|
|

|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, 2004 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 principle executive offices) | 10019
      (Zip Code)
|--------------------------------------------------------------------------------------------------- | ----------------------

|Registrants telephone number, including area code:  (212) 758-7666Securities registered pursuant to Section 12(b) of the Act:  NoneSecurities registered pursuant to the Section 12(g) of the Act:Common Stock, $.01 Par Value
(Title of Class)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

| | 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 an accelerated filer (as defined in Rule 12b-2 of
the Act) Yes X No ___
| | ------------------------------------------------------------------------------------------------------------------------

| | 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, 2004 as reported on the New
York Stock Exchange Market, was approximately $299,947,000. 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) | 13,311,768
      (No. of Shares Outstanding at March 15, 2005)
|--------------------------------------------------- | --------------------------------------------------------------

| | 
| | 

| | Portions
of the Registrants Proxy Statement for the Annual Meeting of Stockholders to be
held on May 26, 2005 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 2                |  | Properties                                                                                                          |  | 4       
|Item 3                |  | Legal Proceedings                                                                                                   |  | 5       
|Item 4                |  | Submission of Matters to a Vote of Security Holders                                                                 |  | 5       
|                      |  |                                                                                                                    
|PART II               |  |                                                                                                                     |  |         
|Item 5                |  | Market for the Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 6       
|Item 6                |  | Selected Consolidated Financial Data                                                                                |  | 7       
|Item 7                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                               |  | 8       
|Item 7A               |  | Quantitative and Qualitative Disclosures About Market Risk                                                          |  | 18      
|Item 8                |  | Financial Statements and Supplemental Data                                                                          |  | 18      
|Item 9                |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                                |  | 18      
|Item 9A               |  | Controls and Procedures                                                                                             |  | 18      
|Item 9B               |  | Other Information                                                                                                   |  | 19      
|                      |  |                                                                                                                    
|PART III              |  |                                                                                                                     |  |         
|Item 10               |  | Directors and Executive Officers of the Registrant                                                                  |  | 19      
|Item 11               |  | Executive Compensation                                                                                              |  | 19      
|Item 12               |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                      |  | 19      
|Item 13               |  | Certain Relationships and Related Transactions                                                                      |  | 19      
|Item 14               |  | Principal Accountant Fees and Services                                                                              |  | 19      
|                      |  |                                                                                                                    
|PART IV               |  |                                                                                                                     |  |         
|Item 15               |  | Exhibits and Financial Statement Schedules                                                                          |  | 20      

|
|

|PART I


Throughout this 10-K report 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.


We are making forward-looking
statements in this report. Beginning on page 16, we discuss some of the business risks and
factors that could cause actual results to differ materially from those stated in the
forward-looking statements.


Item 1. Business


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


Licensing 
The Companys wholly-owned subsidiary, 4Kids Entertainment Licensing, Inc.
(4Kids Licensing), is engaged in the business of licensing the merchandising
rights to popular childrens television series, properties and product concepts
(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. 4Kids Entertainment International, Ltd. (4Kids International), the
Companys wholly-owned subsidiary based in London, manages the Properties represented
by the Company in the United Kingdom and European marketplaces. Licensing revenues
accounted for approximately 49%, 54% and 54% of consolidated net revenues for the years
ended December 31, 2004, 2003 and 2002, respectively.


The following Properties are among
those represented exclusively by 4Kids Licensing:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Artlist Collection: The Dog": a collection of images of more than 70
breeds of puppies photographed with a unique lens to create strange ratio images where the
heads of the puppies are enlarged. The Company represents the merchandise licensing rights
to this Property worldwide outside of Asia through December 2007.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Cabbage Patch Kids: these one-of-a-kind dolls were created by Original
Appalachian Artworks, Inc. These dolls are not purchased, but rather are
adopted and each doll comes with its own name and birth certificate. The
Company represents the merchandise licensing rights to this Property worldwide through
December 31, 2005 under a rolling one year agreement.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Cubix: a computer animated television series featuring robots that was
co-produced and is co-owned by the Company with certain Asian partners. The Company
represents the merchandise licensing, television broadcast and home video rights to this
Property worldwide outside of Asia.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | F-Zero: an animated series produced in Japan based on Nintendos
F-Zero video games. The Company represents the merchandise licensing,
television broadcast and home video rights to this Property worldwide outside of Asia
through May 31, 2007.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Mew Mew Power: an animated series which follows the adventures of five girls
who possess the powers of endangered animals and must battle aliens who want to destroy
mankind. The Company represents the merchandise licensing, television broadcast and home
video rights to this Property worldwide outside of Asia and Italian speaking Europe
through 2010.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Monster Jam: a Property based on the approximately three hundred live monster
truck events each year and the weekly cable television series produced by Clear Channel
Entertainments SFX Motor Sports Division. The Company represents the merchandise
licensing rights to this Property worldwide through December 31, 2006.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Nintendo of America Inc. (Nintendo): classic Nintendo characters such as the
Super Mario Bros., Donkey Kong and Zelda. The Company represents Nintendo for merchandise
licensing rights to such characters worldwide outside of Japan through December 31, 2005.
The Company also represents the merchandise licensing, television broadcast and home video
rights to the animated series featuring Nintendos Kirby character worldwide outside
of Japan through September 2009.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-1-
|---

