids  Entertainment  Licensing,  Inc. and Joseph P.
              Garrity.  (*)(16)                                                                                                                                                                                                                                                                    
|              
|10.18          | Amendment, dated as of June 19, 2003, to the Employment Agreement between 4Kids Entertainment Licensing,
              Inc. and Joseph P. Garrity.  (*)(16)                                                                                                                                                                                                                                                      

|28
|--

|     
|-----
|10.19
|     
|10.20
|     
|10.21
|     
|10.22
|     
|10.23
|     
|10.24
|     
|10.25
|     
|10.26
|     
|10.27
|     
|10.28
|     
|10.29
|     
|10.30
|     
|10.31
|     
|10.32
|     
|10.33
|     
|10.34
|     
|10.35
|     
|10.36
|     
|10.37
|     
|10.38
|     

|29
|--

|10.39 | Operating  Agreement  of TC  Digital  Games LLC,  dated as of  December  11,  2006,  between  4Kids  Digital  Games,
              Inc. and Chaotic USA Entertainment Digital Games LLC (*)(included herein)
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|10.40 | Operating  Agreement  of TC  Websites  LLC,  dated as of  December  11,  2006,  between  4Kids  Websites,  Inc.  and
              Chaotic USA Entertainment Group, Inc. (*)(included herein)               
|     
|21.1  | List of Subsidiaries of the Registrant.                                                                                                                                                                     
|     
|23.1  | Consent of Eisner LLP, Independent Registered Public Accounting Firm.                                                                                                                                       
|     
|23.2  | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.                                                                                                                            
|     
|31.1  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,                                                                                                                                
|      | as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                       
|     
|31.2  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,                                                                                                                                
|      | as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                       
|     
|32.1  | Joint Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18                                                                                                                   
|      | U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                  

---

| | (*) | Denotes a management contract or compensatory plan, contract or arrangement.
| | --- | ----------------------------------------------------------------------------

| | (1) | Incorporated by reference to Annual Report on Form 10-K for the year ended
               December 31, 1995 (File No. 000-07843).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

| | (2) | Incorporated by reference to 1999 Proxy Statement for Annual Meeting of
               Shareholders held April 29, 1999 (File No. 000-07843).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Incorporated by reference to 2000 Proxy Statement for Annual Meeting of
               Shareholders held May 17, 2000 (File No. 000-07843).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Incorporated by reference to Annual Report on Form 10-K for the year ended
               December 31, 1990 (File No. 000-07843).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

| | (5) | Incorporated by reference to Registration Statement on Form S-1 declared
               effective March 7, 1986 (File No. 33-3056).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------

| | (6) | Incorporated by reference to Annual Report on Form 10-K for the year ended
               December 31, 1987 (File No. 000-07843).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

| | (7) | Incorporated by reference to 1992 Proxy Statement (File No. 000-07843).
| | --- | -----------------------------------------------------------------------

| | (8) | Incorporated by reference to 1994 Proxy Statement (File No. 000-07843).
| | --- | -----------------------------------------------------------------------

| | (9) | Incorporated by reference to 1997 Proxy Statement for Annual Meeting of
               Shareholders held April 30, 1997 (File No. 000-07843).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | (10) | Incorporated by reference to 1998 Proxy Statement for Annual Meeting of
               Shareholders held April 29, 1998 (File No. 000-07843).
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | (11) | Incorporated by reference to 2001 Proxy Statement for Annual Meeting of
               Shareholders held May 23, 2001 (File No. 001-16117).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------

| | (12) | Incorporated by reference to 2002 Proxy Statement for Annual Meeting of
               Shareholders held May 23, 2002 (File No. 001-16117).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------

|30
|--

| | (13) | Incorporated by reference to 2003 Proxy Statement for Annual Meeting of
               Shareholders held May 23, 2003 (File No. 001-16117).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------

| | (14) | Incorporated by reference to 2004 Proxy Statement for Annual Meeting of
               Shareholders held May 27, 2004 (File No. 001-16117).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------

| | (15) | Incorporated by reference to 2005 Proxy Statement for Annual Meeting of
               Shareholders held May 26, 2005 (File No. 001-16117).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------

| | (16) | Incorporated by reference to 2006 Proxy Statement for Annual Meeting of
               Shareholders held May 26, 2006 (File No. 001-16117).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------

| | (17) | Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended
               June 30, 2003 (File No. 001-16117).
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------

| | (18) | Incorporated by reference to Annual Report on Form 10-K for the year ended
               December 31, 2005 (File No. 000-07843).
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------

| | (19) | Incorporated by reference to Current Report on Form 8-K dated July 7, 2005 (File
               No. 001-16117).
| | ---- | ---------------------------------------------------------------------------------------------------------------

| | (20) | Incorporated by reference to Current Report on Form 8-K dated January 13, 2006
               (File No. 001-16117).
| | ---- | -------------------------------------------------------------------------------------------------------------------

| | (21) | Incorporated by reference to Current Report on Form 8-K dated March 8, 2006
               (File No. 001-16117).
| | ---- | ----------------------------------------------------------------------------------------------------------------

| | (22) | Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended
               March 31, 2006 (File No. 001-16117).
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------

| | (23) | Incorporated by reference to Current Report on Form 8-K dated June 23, 2006
               (File No. 001-16117).
| | ---- | ----------------------------------------------------------------------------------------------------------------

| | (24) | Incorporated by reference to Current Report on Form 8-K dated November 2, 2006
               (File No. 001-16117).
| | ---- | -------------------------------------------------------------------------------------------------------------------

| | (25) | Incorporated by reference to Current Report on Form 8-K dated December 21, 2006
               (File No. 001-16117).
| | ---- | --------------------------------------------------------------------------------------------------------------------

| | (26) | Incorporated by reference to Current Report on Form 8-K dated February 5, 2007
               (File No. 001-16117).
| | ---- | -------------------------------------------------------------------------------------------------------------------

|31

REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors
and Stockholders4Kids Entertainment, Inc.


We have audited the accompanying
consolidated balance sheets of 4Kids Entertainment, Inc. and Subsidiaries (the
Company) as of December 31, 2006 and 2005 and the related consolidated
statements of operations, stockholders equity and comprehensive (loss) income, and
cash flows for each of the years in the two year period ended December 31, 2006. These
consolidated financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.


We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.


In our opinion, the financial
statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2006 and 2005, and the consolidated
results of their operations and their consolidated cash flows for each of the years in the two
year period ended December 31, 2006, in conformity with accounting principles generally
accepted in the United States of America.


We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over financial reporting as of
December 31, 2006 and 2005, based on criteria established in the Internal Control 
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 15, 2007 expressed an unqualified opinion on
managements assessment of, and the effective operation of, internal control over
financial reporting.


/s/ Eisner LLP


New York, New YorkMarch
15, 2007

F-1

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders 4Kids
Entertainment, Inc.







We have audited managements
assessment, included in the accompanying Managements Report on Internal Control Over
Financial Reporting, that 4Kids Entertainment, Inc. maintained effective internal control
over financial reporting as of December 31, 2006, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). 4Kids Entertainment, Inc.s management
is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements assessment and an opinion on
the effectiveness of the Companys internal control over financial reporting based on
our audit.


We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.


A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.


Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.


In our opinion, managements
assessment that 4Kids Entertainment, Inc. maintained effective internal control over
financial reporting as of December 31, 2006, is fairly stated, in all material respects,
based on the COSO criteria. Also, in our opinion, 4Kids Entertainment, Inc. maintained, in
all material respects, effective internal control over financial reporting as of December
31, 2006, based on the COSO criteria.


We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of 4Kids Entertainment, Inc. and subsidiaries as of December
31, 2006 and 2005, and the related consolidated statements of operations,
stockholders equity and comprehensive (loss) income, and cash flows for each of the
years in the two year period ended December 31, 2006, and our report dated March 15,
2007 expressed an unqualified opinion on those financial statements.


/s/ Eisner LLP


New York, New YorkMarch
15, 2007

F-2
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and
Stockholders  4Kids Entertainment, Inc. and Subsidiaries


We have audited the consolidated statement of operations, stockholders' equity and comprehensive income and cash flows for the year
ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.


In our opinion, such consolidated financial statements present fairly, in all material respects, the results of their operations and
their cash flows for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of
America.


/s/ Deloitte &
Touche LLP


New York, New YorkMarch
16, 2005 (March 16, 2007 as to the effects of the discontinued operations discussed in Note 16)





F-3

Part I - FINANCIAL INFORMATION
Item 1.  Financial Statements4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
                                                 DECEMBER 31, 2006 and 2005
                                             (In thousands of dollars, except share data)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2006                                                                        | 2005
|--------------------------------------------------------------------------- | ----
|Current assets:                                                             |     
|Cash and cash equivalents                                                   |     
|Investments                                                                 |     
|                                                                            |     
|                                                                            |     
|Total cash and investments                                                  |     
|                                                                            |     
|Accounts receivable - net                                                   |     
|Prepaid 4Kids TV broadcast fee, net of                                      |     
|accumulated amortization                                                    |     
|Prepaid income taxes                                                        |     
|Prepaid expenses and other current assets                                   |     
|Current assets from discontinued operations                                 |     
|Deferred income taxes                                                       |     
|                                                                            |     
|Total current assets                                                        |     
|                                                                            |     
|Property and equipment - net                                                |     
|                                                                            |     
|Other assets:                                                               |     
|Accounts receivable - non-current, net                                      |     
|Investment in unconsolidated affiliate                                      |     
|Film and television costs - net                                             |     
|Non-current assets from discontinued operations                             |     
|Deferred income taxes, non-current                                          |     
|Other assets - net                                                          |     
|                                                                            |     
|Total assets                                                                |     
|                                                                            |     
|                                                                            |     
|Liabilities and stockholders' equity                                        |     
|Current liabilities:                                                        |     
|Due to licensors                                                            |     
|Accounts payable and accrued expenses                                       |     
|Current liabilities from discontinued operations                            |     
|Deferred revenue                                                            |     
|                                                                            |     
|Total current liabilities                                                   |     
|                                                                            |     
|Deferred rent                                                               |     
|                                                                            |     
|Total liabilities                                                           |     
|                                                                            |     
|Commitments and contingencies (Note 13)                                     |     
|                                                                            |     
|Stockholders' equity                                                        |     
|Preferred stock, $.01 par value - authorized, 3,000,000 shares; none issued |     
|Common stock, $.01 par value - authorized, 40,000,000 shares;               |     
|issued, 14,933,218 and 14,826,643 shares; outstanding 13,183,218 and        |     
|13,076,643 shares in 2006 and 2005, respectively                            |     
|Additional paid-in capital                                                  |     
|Accumulated other comprehensive income                                      |     
|Retained earnings                                                           |     
|                                                                            |     
|                                                                            |     
|Less- cost of  1,750,000 treasury shares in 2006 and 2005                   |     
|                                                                            |     
|                                                                            |     
|                                                                            |     
|Total liabilities and stockholders' equity                                  |     
|                                                                            |     

|See notes to consolidated financial
statements.


F-4


4KIDS ENTERTAINMENT,
INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSYEARS ENDED DECEMBER 31,
2006, 2005 AND 2004(In thousands of dollars, except share data)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                   | 2006 | 2005            | 2004
|------------------------------------------------------------------ | ---- | --------------- | ----
|Net revenues                                                       |      | $        71,781 |     
|                                                                   |      |                 |     
|                                                                   |      |                 |     
|Cost and expenses:                                                 |     
|Selling, general and administrative                                |      | 39,155          |     
|Production service costs                                           |      | 11,259          |     
|Amortization of television and film costs                          |      | 8,041           |     
|                                                                   |      |                 |     
|Amortization of 4Kids TV broadcast fee                             |      | 22,462          |     
|                                                                   |      |                 |     
|Total costs and expenses                                           |      | 80,917          |     
|                                                                   |      |                 |     
|(Loss) income from operations                                      |      | (9,136          | )   
|                                                                   |      |                
|Other income:                                                      |     
|Interest income                                                    |      | 4,143           |     
|Gain on sale of investment in equity securities                    |      | --              |     
|                                                                   |      |                 |     
|Total other income                                                 |      | 4,143           |     
|                                                                   |      |                 |     
|(Loss) income before income taxes                                  |      | (4,993          | )   
|                                                                   |      |                
|(Benefit from) provision for income taxes                          |      | (3,506          | )   
|Loss from unconsolidated operations - net of a tax benefit of $218 |      | (280            | )   
|                                                                   |     
|Minority interest - net of tax of $30                              |      | 39              |     
|                                                                   |      |                 |     
|(Loss) income from continuing operations                           |      | (1,728          | )   
|                                                                   |      |                
|Income from discontinued                                           |     
|operations                                                         |      | 722             |     
|                                                                   |      |                 |     
|Net (loss) income                                                  |      | $       (1,006  | )   
|                                                                   |      |                 |     
|Per share amounts:                                                 |     
|Basic (loss) earnings per common share                             |     
|Continuing operations                                              |      | $         (0.13 | )   
|Discontinued operations                                            |      | 0.05            |     
|                                                                   |      |                 |     
|Basic (loss) earnings per common share                             |      | (0.08           | )   
|                                                                   |      |                 |     
|Diluted (loss) earnings per common share                           |     
|Continuing operations                                              |      | $         (0.13 | )   
|Discontinued operations                                            |      | 0.05            |     
|                                                                   |      |                 |     
|Diluted (loss) earnings per common share                           |      | $         (0.08 | )   
|                                                                   |      |                 |     
|Weighted average common                                            |     
|shares outstanding - basic                                         |      | 13,104,051      |     
|                                                                   |      |                 |     
|Weighted average common                                            |     
|shares outstanding - diluted                                       |      | 13,104,051      |     
|                                                                   |      |                 |     

|See notes to consolidated financial
statements.


F-5



4KIDS ENTERTAINMENT,
INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS
OF STOCKHOLDERS EQUITY AND COMPREHENSIVE (LOSS) INCOME YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 (In thousands of dollars and shares)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        |  |        |  |      |  |        
|--------------------------------------- |  | ------ |  | ---- |  | -------
|
|                                        |  |        |  |      |  |        
|BALANCE, DECEMBER 31, 2003              |  | 13,965 |  | $140 |  | $52,798
|Proceeds from exercise of stock options |  | 446    |  | 4    |  | 2,295  
|Tax benefit from exercise of stock      | 
|options                                 |  | --     |  | --   |  | 2,975  
|                                        |  |        |  |      |  |        
|Acquisition of treasury stock, at cost  |  | --     |  | --   |  | --     
|Comprehensive income:                   | 
|                                        |  |        |  |      |  |        
|Net income                              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|Translation adjustment                  |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|Total comprehensive income              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|BALANCE, DECEMBER 31, 2004              |  | 14,411 |  | $144 |  | $58,068
|Proceeds from exercise of stock options |  | 415    |  | 4    |  | 1,345  
|Tax benefit from exercise of stock      | 
|options                                 |  | --     |  | --   |  | 2,002  
|                                        |  |        |  |      |  |        
|Acquisition of treasury stock, at cost  |  | --     |  | --   |  | --     
|Comprehensive income:                   | 
|                                        |  |        |  |      |  |        
|Net income                              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|Translation adjustment                  |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|Total comprehensive income              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|BALANCE, DECEMBER 31, 2005              |  | 14,826 |  | $148 |  | $61,415
|Proceeds from exercise of stock options |  | 107    |  | 1    |  | 1,256  
|Tax benefit from exercise of stock      | 
|options                                 |  | --     |  | --   |  | 188    
|                                        |  |        |  |      |  |        
|Comprehensive income:                   | 
|                                        |  |        |  |      |  |        
|Net income                              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|Translation adjustment                  |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|Total comprehensive income              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|BALANCE, DECEMBER 31, 2006              |  | 14,933 |  | $149 |  | $62,859
|                                        |  |        |  |      |  |        

|See notes to consolidated financial
statements.


F-6



4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
                                             (In thousands of dollars)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                      | 2006 | 2005          | 2004
|------------------------------------------------------------------------------------- | ---- | ------------- | ----
|Cash flows from operating activities:                                                 |      |               |     
|Net (loss) income                                                                     |      | $  (1,006     | )   
|Adjustments to reconcile net (loss) income to net cash                                |     
|(used in) provided by  operating activities:                                          |     
|Depreciation and amortization                                                         |      | 1,047         |     
|Amortization of television and film costs                                             |      | 8,041         |     
|Amortization of 4Kids TV broadcast fee                                                |      | 22,462        |     
|Provision for (recovery of) doubtful accounts                                         |      | 630           |     
|Deferred income taxes                                                                 |      | (3            | )   
|Loss on investment in unconsolidated affiliate                                        |      | 498           |     
|Gain on sale of investment in equity securities                                       |      | --            |     
|Tax benefit on exercise of stock options                                              |      | --            |     
|Changes in operating assets and liabilities:                                          |     
|Accounts receivable                                                                   |      | 2,242         |     
|Film and television costs                                                             |      | (10,660       | )   
|Prepaid income taxes                                                                  |      | (3,612        | )   
|Prepaid 4Kids TV broadcast fee                                                        |      | (15,856       | )   
|Prepaid expenses and other current assets                                             |      | (2,233        | )   
|Other assets - net                                                                    |      | 725           |     
|Due to licensors                                                                      |      | (6,967        | )   
|Accounts payable and accrued expenses                                                 |      | 4,972         |     
|Deferred revenue                                                                      |      | (283          | )   
|Deferred rent                                                                         |      | (245          | )   
|                                                                                      |      |               |     
|Net cash (used in) provided by operating        activities - continuing operations    |      | (248          | )   
|Net cash (used in)  provided by operating        activities - discontinued operations |      | (809          | )   
|                                                                                      |      |               |     
|                                                                                      |      |               |     
|Net cash (used in)  provided by operating activities                                  |      | (1,057        | )   
|Cash flows from investing activities:                                                 |     
|Proceeds from maturities of investments                                               |      | 184,872       |     
|Purchase of investments                                                               |      | (199,399      | )   
|Purchase of property and equipment                                                    |      | (841          | )   
|Proceeds from disposal of property, plant and equipment                               |      | 521           |     
|Proceeds from sale of investment in equity securities                                 |      | --            |     
|Purchase of investment in unconsolidated affiliate                                    |      | (3,200        | )   
|                                                                                      |      |               |     
|                                                                                      |      |               |     
|Net cash (used in) provided by investing activities                                   |      | (18,047       | )   
|                                                                                      |      |               |     
|                                                                                      |      |               |     
|Cash flows from financing activities:                                                 |     
|Proceeds from exercise of stock options                                               |      | 1,257         |     
|Purchase of treasury shares                                                           |      | --            |     
|Tax benefit on exercise of stock options                                              |      | 188           |     
|                                                                                      |      |               |     
|Net cash provided by (used in) financing activities                                   |      | 1,445         |     
|                                                                                      |      |               |     
|Effects of exchange rate changes on cash and cash equivalents                         |      | 583           |     
|                                                                                      |      |               |     
|Net (decrease) increase in cash and cash equivalents                                  |      | (17,076       | )   
|Cash and cash equivalents, beginning of year                                          |      | 35,142        |     
|                                                                                      |      |               |     
|Cash and cash equivalents, end of year                                                |      | $   18,066    |     
|                                                                                      |      |               |     
|                                                                                      |      |               |     
|Supplemental disclosure of cash flow information:                                     |     
|Cash paid during the year for:                                                        |     
|Income Taxes                                                                          |      | $          87 |     
|                                                                                      |      |               |     

|See notes to consolidated financial
statements.


F-7



4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                 YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
                                             (In thousands of dollars, except share and per share data)
1. DESCRIPTION OF
BUSINESS


General Development and
Narrative Description of Business  4Kids Entertainment, Inc., together with the
subsidiaries through which the Companys businesses are conducted (the
Company), is a diversified entertainment and media company specializing in the
youth oriented market with operations in the following business segments: (i) Licensing;
(ii) Advertising Media and Broadcast; (iii) Television and Film Production/Distribution;
and (iv) Trading Card and Game Distribution. The Company was organized as a New York
corporation in 1970.


Licensing 
The Licensing business segment consists of the results of operations of the following
wholly-owned subsidiaries of the Company: 4Kids Entertainment Licensing, Inc. (4Kids
Licensing); 4Sight Licensing Solutions, Inc. (4Sight Licensing); 4Kids
Entertainment International, Ltd. (4Kids International); and 4Kids Technology,
Inc. (4Kids Technology). 4Kids Licensing is engaged in the business of
licensing the merchandising rights to popular childrens television series,
properties and product concepts (individually the Property or collectively the
Properties). 4Kids Licensing typically acts as exclusive merchandising agent
in connection with the grant to third parties of licenses to manufacture and sell all
types of merchandise, including toys, videogames, trading cards, apparel, housewares,
footwear, books and other published materials, based on such Properties. 4Sight Licensing
is engaged in the business of licensing properties and product concepts to adults, teens
and tweens. 4Sight Licensing focuses on brand building through licensing.
4Kids International based in London, manages the Properties represented by the Company in
the United Kingdom and European marketplaces. 4Kids Technology develops ideas and concepts
for licensing which integrate new and existing technologies with traditional game and toy
play patterns.


Advertising Media and
Broadcast  The Company, through a multi-year agreement with Fox
Broadcasting Corporation (Fox), leases Foxs Saturday morning programming
block from 8am to 12pm eastern/pacific time (7am to 11am central time). In January 2005,
the Company changed the name of the Saturday morning programming block from Fox
Box to 4Kids TV. The Company provides substantially all programming
content to be broadcast on 4Kids TV. 4Kids Ad Sales, Inc. (4Kids Ad Sales), a
wholly-owned subsidiary of the Company, retains all of the revenue from its sale of
network advertising time for the four-hour time period leased from Fox.