| | o | One Piece: an animated television series originally produced by Toei Animation
in Japan and adapted for the U.S. market by the Company. The Company represents
merchandise licensing and television broadcast rights to this Property in the U.S.,
Canada, United Kingdom, South Africa, Australia and New Zealand through August 2009.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Pokémon: an animated television series, trading card game and series of
video games. The Company represents the merchandise licensing rights (exclusive of trading
card and video game rights), television broadcast and home video rights to this Property
worldwide outside of Asia through December 31, 2005.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Royal Air Force (RAF): the Company represents the worldwide
licensing rights to the RAF as a sub-agent of the Royal Air Force Museum and Jervis
Entertainment. The Company has the right to license the official RAF icon in video games,
apparel and toys directed to the childrens market and the right to license
collectibles based on the RAF directed to the high-end collectors market through
2008.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Shaman King: an animated television series produced in Japan by TV Tokyo and
adapted for the U.S. market by the Company. The Company represents the merchandise
licensing rights to this Property in North America, Europe (excluding Spain and Portugal),
Africa, Middle East, Australia and New Zealand and the television broadcast and home video
rights to this Property in North America, Australia and New Zealand through 2010.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Sonic X: an animated television series based on the popular Sonic the Hedgehog
character. The Company is the exclusive licensee of television and home video rights for
this Property in the U.S. and Canada through 2011.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Teenage Mutant Ninja Turtles (TMNT): TMNT which was originally
launched in 1984 as a 40-page comic book created by Peter Laird and Kevin Eastman, became
a highly successful animated series, theatrical motion pictures and merchandising property
in the late 1980s and early 1990s. The Company is the co-owner and co-producer
of the new TMNT animated episodes which began broadcasting in 2003 on 4Kids TV, the
Saturday morning programming block that the Company leases from Fox Broadcasting Company
(Fox). The Company also represents the merchandise licensing rights to this
Property worldwide at least through 2008 and the television broadcast and home video
rights to this Property worldwide.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | The American Kennel Club (AKC): Founded in 1884, the AKC maintains
the largest registry of purebred dogs in the world. The Company represents the merchandise
rights worldwide to this property through 2005.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Ultimate Muscle: an animated television series produced by Toei Animation in
Japan and adapted for the U.S. market by the Company. The Company represents the
merchandise licensing, television broadcast and home video rights to this Property
worldwide outside of Asia through August 31, 2008.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Winx Club": an animated television series produced in Italy by Rainbow
srl and adapted for the U.S. market by the Company. The Company represents the merchandise
licensing, television broadcast and home video rights to this Property in the United
States, Canada, Australia, and New Zealand through 2010.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Yu-Gi-Oh!": an animated television series produced in Japan by TV Tokyo and ADK
and adapted for the U.S. market by the Company. The Company represents the merchandise
licensing rights (exclusive of trading card and video game rights), television broadcast
and home video rights to this Property outside of Asia through August 31, 2010.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Company-Owned Properties
 The Company developed and owns WMAC Masters, a live action television series in
which skilled martial arts professionals compete for supremacy. The Company also owns
Charlie Chan, the fictional Asian detective who has been the subject of
numerous films based on the character created by Earl Derr Biggers. In March 2001, the
Company optioned the film rights to Charlie Chan to Twentieth Century Fox Film
Corporation and in 2004 that option was extended by Twentieth Century Fox Film Corporation
for an additional two years. As previously noted, the Company is a co-owner of the new
Teenage Mutant Ninja Turtles television series and the twenty-six episodes of
the Cubix animated television series.