Effective June 30, 2006, the
Companys wholly-owned subsidiary, The Summit Media Group, Inc. (Summit
Media), which previously provided print and broadcast media planning and buying
services for clients principally in the childrens toy and game business, terminated
its operations. As a consequence of the termination of its operations, Summit Media no
longer serves as a media buying agency for third parties.


Television and Film
Production/Distribution  The Television and Film
Production/Distribution business segment consists of the results of operations of the
following wholly-owned subsidiaries of the Company: 4Kids Productions, Inc. (4Kids
Productions); 4Kids Entertainment Music, Inc. (4Kids Music); and 4Kids
Entertainment Home Video, Inc. (4Kids Home Video). 4Kids Productions produces
and adapts animated and live-action television programs and theatrical motion pictures for
distribution to the domestic and international television, home video and theatrical
markets. 4Kids Music composes original music for incorporation into television programming
produced by 4Kids Productions and markets and manages such music. 4Kids Home Video
distributes home videos associated with television programming produced by 4Kids
Productions.


Trading Card and Game
Distribution Through its wholly-owned subsidiary, 4Kids Digital
Games, Inc., (4Kids Digital), the Company owns 53% of TC Digital Games LLC, a
Delaware limited liability company (TC Digital), that will produce, market and
distribute the Chaotic trading card game. On December 11, 2006, 4Kids Digital
and Chaotic USA Digital Games LLC (CUSA LLC), a wholly owned subsidiary of
Chaotic USA Entertainment Group, Inc. (CUSA) entered into the TC Digital
operating agreement (TCD Agreement) which contains terms and conditions
governing the operations of TC Digital. Under the TCD Agreement, 4Kids Digital and
CUSA are each entitled to elect two managers to TC Digitals Management Committee with
4Kids Digital having the right to break any dead-locks.


Through its wholly-owned subsidiary,
4Kids Websites, Inc., the Company owns 50% of TC Websites LLC, a Delaware limited
liability company (TC Websites), that will own and operate
www.chaoticgame.com, the companion website for the Chaotic trading card game.
4Kids Websites purchased its 50% membership interest in TC Websites from CUSA on December
11, 2006. Under the terms of TC Websites operating agreement (TCW Agreement),
4Kids Websites



F-8

and CUSA are each entitled to elect two
managers to TC Websites Management Committee, with 4Kids Websites having the right
to break any dead-lock relating to advertising and marketing issues and CUSA having the
right to break any dead-lock relating to operational matters. Due to the fact that the
Company does not have final decision making power on operational matters, the equity
method of accounting is applied.


TC Digital and TC Websites are the
exclusive licensees of patents covering the uploading of coded trading cards to a website
where online game play and community activities occur. The Company believes that its
ownership interests in TC Digital and TC Websites represent a potentially significant
addition to its business strategy. These two businesses should enable the Company to offer
traditional trading card game play with an online digital play experience. In addition, it
is anticipated that TC Digital and TC Websites will diversify their product lines and will
ultimately distribute and sell, and create websites for, other trading card games.


Certain of the Companys
executive officers have interests in CUSA, CUSA LLC and certain other entities in which TC
Digital and TC Websites have engaged in transactions since their formation. Information
regarding these relationships can be found in Note 17 of the Notes to the Companys
consolidated financial statements.


2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES


Principles of
Consolidation  The accompanying consolidated financial statements
include the accounts of 4Kids Entertainment, Inc. and its wholly-owned subsidiaries and
investments of more than 50% in subsidiaries and other entities after elimination of
significant intercompany transactions and balances. Investments in affiliated companies
over which the Company has a significant influence or ownership of more than 20% but less
than or equal to 50% are accounted for using the equity method. The operations of Summit
Media have been classified as a discontinued operation as a result of the termination of
Summit Medias operations, effective June 30, 2006. As further discussed in Notes 8
and 16, the consolidated financial statements have been reclassified to reflect the
reporting of this business as a discontinued operation. These consolidated financial
statements reflect the use of significant accounting policies, as described below and
elsewhere in the notes to the consolidated financial statements.


Revenue
Recognition  Merchandise licensing revenues:
Licensing revenues, net of licensor participations, are recognized when the underlying
royalties from the sales of the related products are earned. The Company recognizes
guaranteed royalties, net of licensor participations, at the time the arrangement becomes
effective if the Company has no significant direct continuing involvement with the
underlying Property or obligation to the licensee. Where the Company has significant
continuing direct involvement with the underlying Property or obligation to the licensee,
guaranteed minimum royalties, net of licensor participations, are recognized ratably over
the term of the license or based on sales of the related products, if greater. Licensing
advances and guaranteed payments collected but not yet earned by the Company are
classified as deferred revenue in the accompanying consolidated balance sheets.


Broadcast advertising
revenues: Advertising revenues are recognized when the related commercials
are aired and are recorded net of agency commissions and net of an appropriate reserve
when advertising is sold together with a guaranteed audience delivery. Internet
advertising revenues are recognized on the basis of impression views in the period the
advertising is displayed. Commission income from the discontinued media planning and
buying operations of Summit Media, from both print and broadcast media, were recognized at
the time the related media was run.


Episodic television series
revenues: Television series initially produced for networks and first-run
syndication are generally licensed to domestic and foreign markets concurrently. The
length of the revenue cycle for episodic television varies depending on the number of
seasons a series remains in active exploitation. Revenues arising from television license
agreements, net of licensor participations, are recognized in the period that the films or
episodic television series are available for telecast.


Production and adaptation costs
charged to the licensor are included in net revenues and the corresponding costs are
included in production service costs in the accompanying consolidated statements of
income. Production service costs included in net revenues amounted to $10,120, $8,288 and
$9,629 in 2006, 2005 and 2004, respectively.


Home video
revenues: Revenues from home video and DVD sales, net of a reserve for
returns, are recognized, net of licensor participations, on the date that video and DVD
units are shipped by the Companys distributor to wholesalers/retailers. Consistent
with the practice in the home video industry, the Company estimates the reserve for
returns based upon its review of historical returns rates and expected future performance.


Music revenues:
Revenues from music sales, net of licensor participations, and net of a reserve for
returns, are recognized on the date units are shipped by the Companys distributor to
wholesalers/retailers as reported to the Company. In the case of musical performance
revenues, the revenue is recognized when the musical recordings are broadcast and/or
performed.


F-9

Advertising
Expense  Advertising costs are expensed as incurred, except for costs
related to the development of a Property and/or animated or live-action television program
commercial or media campaign which are expensed in the period in which the commercial or
campaign is first presented. Advertising expense included in selling, general and
administrative expenses on the accompanying consolidated statements of income was $2,191,
$1,927 and $1,773 in 2006, 2005 and 2004, respectively.


Property and
Equipment  Property and equipment are carried at cost, net of
accumulated depreciation and amortization. Depreciation is calculated on the straight-line
method based on the estimated useful lives of the assets, which range from 3 to 10 years.
Amortization of leasehold improvements is computed using the straight-line method over the
estimated useful lives of the related assets or, if shorter, the lease term. Costs
associated with the repair and maintenance of property are expensed as incurred.


Impairment Of Long-Lived And
Intangible Assets  As required by Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the Company assesses the recoverability of long-lived assets for
which an indication of impairment exists. The recoverability of assets to be held and used
is measured by comparing the carrying amount of an asset to the future undiscounted net
cash flows expected to be generated by the asset. If an asset is considered to be
impaired, the impairment to be recognized is measured as the amount by which the carrying
amount of the asset exceeds its fair value. Fair value of long-lived assets is determined
using the expected cash flows discounted at a rate commensurate with the risk involved.
The Company believes that the future cash flows to be received from our long-lived assets
will exceed the respective assets carrying value, and accordingly has not recorded
any impairment losses.


Cash and Cash
Equivalents  All highly liquid investments with original maturities
of three months or less are classified as cash and cash equivalents. The fair value of
cash and cash equivalents approximates the amounts shown on the financial statements. Cash
and cash equivalents consist of unrestricted cash in various banks which maintain balances
in excess of the Federal Deposit Insurance Corporation (FDIC) insured limit of $100 per
bank account. At December 31, 2006 and 2005, the cash and cash equivalents in excess of
the insured limit aggregated $13,789 and $27,421, respectively.


Prepaid 4Kids TV Broadcast
Fee  The Company capitalizes the broadcast fee paid to Fox and
amortizes the amount of such fee over the broadcast season based on estimated advertising
revenue. During 2006, the Company paid Fox and certain affiliates $7,058 and $5,491,
attributable to the fourth and fifth years broadcast fees, respectively, and during
2005, the Company paid Fox and certain affiliates $6,768 and $19,255, attributable to the
third and fourth years broadcast fees, respectively. The unamortized portion of
these fees of $0 and $6,606, are included in Prepaid 4Kids TV broadcast fee on
the accompanying consolidated balance sheets as of December 31, 2006 and 2005,
respectively.


Investments
 The Companys short-term investments principally consist of auction rate and
debt securities. Auction rate securities are generally rated A or better by one or more
national rating agencies and have contractual maturities of up to 30 years. The auction
rate securities the Company invests in generally have interest reset dates that occur
every 7 or 35 days and despite the long-term nature of their stated contractual maturity,
we have the ability to quickly liquidate these securities at ongoing auctions every 35
days or less. The Company classifies its investments in auction rate securities as
available for sale. These investments are recorded at cost which approximates
fair market value due to their variable interest rates. All income generated from these
current investments was recorded as interest income. As the Company expects to hold its auction rate
securities for less than one year, they have been classified as a current asset.


Debt securities for which the Company
has both the intent and ability to hold to maturity are classified as held-to-maturity and
are recorded at amortized cost. At December 31, 2006 and 2005, the Companys
investments in debt securities were classified as current assets due to their short-term
nature.


Film and Television
Costs  The Company accounts for its film and television costs
pursuant to American Institute of Certified Public Accountants (AICPA)
Statement of Position (SOP) No. 00-2, Accounting by Producers or
Distributors of Films. The cost of production for television programming, including
overhead, participations and talent residuals is capitalized and amortized using the
individual-film-forecast method under which such costs are amortized for each television
program in the ratio that revenue earned in the current period for such program bears to
managements estimate of the ultimate revenues to be realized from all media and
markets for such program. Management regularly reviews, and revises when necessary, its
ultimate revenue estimates on a title-by-title basis, which may result in a change in the
rate of amortization applicable to such title and/or a write-down of the value of such
title to estimated fair value. These revisions can result in significant
quarter-to-quarter and year-to-year fluctuations in film write-downs and rates of
amortization. If a total net loss is projected for a particular title, the associated film
and television costs are written down to estimated fair value. All exploitation costs,
including advertising and marketing costs are expensed as incurred. Television adaptation
and production costs that are adapted and/or produced are stated at the lower of cost,
less accumulated amortization, or fair value.


F-10

Fair Value of Financial
Instruments  The carrying amounts of cash and cash equivalents,
accounts receivable, investments, prepaid expenses and other current assets, due to
licensors, media payable, accounts payable and accrued expenses, and other current
liabilities approximate their fair values principally because of the short-term maturities
of these instruments.


Operating Leases The Company accounts for all operating leases on a straight-line basis over
the term of the lease. In accordance with the provisions of Financial Accounting Standards
Board (FASB) Statement No. 13, Accounting for Leases,any
incentives or rent escalations are recorded as deferred rent and are included as a
component of rent expense over the respective lease term.


Use of Estimates
 The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results
could differ materially from those estimates.


Reclassifications
 Certain reclassifications have been made to prior year amounts to conform to
the 2006 presentation.



Translation of Foreign Currency In
accordance with SFAS No. 130, Reporting Comprehensive Income (SFAS No.
130), the Company classifies items of other comprehensive income by their nature in
the financial statements and displays the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the equity
section of the consolidated balance sheet. The assets and liabilities of the
Companys foreign subsidiary, 4Kids International have been recorded in their local
currency and translated to U.S. dollars using period-end exchange rates. Income and
expense items have been translated at the average rate of exchange prevailing during the
period. Any adjustment resulting from translating the financial statements of the foreign
subsidiary is reflected as other comprehensive income, net of related tax.
Comprehensive (loss) income for the years ended December 31, 2006, 2005 and 2004 was
$(105), $4,373 and $13,161, respectively, which included translation adjustments of $901,
$(696) and $431 for the respective periods.


Concentration Of Credit
Risk  Financial instruments, which potentially subject the Company to
concentration of credit risk, consist primarily of temporary cash investments and accounts
receivable. The majority of the cash and cash equivalents are maintained with major
financial institutions in the United States of America. The counterparties to the
agreements relating to investment instruments consist of various United States
governmental units and financial institutions of high credit standing. Credit risk on
accounts receivable is minimized by the Company by performing ongoing credit evaluations
of its customers financial condition and monitoring its exposure for credit losses
and maintaining allowances for anticipated losses.


Income Taxes
 Deferred income taxes are recorded for the temporary differences between the
financial statement and tax bases of assets and liabilities using current tax rates.
Valuation allowances are established against deferred tax assets whenever circumstances
indicate that it is more likely than not that such assets will not be realized in future
periods.


Recently Issued Accounting
Pronouncements Share-Based Payments In December 2004, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based
Payments (SFAS No. 123-R). SFAS No. 123-R is a revision of SFAS
No. 123, as amended, Accounting for Stock-Based Compensation, and supersedes
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock
Issued to Employees. SFAS No.123-R eliminates the alternative to use the
intrinsic value method of accounting that was provided in SFAS No. 123, which
generally resulted in no compensation expense recorded in the financial statements related
to the issuance of equity awards to employees. SFAS No. 123-R requires that the cost
resulting from all share-based payment transactions be recognized in the financial
statements. SFAS No. 123-R establishes fair value as the measurement objective in
accounting for share-based payment arrangements and requires all companies to apply a
fair-value-based measurement method generally in accounting for all share-based payment
transactions with employees.


SFAS No. 123-R is effective for
fiscal years beginning after June 15, 2005. The Company adopted SFAS No. 123-R
effective January 1, 2006, using a modified prospective application. This application
requires the Company to record compensation expense for all awards granted after January
1, 2006 and for the unvested portion of previously granted awards that remain outstanding
as of such date. The Companys adoption of SFAS No. 123-R did not result in the
recording of compensation expense in 2006 with respect to options previously granted since
all of the Companys outstanding options were fully vested at December 31, 2005. The
adoption of this pronouncement did not have a material effect on the Companys
consolidated financial position or results of operations.



F-11

Accounting Changes and Error
Corrections In June 2005, the FASB issued SFAS No. 154, Accounting Changes
and Error Corrections (SFAS No. 154). SFAS No. 154 replaces APB No.
20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes
in Interim Financial Statements, and changes the requirements for the accounting for,
and reporting of, a change in accounting principles.  SFAS No. 154 applies to all
voluntary changes in accounting principles and to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include specific
transition provisions.  SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. The adoption
of this pronouncement did not have a material effect on the Companys consolidated
financial position or results of operations.


Determining the Amortization
Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a
Business Combination  In June 2005, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 05-6, Determining the Amortization Period
for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business
Combination (EITF No. 05-6). EITF No. 05-6 provides that
leasehold improvements that are placed in service significantly after, and not
contemplated at or near the beginning of the lease term should be amortized over the
shorter of the useful life of the assets or a term that includes required lease periods
and renewals that are deemed to be reasonably assured at the date the leasehold
improvements are purchased. Leasehold improvements acquired in a business combination
should be amortized over the shorter of the useful life of the assets or a term that
includes required lease periods and renewals that are deemed to be reasonably assured at
the date of acquisition. The Company is required to apply EITF No. 05-6 to leasehold
improvements that are purchased or acquired in reporting periods beginning after June 30,
2005. The adoption of this Issue did not have a material effect on the Companys
consolidated financial position or results of operations.


Accounting for Uncertainty in
Income Taxes In June 2006, the FASB issued SFAS Interpretation
No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), an
interpretation of SFAS No. 109 Accounting for Income Taxes(SFAS
No. 109). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in accordance with SFAS
No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for
financial statement recognition and measurement of a tax provision taken or expected to be
taken in a tax return. FIN 48 also provides guidance on the derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and transition. The
adoption of FIN 48 is effective for fiscal periods beginning after December 15, 2006.
The Company does not expect that the adoption of FIN 48 will a have a material effect on
its consolidated financial position or results of operations.


Fair Value Measurements In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement
(SFAS 157). SFAS 157 defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value measurements. SFAS 157
applies under other accounting pronouncements that require or permit fair value
measurements and is effective for fiscal years beginning November 15, 2007. The Company is
currently evaluating the impact the adoption of SFAS 157 will have on its consolidated
financial position and results of operations.


In September 2006, the SEC
issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements
(SAB No. 108). This bulletin expresses the SECs views regarding the
process of quantifying financial statement misstatements. The interpretations in this
bulletin were issued to address diversity in practice in quantifying financial statement
misstatements and the potential under current practice for the build up of improper
amounts on the balance sheet. The Company adopted the provisions of SAB No. 108
for the year ended December 31, 2006. The adoption had no impact on the
Companys consolidated financial position and results of operations.


In September 2006, the FASB issued
SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement PlansAn Amendment of FASB No. 87, 88, 106 and 132(R)
(SFAS 158). SFAS 158 requires that the funded status of defined
benefit postretirement plans be recognized on companies balance sheets and that
changes in the funded status be reflected in comprehensive income, effective for fiscal
years ending after December 15, 2006. SFAS 158 also requires companies to measure the
funded status of each such plan as of the date of its fiscal year-end, effective for
fiscal years ending after December 15, 2008. Since the Company does not currently
have a defined benefit postretirement plan, the adoption of SFAS 158 will not have any
impact on its consolidated financial position and results of operations.


In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities,(SFAS 159). SFAS 159 provides companies with an option to report selected
financial assets and financial liabilities at fair value. Unrealized gains and losses on
items for which the fair value option has been elected are reported in earnings at each
subsequent reporting date. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the impact that the adoption
of SFAS 159 will have on its consolidated financial position and results of operations.


F-12

3. INVESTMENTS


Short-term investments consisted of the following as of:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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|                             | December 31,
|---------------------------- | ------------
|
|
|Auction-Rate Securities      |             
|Government Bonds             |             
|                             |             
|Total Short-term investments |             
|                             |             

|4. ACCOUNTS
RECEIVABLE/DUE TO LICENSORS


Generally, licensing contracts
provide for the Company to collect, on behalf of the licensor, royalties from the
licensees. The Company records as accounts receivable only its proportionate share of such
earned royalties.


Due to licensors represents amounts
collected by the Company on behalf of licensors, which are generally payable to such
licensors after the close of each calendar quarter. Additionally, accounts receivable
include amounts due from customers for advertising revenue earned from airing commercial
spots on the 4Kids TV. Accounts receivable related to discontinued operations has been
excluded from this footnote and is disclosed in Note 16.


Accounts receivable consisted of the
following as of:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | December 31,
|------------------------------- | ------------
|
|Gross accounts receivable       |             
|Allowance for doubtful accounts |             
|                                |             
|                                |             
|                                |             
|Less: long-term portion         |             
|                                |             
|                                |             
|                                |             
|                                |             

# 5. FILM AND TELEVISION
COSTS

Film and television costs consisted
of the following as of:

|                          | December 31,
|------------------------- | ------------
|
|Opening balance           |             
|Additions                 |             
|                          |             
|                          |             
|Amortization              |             
|                          |             
|Ending Balance            |             
|                          |             
|                          |             
|Development/Preproduction |             
|Production                |             
|Completed not released    |             
|Completed released        |             
|                          |             
|                          |             
|                          |             
|                          |             

|Amortization of capitalized film and
television costs were $8,041, $9,790 and $9,639 in 2006, 2005 and 2004, respectively.
Based on managements ultimate revenue estimates as of December 31, 2006,
approximately 49% of the total completed and unamortized film and television costs are
expected to be amortized during 2006, and over 90% of the total completed and unamortized
film and television costs are expected to be amortized during the next three years.



F-13

6. PROPERTY AND EQUIPMENT


Property and equipment consisted of
the following as of:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                | December 31,
|----------------------------------------------- | ------------
|
|Computer equipment and software                 |             
|Machinery and equipment                         |             
|Office furniture and fixtures                   |             
|Leasehold improvements                          |             
|Office equipment                                |             
|Construction in progress                        |             
|                                                |             
|                                                |             
|                                                |             
|Less: accumulated depreciation and amortization |             
|                                                |             
|                                                |             
|                                                |             
|                                                |             

|7. STOCKHOLDERS
EQUITY


The Company has stock-based
compensation plans for employees and non-employee members of the Board of Directors. The
plans provide for discretionary grants of stock options, restricted stock shares, and
other stock-based awards. The plans are intended to attract, motivate and retain employees
of 4Kids and its subsidiaries and non-employee directors of 4Kids.The plans are
administered by the Compensation Committee of the Board of Directors, consisting of
non-employee directors.


Effective January 1, 2006, the
Company adopted SFAS No. 123-R (revised 2004), Share-Based Payments, utilizing the
modified prospective method whereby prior periods are not restated for comparability. SFAS
123-R requires recognition of stock-based compensation expense in the statement of
operations over the vesting period based on the fair value of the award at the grant date.
Previously, the Company used the intrinsic value method under APB No. 25, Accounting
for Stock Issued to Employees (APB No. 25), as amended by related
interpretations of the FASB. Under APB No. 25, no compensation cost was recognized for
stock options because the quoted market price of the stock at the grant date was equal to
the amount per share the employee had to pay to acquire the stock after fulfilling the
vesting period. SFAS 123-R supersedes APB No. 25 as well as SFAS 123, Accounting for
Stock-Based Compensation, which permitted pro forma footnote disclosures to report the
difference between the fair value method and the intrinsic value method. For the year
ended December 31, 2006, the Company did not grant any stock options and at January 1,
2006, all of the Companys outstanding options were fully vested and; therefore, the
adoption of this pronouncement did not have a material effect on the Companys
consolidated financial position or results of operations.