Product Concepts  4Kids
Technology, Inc., a wholly-owned subsidiary, develops ideas and concepts for licensing
which integrate new and existing technologies with traditional game and toy play patterns.
Websites 4Kids, Inc., a wholly-owned subsidiary, specializes in website development by
creating websites designed to enhance and support the marketing of childrens
properties represented by the Company.



-2-

Advertising Media and
Broadcasting  The Company, through a multi-year agreement with 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., 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.


The Companys wholly-owned
subsidiary, The Summit Media Group, Inc. (Summit Media), provides print and
broadcast media planning and buying services for clients which are principally in the
childrens toy and game business. Summit Media is compensated by receiving a
percentage of the cost of the media it places.


The Advertising Media and
Broadcasting segment accounted for 23%, 22% and 21% of consolidated net revenues for the
years ended December 31, 2004, 2003 and 2002, respectively.


Television and Film
Production/Distribution  The Companys wholly-owned subsidiary, 4Kids
Productions, Inc. (4Kids Productions), produces and acquires animated and
live-action television programs and theatrical motion pictures for distribution to the
television, home video and theatrical markets. 4Kids Productions also adapts foreign
programming for the U.S. market and produces original animated television programming for
domestic and international broadcast. Additionally, 4Kids Productions produces original
music compositions for use with its television and film production activities.


4Kids Entertainment Music, Inc.
(4Kids Music), a wholly-owned subsidiary, markets and manages the musical
operations for the Company on certain existing and newly created music associated with its
television programming. 4Kids Entertainment Home Video, Inc. (4Kids Home
Video), a wholly-owned subsidiary, distributes home videos associated with
television programming produced by 4Kids Productions.


The
Television and Film Production/Distribution segment accounted for 28%, 24%, and 25% of
consolidated net revenues for the years ended December 31, 2004, 2003 and 2002,
respectively.


     (b)  
          Financial Information About Industry Segments  Financial
          information regarding industry segments can be found in Note 13 of the Notes to
          the Companys consolidated financial statements.


     (c)  
          Dependence on a Few Sources of Revenues  The Company typically
          derives a substantial portion of its revenues from a small number of Properties,
          which Properties usually generate revenues only for a limited period of time.
          Since the Companys revenues are highly subject to changing trends in the
          toy, game and entertainment businesses, the Companys revenues from year to
          year from particular properties are subject to dramatic increases and decreases.
          It is not possible to accurately predict the length of time a property will be
          commercially successful or if a property will be commercially successful at all.
          Popularity of Properties can vary from months to years. In addition, the
          Companys control over the timing of payments made by licensees of various
          rights to the properties is limited, as some payments are made upon the
          execution and delivery of license agreements and some payments are made in
          quarterly royalty payments reported by the licensees. Due to these factors, the
          Company must continually seek new Properties from which it can derive revenues.


Two Properties, Yu-Gi-Oh!
and Teenage Mutant Ninja Turtles represented 55% of consolidated net revenues
for fiscal 2004. One licensee, Konami Corporation, represented 18% of consolidated net
revenues for fiscal 2004. For more information on Revenues/Major Customers, please see
Note 7 of the Notes to the Companys consolidated financial statements.


     (d)  
          Trademarks and Copyrights  The Company generally does not own any
          trademarks or copyrights in properties which the Company represents as
          merchandising agent. The trademarks and copyrights are typically owned by the
          creator of the Property or by the entity, such as a television producer, which
          may expend substantial amounts of resources in developing or promoting the
          property. However, the Company does own the copyrights and trademarks to
          Charlie Chan and WMAC Masters and is a joint copyright
          holder of Cubix and the new Teenage Mutant Ninja Turtles
          television series.


     (e)  
          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 income
          from toy and game royalties during the second half of the year has 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 in view of the higher advertising rates derived
          from childrens advertisers for advertising during the holiday season.




-3-

(f)  
          Competition  The Companys principal competitors in the area
          of merchandise licensing are the large media companies with theatrical
          distribution and television broadcast distribution (e.g., Disney, Time-Warner,
          Viacom), 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. However,
          the ultimate success of a new entrant in the field would depend on its access to
          toy and other manufacturers, access to distribution of television based
          properties, access to properties to be licensed, retail market acceptance of
          properties and its know-how in the negotiation and subsequent administration of
          licenses.





The Companys Advertising Media
and Broadcasting segment also operates in a highly competitive marketplace against
companies with substantially greater resources and distribution networks than the Company.


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 produced by the Company and its subsidiaries.


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, including competition from successful television programs that the Company
produces (Pokémon and Yu-Gi-Oh!), which are broadcast on
Saturday mornings on a competing network.


     (g)  
          Employees  As of March 15, 2005, the Company had a total of 240
          full-time employees in its domestic and international operations. Of the total,
          approximately 85 employees were primarily rendering services for the Licensing
          segment, approximately 44 were primarily rendering services for the Advertising
          Media and Broadcasting segment and approximately 111 were primarily rendering
          services for the Television and Film Production/Distribution segment. The
          Company also hires additional employees on a program-by-program basis which are
          typically allocated to the capitalized cost of the related programming.


     (h)  
          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 Web site
          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).


Item 2. Properties


The following table sets forth, with
respect to properties leased (none are owned) by the Company at December 31, 2004, 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 |                            | April 30, 2010    |                        
|New York, New York          |                            |                   |                        
|                            |                           
|1st Floor Mutual House      |                            | June 23, 2009     |                        
|70 Conduit Street           |                            |                   |                        
|London, England             |                           
|                            |                           
|53 West 23rd Street         |                            | December 31, 2006 |                        
|New York, New York          |                           

|The Companys lease of its
former international sales office in London expired on January 6, 2005. The executive,
marketing, sales and administrative office is utilized by the Licensing and by the
Advertising Media and Broadcast 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. The Company considers that, in general, its
physical properties are well maintained, in good operating condition and adequate for its
purposes.



-4-

Item 3. Legal Proceedings


     (i)  
          DSI Toys. During 2003, the Companys subsidiary, Summit Media served as the
          media buying agency for DSI Toys, Inc. (DSI). On October 17, 2003,
          DSI filed a voluntary petition under Chapter 7 of the Bankruptcy Code in the
          United States Bankruptcy Court for the Southern District of Texas. In January
          2004, the Trustee for the bankruptcy estate of DSI (the Trustee)
          sent a letter to Summit Media alleging that DSI made payments to Summit Media
          totaling $1,159 (the Amount) during the ninety (90) day period prior
          to DSIs bankruptcy filing and asserting that such payments constituted
          avoidable preference payments, and the Trustee formally demanded that Summit
          Media repay the Amount. The Company and the Trustee have entered into a
          settlement agreement pertaining to this matter which provides for the payment by
          the Company of $5 and a full release in favor of the Company, which has been
          approved by the Bankruptcy Court. A motion by the Trustee to dismiss the formal
          action against the Company is pending in the Bankruptcy Court.


     (ii)  
          Telamerica Cable Connect. During 2002, Summit Media entered into three (3)
          agreements with Telamerica Cable Connect (TCC) for the purchase of
          certain advertising units for broadcast use on the ABC Family, Cartoon Network
          and Nickelodeon cable stations. The agreements between Summit Media and TCC
          provided for a ratings and Cost per Thousand (CPM)
          guarantee for the media buys and required TCC to provide Summit Media with
          a summary affidavit analysis of the media buys. Summit Media paid TCC for the
          advertising units with respect to which TCC has provided confirmation of the
          delivery of the ratings and CPM guarantee set forth in the agreements. To date,
          TCC has been unable to provide Summit Media with appropriate documentation
          confirming the delivery of the ratings and CPM guarantee for the remainder of
          advertising units purchased by Summit Media. Summit Media has, therefore,
          refused to pay TCC for the advertising units with respect to which TCC has not
          provided confirmation of the ratings and CPM guarantee.


On September 27, 2004, TCC filed a
Demand for Arbitration claiming that Summit Media owes approximately $234 plus interest
for advertising purchased by Summit Media from TCC. Summit Media has denied the claim by
TCC and asserted a counterclaim against TCC for up to $150. The Company believes that it
has meritorious defenses to the claim asserted by TCC. The arbitration hearing has been
scheduled for May 2005.


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 property 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, 2004, there were no matters submitted to a vote of
security holders.



-5-

PART II


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


     (a)  
          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.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2004           | Low | High  
|-------------- | --- | ------
|First Quarter  |     | $19.59
|Second Quarter |     | 19.25 
|Third Quarter  |     | 15.47 
|Fourth Quarter |     | 17.58 

|2003           | Low | High  
|-------------- | --- | ------
|First Quarter  |     | $10.92
|Second Quarter |     | 11.47 
|Third Quarter  |     | 15.87 
|Fourth Quarter |     | 21.00 

|(b)  
          Number of Holders of Common Stock  The number of holders of record
          of the Companys Common Stock on March 15, 2005 was 355, which does not
          include individual participants in security position listings.