Stock Options


The following table provides the pro
forma effect on net earnings as if the fair-value-based measurement method had been
applied to all stock-based compensation for the years ended December 31, 2005 and 2004:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | 2005 | 2004    
|------------------------------- | ---- | --------
|Net income as reported          |      | $5,069  
|Deduct stock-based employee     |     
|compensation expense determined |     
|under fair value based method   |     
|for all awards, net of tax      |      | 3,619   
|                                |      |         
|                                |      |         
|Pro forma net income            |      | $1,450  
|                                |      |         
|                                |      |         
|Net income per share:           |     
|Reported                        |     
|Basic                           |      | $   0.39
|                                |      |         
|Diluted                         |      | $   0.37
|                                |      |         
|Pro forma                       |     
|Basic                           |      | $   0.11
|                                |      |         
|Diluted                         |      | $   0.11
|                                |      |         

|F-14

The Company issued stock option
grants for underlying shares of 776 and 596, at weighted average exercise prices of $19.99
and $22.37, in 2005 and 2004, respectively. Each of the stock option grants has a (i) five
year life; (ii) was immediately exercisable with respect to 50 percent of the underlying
shares; and (iii) became exercisable with respect to the remaining 50 percent on the first
anniversary date of the grant, except for the 2005 grants which became exercisable with
respect to the remaining 50 percent by December 31, 2005.


The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model. The
weighted average assumptions used for options granted in 2005 and 2004 included no
dividend yield for the periods, expected volatility of approximately 38% and 58% for 2005
and 2004, respectively, a risk-free interest rate of approximately 3.76% and 2.06% for
2005 and 2004, respectively, and an option duration of 3.6 and 3.7 years for 2005 and
2004, respectively. The weighted average fair value of options granted is $6.55 and $10.27
in fiscal years 2005 and 2004, respectively.


The following table summarizes
activity under our stock option plans for the years ended December 31, 2006, 2005 and
2004:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | Shares | Weighted-
Average
Exercise
Price | Weighted-
Average
Remaining
Contractual Term
(Years) | Aggregate
Intrinsic
Value
(in thousands)
|------------------------------- | ------ | -------------------------------- | ---------------------------------------------------- | ----------------------------------------
|Outstanding, January 1, 2004    |        | 2,378                            |                                                      | $     11.89                             
|                                |        |                                  |                                                      |                                         
|Granted                         |        | 596                              |                                                      | $     22.37                             
|                                |        |                                  |                                                      |                                         
|Exercised                       |        | (447                             | )                                                    | $       5.15                            
|                                |        |                                  |                                                      |                                         
|                                |        |                                  |                                                      |                                         
|Forfeited, cancelled or expired |        | (131                             | )                                                    | $     29.92                             
|                                |        |                                  |                                                      |                                         
|                                |        |                                  |                                                      |                                         
|                                |        |                                  |                                                      |                                         
|Outstanding, December 31, 2004  |        | 2,396                            |                                                      | $     14.81                             
|                                |        |                                  |                                                      |                                         
|Granted                         |        | 776                              |                                                      | $     19.99                             
|                                |        |                                  |                                                      |                                         
|Exercised                       |        | (415                             | )                                                    | $       3.25                            
|                                |        |                                  |                                                      |                                         
|Forfeited, cancelled or expired |        | (75                              | )                                                    | $     25.74                             
|                                |        |                                  |                                                      |                                         
|                                |        |                                  |                                                      |                                         
|                                |        |                                  |                                                      |                                         
|Outstanding, December 31, 2005  |        | 2,682                            |                                                      | $     17.79                             
|Granted                         |        | --                               |                                                      | $           --                          
|Exercised                       |        | (107                             | )                                                    | $     11.80                             
|Forfeited, cancelled or expired |        | (294                             | )                                                    | $     19.11                             
|                                |        |                                  |                                                      |                                         
|                                |        |                                  |                                                      |                                         
|                                |        |                                  |                                                      |                                         
|Outstanding, December 31, 2006  |        | 2,281                            |                                                      | $     17.90                             
|                                |        |                                  |                                                      |                                         
|                                |        |                                  |                                                      |                                         
|Exercisable, December 31, 2006  |        | 2,281                            |                                                      | $     17.90                             
|                                |        |                                  |                                                      |                                         

|The aggregate intrinsic value is
calculated as the difference between the exercise price of the underlying awards and the
quoted price of our common stock for those awards that have an exercise price currently
below the closing price. As of December 31, 2006, the Company had options outstanding to
purchase an aggregate of 660 shares with an exercise price below the quoted price of our
stock, resulting in an aggregate intrinsic value of $6,624. During the years ended
December 31, 2006 and 2005, the aggregate intrinsic value of options exercised under our
stock option plans was $561 and $5,346, respectively, determined as of the date of
exercise.


F-15

Under the Companys stock option
plans, options to purchase 328 shares of the Companys common stock were available at
December 31, 2006 for future issuance and there were no options granted during 2006.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       | Options Outstanding | Options Exercisable
|---------------------- | ------------------- | -------------------
|
|$ 0.92    -    $1.38   |                     | 120                
|$ 3.10    -    $ 4.66  |                     | 75                 
|$ 8.94    -    $ 13.41 |                     | 465                
|$ 13.42   -   $ 20.11  |                     | 385                
|$ 20.12   -   $ 30.16  |                     | 1,136              
|$ 30.17   -   $ 33.28  |                     | 100                
|                       |                     |                    
|                       |                     |                    
|                       |                     | 2,281              
|                       |                     |                    
|                       |                     |                    

|Restricted Stock Awards


Pursuant to its Long-term Incentive
Compensation Plan, the Company granted restricted stock awards on May 23, 2006 and June
15, 2006 for approximately 145,000 and 4,000 shares, respectively. The
restricted stock awards were granted to certain employees, including officers and members
of the Board of Directors, at a grant price of $16.52 and $15.78, respectively (the
average of the high and low stock price from the previous day of trading). The restricted
stock awards vest annually from the date of grant over a period of four years with
accelerated vesting upon a change of control of the Company (as defined in the applicable
plan). During the restriction period, award holders do not have the rights of stockholders
and cannot transfer ownership. Additionally, nonvested shares of award holders are subject
to forfeiture. These awards are forfeited and revert to the Company in the event of
employment termination, except in the case of death, disability, retirement or other
specified events.


A summary of restricted stock award
activity under the Plans as of December 31, 2006 and changes during the year ended is
presented as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | Number of
Shares | Weighted-Average
Grant Date Fair
Value
|-------------------------------- | ---------------- | --------------------------------------
|Outstanding at January 1, 2006   |                  | --                                    
|Granted                          |                  | 149                                   
|Vested                           |                  | --                                    
|Forfeited                        |                  | (11                                   
|Converted                        |                  | --                                    
|                                 |                  |                                       
|Outstanding at December 31, 2006 |                  | 138                                   
|                                 |                  |                                       
|                                 |                  |                                       

|As of December 31, 2006, there was
approximately $1,936 of unrecognized compensation cost related to restricted stock awards
granted under the Plan. The cost is expected to be recognized over a remaining
weighted-average period of 3.39 years. There were no shares that vested during the year
ended December 31, 2006. Under the Companys restricted stock award plan, 162
restricted stock shares of the Companys common stock were available at December 31,
2006 for future issuance.


8. SEVERANCE AND EXIT
COSTS


In connection with the termination of
the Companys media buying operations, the Company recorded charges for severance and
termination benefits in the amount of approximately $333 during the year ended December
31, 2006. The charges were attributable to the elimination of 10 positions, primarily
representing sales and related support functions in addition to certain other management
positions. There were no amounts attributable to the scheduled termination of employees
under SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, plans whereby employees are required to provide transitional services
through their termination dates.



F-16

A summary of the actions taken in
2006 for severance and other exit-costs have been recorded in income from discontinued
operations and is provided as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                  | Amount
|----------------- | ------
|Professional fees |       
|Severance         |       
|                  |       
|Total             |       
|                  |       

The following is a reconciliation of activity with respect to the liabilities for the severance and exit costs:

|                                       | Amount
|-------------------------------------- | ------
|Balance, January 1, 2006               |       
|Severance and related costs recognized |       
|Other                                  |       
|Cash payments                          |       
|                                       |       
|Balance, December 31, 2006             |       
|                                       |       

|The liability for severance has been
paid in accordance with the provisions of the severance agreements. The remaining exit
costs are expected to be paid in full during 2007.


9. REVENUES/MAJOR
CUSTOMERS


Net revenues included in the
accompanying consolidated statements of operations are net of licensor participations of
$36,085, $54,492 and $72,531 in 2006, 2005 and 2004, respectively. The percentages of
revenue from major Properties and customers/licensees are as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                | Years Ended December 31,
|--------------------------------------------------------------- | ------------------------
|
|Percentage of revenue derived from major Properties (revenue in |                         
|excess of 10 percent of total revenue)                          |                         
|                                                               
|Number of major Properties                                      |                         
|                                                               
|Percentage of revenue derived from major customers/licensees    |                         
|(revenue in excess of 10 percent of total revenue)              |                         
|                                                               
|Number of major customers/licensees                             |                         

|As of December 31, 2006 and 2005,
accounts receivable due from major customers/licensees listed above represented 8% and 11%
of the Companys gross accounts receivable, respectively.


10. INCOME TAXES


The Company has provided for deferred
income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, whereby
deferred income taxes are determined based upon the enacted income tax rates for the years
in which these taxes are estimated to be payable or recoverable. Deferred income taxes
arise from temporary differences resulting from a difference between the tax basis of an
asset or liability and its reported amount in the financial statements.