     (c)  
          Dividends  There were no dividends or other distributions made by
          the Company during 2004 or 2003. Future dividend policy 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 Plans  Information regarding the Companys
          equity compensation plans is incorporated by reference to Item 12 in Part III of
          this Form 10-K.


     (e)  
          Purchases of Equity Securities by the Issuer and Affiliated Purchasers


ISSUER PURCHASES OF
EQUITY SECURITIES
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Period During 2004 | Total Number of
Shares Purchased | Average Price
Paid Per Share | Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs | Maximum Number
of Shares that May Yet Be
Purchased Under the
Plans or Programs (1)
|------------------ | -------------------------------- | ---------------------------- | -------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------
|Jan. 1 - Jan. 31   |                                  |                              |                                                                                  | -                                                                                 
|                  
|Feb. 1 - Feb. 29   |                                  |                              |                                                                                  | -                                                                                 
|                  
|Mar 1 - Mar 31     |                                  |                              |                                                                                  | 10,000                                                                            
|                  
|Apr 1 - Apr 30     |                                  |                              |                                                                                  | 140,000                                                                           
|                  
|May 1 - May 31     |                                  |                              |                                                                                  | 109,500                                                                           
|                  
|June 1 - June 30   |                                  |                              |                                                                                  | 140,500                                                                           
|                  
|July 1 - July 31   |                                  |                              |                                                                                  | 0                                                                                 
|                  
|Aug 1 - Aug 31     |                                  |                              |                                                                                  | 318,200                                                                           
|                  
|Sept 1 - Sept 30   |                                  |                              |                                                                                  | 31,800                                                                            
|                  
|Oct 1 - Oct 31     |                                  |                              |                                                                                  | 0                                                                                 
|                  
|Nov 1 - Nov 30     |                                  |                              |                                                                                  | 0                                                                                 
|                  
|Dec 1 - Dec 31     |                                  |                              |                                                                                  | 0                                                                                 
|                  
|Total              |                                  |                              |                                                                                  | 750,000                                                                           
|                  

|-6-
|---

| | (1)       

           During the quarter ended September 30, 2004, the Company completed the purchase
          of 750,000 shares of its common stock at an average price of $19.93 per share
          that had previously been authorized by the Board of Directors in November 2003.
          In November 2004, 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, 2005 in the open market or through negotiated prices.
          Such purchases are to be made out of the Companys surplus. No such
          purchases relating to the additional 1,000,000 shares were made by the Company
          during 2004. Subsequent to December 31, 2004, 350,000 additional shares of the
          Companys common stock were purchased by the Company at an average price of
          $19.00 per share.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | Year Ended December 31,
|-------------------------------- | -----------------------
|
|Net Revenues                     |                        
|                                 |                        
|Selling, general, and            |                        
|Administrative expenses          |                        
|Production service costs         |                        
|Amortization of television       |                        
|and film costs and 4Kids TV      |                        
|Broadcast fee                    |                        
|                                 |                        
|Total Costs and Expenses         |                        
|                                 |                        
|Income from Operations           |                        
|                                
|Interest Income                  |                        
|                                 |                        
|Income Before Income Taxes       |                        
|                                
|Income Taxes                     |                        
|                                 |                        
|Net Income                       |                        
|                                 |                        
|Net Income Per Common            |                        
|Share-Basic                      |                        
|                                
|Net Income Per Common            |                        
|Share- Diluted                   |                        
|                                
|Weighted Average Common          |                        
|Shares Outstanding-Basic         |                        
|                                
|Weighted Average Common          |                        
|Shares Outstanding-Diluted       |                        
|                                
|Other Operating Data:            |                        
|Cash flow provided by (used in): |                        
|Operating activities             |                        
|Investing activities             |                        
|Financing activities             |                        

|-7-
|---

|December 31,         | 2004 | 2003     | 2002 | 2001     | 2000
|-------------------- | ---- | -------- | ---- | -------- | ----
|Total Assets         |      | $205,015 |      | $193,280 |     
|                    
|Working Capital      |      | 139,699  |      | 137,929  |     
|                    
|Stockholders' Equity |      | 163,978  |      | 160,487  |     

|The Company did not declare or pay
any cash dividends during the five-year period ended December 31, 2004.


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, 2004. This commentary should be read in conjunction with
our consolidated financial statements and the notes thereto which appear beginning on page
F-1 under Item 8: Financial Statements and Supplementary Data.


Overview


The Companys results for the
year ended December 31, 2004 reflect continued strong consumer demand for
Yu-Gi-Oh! and to a lesser extent Teenage Mutant Ninja Turtles and Cabbage Patch Kids
licensed merchandise and an increase in revenue in the Company's Television and Film Production/Distribution
and Advertising Media and Broadcast segments.  However, our consolidated revenue for 2004 reflects a decrease
from our higher margin Licensing segment when compared to 2003, resulting in reduced income from operations.
 The Companys selling, general and administrative costs for
2004 were higher than the previous year primarily due to substantial increases in
accounting and consulting fees incurred in connection with the Companys compliance
with Section 404 of the Sarbanes-Oxley Act of 2002 (SOX). In addition, there
was an increase in the amount of the 4Kids TV Broadcast fee amortized in 2004 as compared
with 2003, which was partially offset by decreased amortization of television and film costs.


General


The Company receives revenues
from its three business segments; (i) Licensing, (ii) Advertising Media and
Broadcasting and (iii) Television and Film Production/Distribution. The Company typically
derives a substantial portion of its licensing revenues from a small number of Properties,
which Properties usually generate revenues only for a limited period of time. Since the
Companys licensing revenues are highly subject to changing trends in the toy, game
and entertainment businesses, the Companys licensing revenues from year-to-year from
particular properties are subject to dramatic increases and decreases. It is not possible
to accurately predict the length of time a property will be commercially successful 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 license of toy and game concepts. Thus,
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. In addition, the Companys media buying
subsidiary, Summit Media, provides media services to a significant number of toy and video
game companies which place a substantial portion of their overall annual advertising in
the fourth quarter. The Company recognizes revenue from the sale of advertising time on
4Kids TV as more fully described in Note 12 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 Summit Media and 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.




The Companys revenues in its
most recent fiscal years have been influenced by the release schedule of products based on
the Yu-Gi-Oh!", Teenage Mutant Ninja Turtles and
Pokémon Properties, and the release of theatrical motion pictures and
home videos based on the Yu-Gi-Oh! and Pokémon Properties.
Further, revenue fluctuations result from guarantee and minimum royalty payments occurring
throughout the year, some of which are recognized immediately as revenue upon the
execution and delivery of license agreements.


-8-

Critical Accounting
Policies


Accounting for Film and Television
Costs.    In accordance with accounting principles generally
accepted in the United States and industry practice, we amortize 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 (SOP) No. 00-2,
Accounting by Producers and Distributors of Films.These ultimate revenues are also
used to amortize the capitalized film costs in accordance with 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 we 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 of return. 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 three 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.


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 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 12 of the Notes to
the Companys consolidated financial statements for a detailed discussion of the
4Kids TV Broadcast Agreement.


Recently Issued Accounting
Pronouncements  Consolidation of Variable Interest Entities  On
January 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 46, Consolidation of Variable Interest
Entities. In December 2003, the FASB issued FIN No. 46 (Revised) (FIN No.
46-R) to address certain FIN implementation issues. This interpretation clarifies
the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements
for companies that have interests in entities that are Variable Interest Entities
(VIE) as defined under FIN No. 46. According to this interpretation, if a
company has an interest in a VIE and is at risk for a majority of the VIEs losses or




-9-

receives a majority of the VIEs expected gains it shall consolidate the VIE. FIN No.
46-R also requires additional disclosures by primary beneficiaries and other significant
variable interest holders. For entities acquired or created before February 1, 2003, this
interpretation was effective no later than the end of the first interim or reporting
period ended March 31, 2004, except for those VIEs that are considered to be special
purpose entities, for which the effective date is no later than the end of the first
interim period or reporting period ended after December 15, 2003. As of December 31, 2004,
the Company did not have an interest in any VIEs, and accordingly, the adoption of
the provisions of this interpretation by the Company did not have a material effect on its
consolidated financial position or results of operations.


In December 2004, the FASB
issued Statement of Financial Accounting Standards (SFAS) No. 123
(revised 2004), Share-Based Payment(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
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 in
accounting for generally all share-based payment transactions with employees.


The Company will adopt SFAS No.
123-R, effective with the beginning of its 2005 third quarter, using a modified
prospective application. This application will require the Company to record compensation
expense for all awards granted after the required effective date and for the unvested
portion of previously granted awards that remain outstanding at the date of adoption. The
provisions of SFAS No. 123-R are effective as of the beginning of the first interim
or annual reporting period that begins after June 15, 2005, but early adoption is
encouraged. The Company currently expects that the adoption of SFAS No. 123-R will not
result in the recording of compensation expense in 2005 related to unvested stock options
outstanding on July 1, 2005.