F-17

The provision for income taxes
consisted of the following:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | Years Ended December 31,
|----------------------------------------- | ------------------------
|
|Current tax (benefit):                    |                         
|Federal                                   |                         
|State and local                           |                         
|Foreign                                   |                         
|                                          |                         
|                                          |                         
|                                          |                         
|Deferred tax (benefit):                   |                         
|Federal                                   |                         
|State and local                           |                         
|Foreign                                   |                         
|                                          |                         
|                                          |                         
|                                          |                         
|(Benefit from) provision for income taxes |                         
|                                          |                         

|The following is a summary
reconciliation of the U.S. Federal statutory income tax rate to the Companys
effective income tax rate:
|-----------------------------------------------------------------------------------------------------------------------------------

|                              | % of | % of    | % of
|----------------------------- | ---- | ------- | ----
|
|Tax at Federal statutory rate |      | $(1,698 | )   
|Increase (decrease) in:       |     
|Permanent differences         |      | (1,263  | )   
|State and local taxes - net   |      | (207    | )   
|Other - net                   |      | (338    | )   
|                              |      |         |     
|                              |      |         |     
|Income taxes                  |      | $(3,506 | )   
|                              |      |         |     

|The income tax effects of temporary
differences that give rise to deferred tax assets and liabilities are as follows:
|---------------------------------------------------------------------------------------------------------------------

|                                               | 2006 | 2005   
|---------------------------------------------- | ---- | -------
|Deferred Tax Assets:                           |      |        
|Film and television costs                      |      | $   434
|Accounts receivable allowances                 |      | 681    
|Foreign tax credits                            |      | 94     
|State and local taxes                          |      | 584    
|Restricted stock                               |      | 135    
|Contributions                                  |      | 89     
|Deferred rent                                  |      | 355    
|Property and Equipment                         |      | 707    
|                                               |      |        
|Total deferred tax assets                      |      | $3,079 
|                                               |      |        
|Deferred Tax Liability:                        |     
|Accrued minimum guarantees                     |      | $   639
|                                               |      |        
|Total deferred tax liability                   |      | 639    
|                                               |      |        
|Net deferred tax asset                         |      | $2,440 
|                                               |      |        
|Amounts recognized in the Consolidated Balance |     
|Sheets consist of:                             |     
|Deferred tax asset - current                   |      | $   707
|Deferred tax asset - non-current               |      | 1,733  
|                                               |      |        
|Net deferred tax asset                         |      | $2,440 
|                                               |      |        

|F-18

At December 31, 2006, the Company had
state and local tax loss carryforwards of approximately $6,464, which expire in 2026.
Additionally, the Company had foreign tax credits and contribution carryfowards of
approximately $94 and $222, respectively, which expire in 2011. Income tax benefits
related to the exercise of stock options reduced current taxes payable and increased
additional paid-in capital by $188, $2,002 and $2,975 in 2006, 2005 and 2004,
respectively.


In accordance with SFAS No. 109, we
have performed an evaluation of the recoverability of our deferred tax assets. Realization
of our loss carryforwards is dependent on generating future taxable income prior to the expiration of
the loss carryforward. It is our
opinion that it is more likely than not that the deferred tax assets will be realized and
should not be reduced by a valuation allowance.


The Company has determined that
earnings through 2006 of approximately $7,606 from its foreign subsidiary will remain
invested overseas for the indefinite future and, accordingly, no deferred tax liability
has been recognized. If such earnings were to be repatriated, the income tax liability is
estimated to be approximately $2,248.


11. EARNINGS PER SHARE


The Company applies SFAS No. 128,
Earnings per Share, which requires the computation and presentation of earnings per
share (EPS) to include basic and diluted EPS. Basic EPS is computed based
solely on the weighted average number of common shares outstanding during the period.
Diluted EPS reflects all potential dilution of common stock. The following table
reconciles Basic EPS with Diluted EPS for the three years ended December 31, 2006, 2005
and 2004.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | Year Ended 2006Weighted Average
|----------------------------- | -------------------------------
|
|Basic earnings per share -    |                                
|Income available to common    |                                
|shareholders                  |                                
|                             
|Effect of dilutive security - |                                
|Stock options                 |                                
|                              |                                
|                              |                                
|Diluted loss per share        |                                
|                              |                                
|                              |                                

|                              | Year Ended 2005Weighted Average
|----------------------------- | -------------------------------
|
|Basic earnings per share -    |                                
|Income available to common    |                                
|shareholders                  |                                
|                             
|Effect of dilutive security - |                                
|Stock options                 |                                
|                              |                                
|                              |                                
|Diluted earnings per share    |                                
|                              |                                
|                              |                                

|                              | Year Ended 2004Weighted Average
|----------------------------- | -------------------------------
|
|Basic earnings per share -    |                                
|Income available to common    |                                
|shareholders                  |                                
|                             
|Effect of dilutive security - |                                
|Stock options                 |                                
|                              |                                
|Diluted earnings per share    |                                
|                              |                                

|F-19

For the years ended December 31,
2006, 2005 and 2004, approximately 1,621, 1,915 and 1,168 shares, respectively,
attributable to the exercise of outstanding options, were excluded from the calculation of
diluted EPS because the effect was antidilutive.


12. DEFINED CONTRIBUTION
PLAN


The Company participates in a 401(k)
plan covering substantially all employees. Benefits vest based on number of years of
service. The Companys policy is to match 25% of the first 6% of the covered
employees annual salary, as defined by the plan. Contributions to the plan by the
Company amounted to $167, $201 and $213 for the years ended December 31, 2006, 2005 and
2004, respectively.


13. COMMITMENTS AND
CONTINGENCIES
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | Bonus Plan  Bonuses are eligible to key officers and employees in
               an amount, if any, to be determined in the sole discretion of the Compensation
               Committee of the Board of Directors in consultation with the CEO of 4Kids. For
               2006, 2005 and 2004, the Compensation Committee of the Board of Directors
               awarded the Chairman and CEO of the Company approximately $225, $0 and $890,
               respectively. An additional amount of approximately $400, $1,075 and $1,469 was
               awarded but not yet paid to employees at December 31, 2006, 2005 and 2004,
               respectively.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Leases  The Company leases certain office, administration and
               production facilities. Commitments for minimum rentals, not including common
               charges, under non-cancelable leases at the end of 2006 are as follows:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year ending
December 31, | Amount
|------------------------ | ------
|2007                     | $2,264
|2008                     | 1,422 
|2009                     | 1,257 
|2010                     | 825   
|                         |       
|                         |       
|Total                    | $5,768
|                         |       
|                         |       

| | Rent
expense for all operating leases charged against earnings amounted to $1,843, $1,908 and
$1,945 in 2006, 2005 and 2004, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Litigation  The Company from time to time is involved in
          litigation arising in the ordinary course of its business. The Company does not
          believe that such litigation to which the Company or any subsidiary of the
          Company is a party or of which any of their Properties is the subject will,
          individually or in the aggregate, have a material adverse effect on the
          Companys financial position or the results of its operations.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Employment Contracts The Company has employment agreements
          and arrangements with its executive officers and certain management personnel.
          The agreements generally continue until terminated by the executive or the
          Company, and provide for severance payments under certain circumstances. The
          majority of the agreements and arrangements provide the employees with certain
          additional rights after a change of control (as defined in such agreements) of
          the Company occurs. The agreements include a covenant against competition with
          the Company which extends for a period of time after termination for any reason.
          As of December 31, 2006, if all of the employees under contract were terminated
          by the Company without good cause or following a change of control, under these
          contracts, the Companys liability would be approximately $12,355 or
          $10,539, respectively. These employment agreements provide for an aggregate
          minimum annual base compensation of $4,500 expiring on various dates through
          2012.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | Deferred Revenue  Music Publishing  In July 2002, 4Kids Music
               granted a right to receive a 50% interest in the Companys net share of the
               music revenues from currently existing music produced by the Company for its
               television programs (Current Music Assets) to an unaffiliated third
               party in an arms length transaction for $3,000. Further, the Company agreed to
               grant a right to receive a 50% interest in the Companys net share of music
               revenues from future music to be produced by the Company for its television
               programs (Future Music Assets) to the same third party for $2,000.
               In consideration of the grant of Future Music Assets, the Company received $750
               in June 2003 and $750 in June 2004 and $500 in June 2005.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-20
|----

| | The
Company has deferred all amounts received under the contract, and recognizes revenue as
the Current Music
Assets and Future Music Assets generate revenue over the contract term. Notwithstanding
the foregoing, as of the date the Company has delivered all of the Future Music
Assets required under the contract, any portion of the $5,000 that remains deferred and
not recognized, will be recognized as revenue. Pursuant to the above, the Company
recognized revenues of $665 and $544 for the years ended December 31, 2006 and 2005,
respectively. The Company has included $2,455 and $3,120 as deferred revenue on the
accompanying consolidated balance sheets as of December 31, 2006 and 2005,
respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Home
Video  At various dates since May 2002, 4Kids Home Video, entered into various
agreements with an unaffiliated third party home video distributor (the Video
Distributor), pursuant to which 4Kids Home Video provides ongoing advertising,
marketing and promotional services with respect to certain home video titles, that are
owned or controlled by the Company and which are distributed by the Video Distributor. The
Video Distributor has paid the Company advances of $4,119 ($300 during the year ended
December 31, 2006) against 4Kids Home Videos share of the distribution and service
fee proceeds to be realized by 4Kids Home Video from such titles. Pursuant to the above,
the Company recognized revenue of $220 and $147 for the years ended December 31, 2006 and
2005, respectively. The Company has included $541 and $461 as deferred revenue on the
accompanying consolidated balance sheets as of December 31, 2006 and 2005, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
Agreements  In addition, the Company entered into other agreements for various
Properties and advertising time on the 4Kids TV in which the Company has received certain
advances and/or minimum guarantees. Accordingly, as of December 31, 2006 and 2005 the
unearned portion of these advances and guaranteed payments were $2,018 and $1,716,
respectively, and are included in deferred revenue on the accompanying consolidated
balance sheets.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f. | 4Kids TV Broadcast Agreement  In January 2002, the Company entered
               into a multi-year agreement with Fox to lease Foxs Saturday morning
               programming block which airs principally on Saturday mornings from 8am to 12pm
               eastern/pacific time (7am to 11am central time), and which was originally called
               the Fox Box. In January 2005, the Company re-branded the Fox Box as
               4Kids TV. The Company provides substantially all programming content
               to be broadcast on 4Kids TV and retains all of the revenue from network
               advertising sales for the four-hour time period. 4Kids Ad Sales, Inc., a
               wholly-owned subsidiary, manages and accounts for the ad revenue and costs
               associated with 4Kids TV.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2006, the multi-year agreement was extended for two broadcast years through the
2007-2008 broadcast season. As of December 31, 2006, $15 million remains to be paid for
the 2006-2007 broadcast season under the amended agreement. The broadcast fee for each of
the 2006-2007 and 2007-2008 broadcast seasons will be $20,000 as compared to the $25,312
paid for each broadcast year during the initial term of the multi-year agreement. The fee
is payable in quarterly installments of $5,000 each year beginning in October 2006. The
extended agreement also provides Fox with the option to further extend the agreement
through the 2008-2009 broadcast season under the same terms and conditions by providing
notice to the Company no later than August 31, 2007.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
costs of 4Kids TV is capitalized and amortized over each broadcast year based on estimated
advertising revenue for the related broadcast year. The Company recorded amortization
expenses of $22,462, $26,408 and $27,859 for the years ended December 31, 2006, 2005 and
2004, respectively. During the year ended December 31, 2006, the Company paid Fox and
certain Fox affiliates $7,058 and $5,491, attributable to the fourth and fifth years
broadcast fees, respectively, and during calendar year 2005, the Company paid Fox and
certain Fox affiliates $6,768 and $19,255, attributable to the third and fourth
years broadcast fees, respectively. The unamortized portion of these fees of $0 and
$6,606 are included in Prepaid 4Kids TV broadcast fee on the accompanying
consolidated balance sheets as of December 31, 2006 and December 31, 2005, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition to the broadcast fee paid to Fox, the Company incurs additional costs to program
the four-hour block and sell the related network advertising time. These costs include
direct programming costs to acquire, adapt and deliver programming for the broadcast
during the weekly four-hour block as well as additional indirect expenses of advertising
sales, promotion and administration.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2006, the minimum guaranteed payment obligations under the 4Kids TV
Broadcast Agreement are as follows:
| | --------------------------------------------------------------------------------------------------------------------------