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, 2004.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | 2004 | 2003 | 2002
|----------------------------------------- | ---- | ---- | ----
|Net Revenues                              |      | 100  | %   
|                                          |      |      |     
|Selling, general & administrative         |      | 35   | %   
|Production service costs                  |      | 10   | %   
|Amortization of television                |     
|and film costs and 4Kids TV broadcast fee |      | 36   | %   
|                                          |      |      |     
|Total Costs and Expenses                  |      | 81   | %   
|                                          |      |      |     
|Income from Operations                    |      | 19   | %   
|                                         
|Interest Income                           |      | 1    | %   
|                                          |      |      |     
|Income Before Income Taxes                |      | 20   | %   
|                                         
|Income Taxes                              |      | 8    | %   
|                                          |      |      |     
|Net Income                                |      | 12   | %   
|                                          |      |      |     

|-10-
|----

|Year Ended December 31,
2004 as compared to Year Ended December 31, 2003


Revenues


Revenues for the years ended December
31, 2004 and 2003, by reportable segment and for the Company as a whole, were as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            | 2004 | 2003      | $ Change | % Change 
|------------------------------------------- | ---- | --------- | -------- | ---------
|Licensing                                   |      | $  49,903 |          | $  54,842
|                                            |      |           |          |          
|Advertising Media & Broadcast               |      | 24,113    |          | 22,544   
|                                            |      |           |          |          
|Television and Film Production/Distribution |      | 29,290    |          | 24,693   
|                                            |      |           |          |          
|                                            |      |           |          |          
|Total                                       |      | $103,306  |          | $102,079 
|                                            |      |           |          |          

|The increase in consolidated net
revenues during 2004, was due to a number of factors. Increased revenue from the Companys Advertising, Media & Broadcast and
Television and Film Production/Distribution segments were partially offset by a decrease in
the Companys Licensing segment. In the Licensing segment,decreased revenues
were primarily attributable to:

(i)      
reduced domestic and international licensing revenue and marketing fees on
               Yu-Gi-Oh! card and video           game sales; 


(ii)     
    increased revenue attributable to the
               Teenage Mutant Ninja Turtles, Cabbage Patch Kids,
                         The American Kennel Club and The Dog properties; and

(iii)    
comparably lower revenue for 2004 as 2003 reflected the recognition of the third and
               final installment of           $2,500 of minimum guaranteed royalties under the master toy
               license on the Pokémon Property.



Despite lower licensing revenues, the
Yu-Gi-Oh! Property continues to be the largest contributor in this business
segment. In the Advertising Media and Broadcasting segment, revenue from the sale of
advertising time on the Companys 4Kids TV television programming block increased
during 2004 as compared to 2003 as a result of:


     (i)      
          higher advertising rates; and 
    (ii)     
          increased advertising sales on the Companys 4Kids TV websites and on home
          videos distributed by            4Kids Home Video.


In the Television and Film
Production/Distribution segment, the revenue increase for 2004 primarily resulted from:
(i)      
the theatrical release of the Yu-Gi-Oh! movie in August 2004;

               (ii)     
increased home video and international broadcast agreements for the
               Yu-Gi-Oh! and Teenage Mutant           Ninja Turtles television
               series; and


(iii)    
increased production service revenue of $2,624 in 2004 when compared to 2003 as
               a result of work            performed on producing the Teenage Mutant Ninja
               Turtles, Pokémon, Mew Mew Power,
                         F-Zero and One Piece television series and the
               Yu-Gi-Oh!" movie.



Selling, General and
Administrative Expenses


Selling, general and administrative
expenses increased 8%, or $3,012 to $36,755 for the year ended December 31, 2004, when
compared to 2003. The increase was primarily due to the following:
(i)      
 increased accounting and consulting fees of $1,175 incurred by the Company to
               comply with Section 404           of the Sarbanes-Oxley Act of 2002; and 


(ii)     
increased costs of $1,001 associated with the Companys international
               television broadcast operations;           and


(iii)    
increased costs associated with the technological development of the toy concept
               and other production            related costs of $2,049.









These increased costs were partially
offset by a reduction in advertising and promotional costs to support the launch of the
third 4Kids TV broadcast year when compared to the prior broadcast year.