|Year ending
December 31, | Amount 
|------------------------ | -------
|2007                     | $20,000
|2008                     | 15,000 
|                         |        
|                         |        
|Total                    | $35,000
|                         |        
|                         |        

|F-21
|----

| | The
Companys ability to recover the cost of its fee payable to Fox will depend on the
popularity of the television programs the Company broadcasts on 4Kids TV and the general
market demand and pricing of advertising time for Saturday morning childrens
broadcast television. The popularity of such programs impacts audience levels and the
level of the network advertising rates that the Company can charge. Additionally, the
success of the merchandise licensing programs and home video sales based on such
television programs broadcast on 4Kids TV is dependent on consumer acceptance of such
television programs. If the Company estimates that it will be unable to generate
sufficient future revenue from advertising sales, home video sales and merchandising
licensing at levels to cover the cost of its contractual obligation to Fox, the Company
would record a charge to earnings to reflect an expected loss on the Fox agreement in the
period in which the factors negatively affecting the recoverability of the fee payable
become known. The Company will be required to make certain assumptions and estimates about
future events such as advertising rates and audience viewing levels in evaluating its
ability to recover the cost of the 4Kids TV fee. Such estimates and assumptions are
subject to market forces and factors beyond the control of the Company and are inherently
subject to change. There can be no assurance that the Company will be able to recover the
full cost of the 4Kids TV fee and in the event it cannot, it would record the resulting
charge to earnings to reflect an expected loss on the 4Kids TV fee, which could be
significant.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | g. | Contractual Arrangements  During the normal course of business, the
               Company may enter into various agreements with third parties to license,
               acquire, distribute, broadcast, develop and/or promote Properties. The terms of
               these agreements will vary based on the services and/or Properties included
               within the agreement, as well as, geographic restrictions, duration, property
               and exploitation condition and results of operations.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | h. | Stock Purchases  In November 2005, the Board of Directors
          authorized the Company to purchase up to 1,000,000 additional shares of the
          Companys common stock from time to time through December 31, 2006 in the
          open market or through negotiated prices. Such purchases are to be made out of
          the Companys surplus. No purchases were made in 2006 for the additional
          1,000,000 shares.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. MINORITY INTEREST


On December 11, 2006, 4Kids Digital
and CUSA LLC entered into the TC Digital operating agreement. 4Kids Digital holds 53% of
the membership interests of TC Digital. Pursuant to the provisions of TC Digitals
operating agreement, 4Kids Digital and CUSA LLC are each entitled to elect two managers
to TC Digitals Management Committee with 4Kids Digital having the right to break any
dead-lock.


Minority interest of membership units
in TC Digital represents the minority members proportionate share of the equity in
the entity. Income is allocated to the membership units minority interest based on the
ownership percentage throughout the year. At December 31, 2006, the limited partner
held 47% of the common units of the entity. The following table summarizes the membership
units minority interest loss:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                      | For the
year ended
December 31,
2006
|--------------------------------------------------------------------- | ------------------------------------
|TC Digital net loss before common units minority interest             |                                     
|Minority interest percentage                                          |                                     
|                                                                      |                                     
|                                                                      |                                     
|Minority interest loss allocation                                     |                                     
|Less: Minority interest allocation related to discontinued operations |                                     
|                                                                      |                                     
|Total allocation of minority interest loss to continuing operations   |                                     
|Less: minority member capital contribution - net of tax of $30        |                                     
|                                                                      |                                     
|Loss in excess of minority interest absorbed by 4Kids Digital         |                                     
|                                                                      |                                     

|15. INVESTMENT IN
UNCONSOLIDATED AFFILIATE


On December 11, 2006, 4Kids Websites
purchased from CUSA a 50%, membership interests in TC Websites for approximately $3,200.
4Kids Websites uses the equity method to account for the investment in an unconsolidated
affiliate where it does not have control, but has significant influence. Under the terms
of the TC Websites operating agreement, 4Kids Websites and CUSA are each entitled to
elect two managers to TC Websites Management Committee, with 4Kids Websites having
the right to break any dead-lock relating to branding issues and CUSA having the right to
break any dead-lock relating to operational matters. Generally, the investment in
unconsolidated affiliate on the Companys consolidated


F-22

balance sheets equals the
Companys proportionate share of equity reported by the unconsolidated affiliate.
Investment is assessed for possible impairment when events indicate that the fair value of
the investment may be below the Companys carrying value. In 2006, the Company
recorded $218 ($498 less a tax benefit of $280) of equity losses related to the
investment, which was included in the determination of net (loss) income.


16. DISCONTINUED
OPERATION


In June 2006, the Company announced
that the business of its media buying subsidiary, Summit Media, would be terminated
effective June 30, 2006. The results of operations for Summit Media are reported as a
discontinued operation for the periods ended December 31, 2006, 2005 and 2004, and
accordingly, the accompanying consolidated financial statements have been reclassified
separately to report the assets, liabilities and operating results of this business.


The following are the summarized
results of discontinued operations for the media buying business:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | December 31,
|----------------------------------- | ------------
|
|Net revenues                        |             
|                                    |             
|Income before income taxes          |             
|Provision for income taxes          |             
|                                    |             
|Income from discontinued operations |             
|                                    |             

|Under the terms of the Settlement
Agreement entered into by Summit Media with The Beacon Media Group LLC
(Beacon), Sheldon Hirsch, Tom Horner and Paul Caldera (the Beacon
Defendants) on June 19, 2006, relating to the lawsuit filed by Summit Media in
Supreme Court, New York County against Beacon and the Beacon Defendants, Summit Media will
receive $2,000, in regularly scheduled payments through 2010, in exchange for Summit
Medias discontinuation of the lawsuit. As of December 31, 2006, the Company had
received $200 of the scheduled payments related to the lawsuit. The Company has included
approximately $1,800 in net revenues for the year ended December 31, 2006, relating to
this agreement. In connection with the termination of the Companys media buying
operations, the Company recorded charges for severance and termination benefits in the
amount of approximately $333 during the year ended December 31, 2006. The charges were
attributable to the elimination of ten positions, primarily representing sales and related
support functions in addition to certain other management positions.


The major classes of assets and
liabilities of the discontinued operation in the balance sheet are as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              | December 31,
|--------------------------------------------- | ------------
|
|Accounts receivable                           |             
|Prepaid expense and other current assets      |             
|                                              |             
|Current assets of discontinued operation      |             
|                                              |             
|                                              |             
|Accounts receivable - non-current             |             
|                                              |             
|Non-current assets of discontinued operation  |             
|                                              |             
|Media payable                                 |             
|Accounts payable and accrued expenses         |             
|                                              |             
|Current liabilities of discontinued operation |             
|                                              |             

|17. RELATED PARTY
TRANSACTIONS


National Law Enforcement and
Firefighters Childrens Foundation  The Companys Chairman and Chief
Executive Officer is the founder and President of The National Law Enforcement and
Firefighters Childrens Foundation (the Foundation). The Foundation is a
not-for-profit organization dedicated to helping the children of law enforcement and
firefighting personnel and working with law enforcement and firefighting organizations to
provide all children with valuable social and life skill programs. During the years ended
December 31, 2006, 2005 and 2004, the Company contributed approximately $105, $125 and
$93, respectively, to the Foundation.


Brian Lacey  Brian Lacey
has been Executive Vice President of International for the Company since July 2003. Prior
to joining the Company, Mr. Lacey was the President and founder of Lacey Entertainment, a
New York-based worldwide


F-23

television marketing, production and
distribution company (Lacey). Until July 2003 (when the agreement was
terminated), Lacey provided consulting services to the Company under a fee-based agreement
pursuant to which the Company agreed to pay Lacey a percentage of all programming sales
placed by Lacey in the international marketplace as the cash payments for such programming
sales were received. During the year ended December 31, 2006, Lacey was paid approximately
$341 for all remaining obligations with respect to this agreement. As of December 31, 2006
and 2005, the Company has included $0 and $233, respectively, in accounts payable and
accrued expenses on its accompanying consolidated balance sheets for remaining obligations
due to Lacey under the former agreement.


Chaotic USA Entertainment Group,
Inc. (CUSA)  On December 11, 2006, 4Kids Digital and Chaotic USA
Digital Games LLC (CUSA LLC), a wholly owned subsidiary of CUSA, entered into
the TCD Agreement with respect to the operation of TC Digital as a joint venture, with
4Kids Digital owning 53% of TC Digitals membership interests and CUSA LLC owning 47%
of TC Digitals membership interests. TC Digital is treated as a consolidated
subsidiary of the Company as a result of its majority ownership in TC Digital and its
right to break any dead-locks within the TC Digital Management Committee. Bryan Gannon
(Gannon) President and Chief Executive Officer of CUSA, and John Milito
(Milito) Executive Vice President and Chief Operating Officer of CUSA,
each owns an interest of approximately 32% in CUSA. Additionally, on December 11, 2006,
Gannon and Milito became officers of TC Digital.


During 2006 the Company has entered into the
following transactions with CUSA and CUSA LLC, or parties related to Gannon and Milito
 that are summarized below:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Employment Agreements On December 11, 2006, TC Digital entered into
employment agreements through December 31, 2009, with Bryan Gannon, to serve as President
and Chief Executive Officer and John Milito, to serve as Executive Vice President. Under
the terms of the employment agreements, each of Gannon and Milito will receive an annual
base salary of $350 with a one-time signing bonus of $125 and is eligible to receive
additional bonuses at the sole discretion of TC Digitals Management Committee, on
which they serve. Gannon and Milito will each receive a minimum bonus of $100 and $200
in 2007 and 2008, respectively, if TC Digital attains 60% of the projected revenues for
those years approved by TC Digitals Management Committee.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Chaotic Property Representation Agreement On December 11, 2006, 4Kids
Licensing, CUSA and Apex Marketing, Inc. (Apex), a corporation in which Gannon
holds 60% of the outstanding capital stock and Milito owns 39% of the outstanding capital
stock, entered into an amended and restated Chaotic property representation agreement
(CPRA) replacing the original Chaotic property representation agreement
entered into by the parties in April 2005. Under the terms of the CPRA, 4Kids Licensing is
granted exclusive television broadcast and production, merchandising licensing, and home
video rights to the Chaotic Property worldwide in perpetuity, subject to
certain limited exceptions. Under the terms of the CPRA, all Chaotic related
income less approved merchandising and other expenses shall be distributed 50% to the
Company and 50% to CUSA and Apex, excluding trading card royalties which are distributed
53% to 4Kids Digital and 47% to CUSA LLC. Additionally, all approved production expenses
for television episodes based on the Chaotic property are allocated 50% to
4Kids Licensing and 50% to CUSA and Apex. As of December 31, 2006, there were
approximately $2,554 of production expenses and $110 of merchandising expenses owed to
4Kids Licensing by CUSA and Apex collectively.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Patent License Agreements On December 11, 2006, TC Digital and TC Websites
each entered into an agreement (the Patent License Agreements) with
Cornerstone Patent Technologies, LLC (Cornerstone), a limited liability
company, in which Gannon and Milito both hold a 25% membership interest. Pursuant to the
Patent License Agreements, TC Digital and TC Websites obtained exclusive licenses (subject
to certain exceptions) to use certain patent rights in connection with Chaotic
and other trading card games which are uploaded to websites owned and operated by the
combined entities. Additionally, each of TC Digital and TC Websites will pay Cornerstone a
royalty of 1.5% of the Manufacturers Suggested Retail Price (MSRP) for trading
cards sold.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | TCD Agreement  Under the terms of the TCD Agreement entered into by 4Kids
Digital and CUSA LLC, TC Digital shall pay the following fees and/or royalties to: (i)
4Kids Digital equal to 3% of TC Digitals gross revenues up to $350 per year for
management services performed; (ii) 4Kids Digital and CUSA equal to 3% of net sales of each
pack of trading cards sold; and (iii) Dracco Company, Ltd. equal to (x) 10% of the net sales of Chaotic
trading cards and (y) an additional 1% of net sales of Chaotic trading cards above
$50 million during a calendar year. 4Kids Digital is required under the terms of the TCD
Agreement and related loan and line of credit agreements to provide loans to TC Digital
from time to time in an aggregate amount equal to $8,000 with a maturity date of December
31, 2010 and an interest rate of 12%. Any transaction resulting in the sale of more than
50% of TC Digitals membership interests or in the sale of all or substantially all
of TC Digitals assets occurring while there is no debt owed from TC Digital to 4Kids
Digital under the loan and line of credit or occurring prior to August 31, 2009 requires
the consent of members of TC Digital holding two-thirds of its membership interests (as
opposed to a majority of its membership interests).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-24
|----

| |  | Chaotic Merchandise License Agreement On December 11, 2006, 4Kids Licensing,
CUSA and TC Digital entered into a merchandise licensing agreement pursuant to which 4Kids
Licensing and CUSA granted TC Digital exclusive merchandising rights to
Chaotic trading cards and related accessories through December 31, 2016. Under
the terms of the agreement, TC Digital shall pay a royalty on trading cards and all
related accessories equal to (i) 4% of net sales to 4Kids Licensing while any amounts are
outstanding to 4Kids Digital under the loan agreement or line of credit agreement or (ii)
8% of net sales of such cards and accessories, 53% of which will be paid to 4Kids
Licensing and 47% of which will be paid to CUSA.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | TC Websites Subscription Agreement  On December 11, 2006, CUSA entered
into a subscription agreement with TC Websites pursuant to which it acquired 100% of the
outstanding membership interests in TC Websites in exchange for the contribution of all
its rights to the www.chaoticgames.com website (the Website).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | TC Websites Membership Interest Purchase Agreement On December 11, 2006,
4Kids Websites purchased from CUSA, a 50% membership interest in TC Websites for $3,200.
The purchase price payment was reduced by the principal amount due from CUSA to the
Company pursuant to a bridge loan agreement of $300. Additionally, as part of the purchase
price payment, 4Kids Websites made payments to CUSA and Epic Cycle Interactive, Inc.
(Epic Cycle) for $1,705 and $1,195, respectively, for costs previously
incurred by CUSA to create and design the website. Gannon currently holds less than a 1%
interest in Epic Cycle.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Operating Agreement of TC Websites LLC On December 11, 2006, 4Kids Websites
entered into an operating agreement with CUSA for TC Websites. Under the terms of the agreement, TC Websites shall pay fees to:
(i) 4Kids Websites equal to 3% of gross revenues of TC Websites with a minimum fee of $100
and a maximum fee of $200 per year for management services; (ii)
Gannon equal to $100 for services as a senior executive; and (iii) Milito equal to $100 for
services as a senior executive. Each member of TC Websites is obligated to make capital contributions on a
pro-rata basis to the extent determined by its Management Committee to be necessary to
fund the operation of the Website. Any transaction resulting in the sale of more than 50%
of TC Websites membership interests or in the sale of all or substantially all of TC
Digitals assets requires the consent of members of TC Websites holding two-thirds of
its membership interests (as opposed to a majority of its membership interests).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Website Agreement  On December 11, 2006, TC Digital and TC Websites entered
into a website agreement pursuant to which TC Websites agrees to operate and maintain the
website through December 31, 2031 which will upload codes relating to the
Chaotic trading card game and store the corresponding information. In
consideration for the services provided, TC Digital will pay TC Websites a fee of 1.5% of
net sales of Chaotic trading cards.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Right of First Negotiation Agreement  On December 11, 2006, the Company
entered into a letter agreement with TC Digital providing TC Digital with a right of first
negotiation for the exploitation of trading card rights within any merchandising rights
obtained by the Company as merchandise licensing agent for any third party property and for any
property developed and wholly owned by the Company, through December 31, 2009, subject to the
terms of the Companys obligations to third parties and to other limitations. If the Company and
TC Digital are unable to reach an agreement with respect to trading card rights within a
specified period following an exercise by TC Digital of the right of first negotiation,
the Company will be free to license such trading card rights to third parties on terms no less
favorable to the Company as the last offer made to TC Digital during such negotiations.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|18. SEGMENT AND RELATED
INFORMATION


The Company applies SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. The Company
has four reportable segments: (i) Licensing; (ii) Advertising Media and Broadcast; (iii)
Television and Film Production/Distribution; and (iv) Trading Card and Game Distribution.
The Companys reportable segments are strategic business units, which, while managed
separately, work together as a vertically integrated entertainment company. The
Companys management regularly evaluates the performance of each segment based on its
net revenues, profit and loss after all expenses, including amortized film and television
costs and the 4Kids TV broadcast fee and interest income.



F-25

The accounting policies of the
segments are the same as those described in the summary of significant accounting
policies. The Companys Television and Film Production/ Distribution segment records
inter-segment revenues and the Companys Advertising Media and Broadcast segment
records inter-segment charges related to the estimated acquisition costs of episodic
television series for broadcast. In the opinion of management, such acquisition costs
represent the estimated fair value which would have been incurred in a transaction between
unaffiliated third parties on an arm length basis. All inter-segment transactions have
been eliminated in consolidation.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | Licensing | Advertising
Media and
Broadcast | TV and Film
Production/
Distribution | Trading Card
and Game
Distribution | Total
|------------------------------------- | --------- | ------------------------------- | ------------------------------------ | ---------------------------------- | -----
|2006:                                 |           |                                 |                                      |                                    |      
|Net revenues  from external customers |           | $  31,677                       |                                      | $ 16,153                           |      
|Amortization of television            |          
|and film costs                        |           | --                              |                                      | --                                 |      
|Amortization of 4Kids TV              |          
|broadcast fee                         |           | --                              |                                      | 22,462                             |      
|Segment profit (loss)                 |           | 11,475                          |                                      | (14,805                            | )    
|Segment assets                        |           | 140,771                         |                                      | 9,493                              |      
|Interest income                       |           | 4,086                           |                                      | 40                                 |      
|                                      |           |                                
|2005:                                 |          
|Net revenues from external customers  |           | $  37,616                       |                                      | $ 18,660                           |      
|Amortization of television            |          
|and film costs                        |           | --                              |                                      | --                                 |      
|Amortization of 4Kids TV              |          
|broadcast fee                         |           | --                              |                                      | 26,408                             |      
|Segment profit (loss)                 |           | 20,912                          |                                      | (16,041                            | )    
|Segment assets                        |           | 137,384                         |                                      | 22,266                             |      
|Interest income                       |           | 2,724                           |                                      | 108                                |      
|                                      |           |                                
|2004:                                 |          
|Net revenues  from external customers |           | $  49,903                       |                                      | $ 19,996                           |      
|Amortization of television            |          
|and film costs                        |           | --                              |                                      | --                                 |      
|Amortization of 4Kids TV              |          
|broadcast fee                         |           | --                              |                                      | 27,859                             |      
|Segment profit (loss)                 |           | 31,268                          |                                      | (14,863                            | )    
|Segment assets                        |           | 160,114                         |                                      | 21,089                             |      
|Interest income                       |           | 1,444                           |                                      | 25                                 |      

|Net revenues from external customers
and segment profit from discontinued operations have been excluded from the Advertising,
Media and Broadcast segment and are disclosed in Notes 8 and 16. Conversely, discontinued
operations relating to segment assets have been included in segment reporting.


Additionally, through the
Companys London office and network of international subagents, which allow it to
license its Properties throughout the world, the Company recognized net revenues from
international sources primarily in Europe, of $11,357, $10,943 and $8,949 for the years
ended 2006, 2005 and 2004, respectively. At December 31, 2006 and 2005, net assets of the
Companys London office were $7,606 and $6,828, respectively.




F-26

19. SUMMARIZED QUARTERLY
DATA (UNAUDITED)


Following is a summary of the
quarterly results of operations for the years ended December 31, 2006 and 2005:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           | Fiscal Quarter
|------------------------------------------ | --------------
|
|
|Revenues                                   |               
|                                           |               
|Income (loss) from operations              |               
|Income (loss) from continuing operations   |               
|                                           |               
|Loss (income) from discontinued operations |               
|                                           |               
|Net Income (loss)                          |               
|                                           |               
|Earnings (loss) per common share:          |               
|Basic:                                     |               
|Continuing operations                      |               
|Discontinued operations                    |               
|                                           |               
|Earnings (loss) per common share           |               
|                                           |               
|Diluted:                                   |               
|Continuing operations                      |               
|Discontinued operations                    |               
|                                           |               
|Earnings (loss) per common share           |               
|                                           |               

|                                         | Fiscal Quarter
|---------------------------------------- | --------------
|
|
|Revenues                                 |               
|                                         |               
|Income (loss) from operations            |               
|Income (loss) from continuing operations |               
|                                         |               
|                                         |               
|Income from discontinued operations      |               
|                                         |               
|                                         |               
|Net Income                               |               
|                                         |               
|Earnings (loss) per common share:        |               
|Basic:                                   |               
|Continuing operations                    |               
|Discontinued operations                  |               
|                                         |               
|Earnings per common share                |               
|                                         |               
|                                         |               
|Diluted:                                 |               
|Continuing operations                    |               
|Discontinued operations                  |               
|                                         |               
|Earnings per common share                |               
|                                         |               
|                                         |               
|                                         |               

|Quarterly amounts for earnings (loss) per
share may not agree to annual amount due to rounding.


     _________________


F-27
|-------------------------------------------------------------------------------------------------------------------------------