-11-

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

|                                          | 2004 | 2003    | $ Change | % Change
|----------------------------------------- | ---- | ------- | -------- | --------
|Production Service Costs                  |      | $10,029 |          | $7,819  
|Amortization of Television and Film Costs |      | 8,810   |          | 9,943   

|The increase in production service
costs during 2004 was attributable to television production costs related to the
Teenage Mutant Ninja Turtles, Pokémon, Mew Mew
Power, F-Zero, and One Piece television programs, as well as
the film production costs related to the Yu-Gi-Oh! feature film released in August 2004,
for which the Company incurred production costs that were billed to the property owners.
When the Company expects to be reimbursed for its television production costs a
corresponding amount is recorded as Production Service Revenue for the amount billed back
to the property owners to offset the costs incurred. This gross-up of revenue and costs is
in accordance with the applicable accounting literature.


As of December 31, 2004, there was
$10,518 of capitalized film production costs in the accompanying consolidated balance
sheets relating primarily to various stages of production on 340 episodes of animated
programming. The decrease in amortization of capitalized film costs during 2004 was
primarily due to decreased amortization of television series broadcast on 4Kids TV and the
Yu-Gi-Oh! television series. Based on managements ultimate revenue
estimates as of December 31, 2004, approximately 69% of the total completed and
unamortized film and television costs are expected to be amortized during 2005, 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


The annual fee paid to Fox Broadcasting and
certain Fox affiliates is capitalized and amortized during each broadcast year, which
commences in September, based on estimated advertising revenues for the applicable
broadcast year. During 2004, the Company paid Fox and certain Fox affiliates $6,934 and
$19,228 attributable to the second and third years broadcast fees, respectively, and
during 2003, the Company paid Fox and certain affiliates $6,328 and $19,506 attributable
to the first and second years broadcast fee, respectively. The unamortized portion
of these fees of $6,991 and $8,688, are included in Prepaid 4Kids TV broadcast
fee on the accompanying consolidated balance sheets as of December 31, 2004 and
2003, respectively.


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 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
broadcast year. Based on the increased advertising revenue recognized by the Company
during the fourth quarter of 2004 as compared to 2003 and the greater percentage of the total
advertising revenues already recognized, the Companys amortization of the 4Kids TV
broadcast fee increased $1,421 to $12,238 for the fourth quarter of 2004 and increased
$856 to $27,859 for the year ended December 31, 2004. Through December 31, 2004 and 2003,
the Company had amortized 47% and 41%, respectively for the 4Kids TV broadcast fee for the
third and second broadcast year, an increase of 6%.


In addition to advertising revenues,
the operating costs of 4Kids Ad Sales, Inc. 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
decision to lease the 4Kids TV Saturday morning programming block.


Interest Income


Interest income increased 32%, or
$357 to $1,469 for the year ended December 31, 2004, as compared to 2003, as a result of
the increasing interest rate environment, and marginally higher average cash balances
invested.


-12-

Income Tax Expense


Income tax expense decreased 13%, or
$1,292 to $8,592 for the year ended December 31, 2004, as compared to 2003, due to
decreased income before income taxes. The Companys effective tax rate remained
relatively consistent at approximately 40% for both 2004 and 2003.


Net Income


As a result of the above, the Company
had net income for the year ended December 31, 2004 of $12,730, as compared to net income
in 2003 of $14,799.


Year Ended December 31,
2003 as compared to Year Ended December 31, 2002


Revenues


Revenues for the years ended December
31, 2003 and 2002, by reportable segment and for the Company as a whole, were as follows:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            | 2003 | 2002      | $ Change | % Change
|------------------------------------------- | ---- | --------- | -------- | --------
|Licensing                                   |      | $  54,842 |          | $28,937 
|Advertising Media & Broadcast               |      | 22,544    |          | 11,200  
|Television and Film Production/Distribution |      | 24,693    |          | 13,003  
|                                            |      |           |          |         
|                                            |      |           |          |         
|Total                                       |      | $102,079  |          | $53,140 
|                                            |      |           |          |         

|The increase in consolidated net
revenues during 2003 was due to a number of factors. In the Licensing segment,licensing and fee revenue, primarily from the Yu-Gi-Oh! and Teenage
Mutant Ninja Turtles properties, increased significantly in 2003 as compared to
2002. In the Advertising Media and Broadcast segment, the increasein net revenues
was primarily due to sales of advertising time on 4Kids TV which began broadcast
operations in September 2002. In the Television and Film Production/Distribution segment,
increased production service revenue was earned for work performed on the Teenage
Mutant Ninja Turtles, Kirby, and Pokémon television
programs in 2003 compared to 2002. Additionally, revenue for the year ended December 31,
2003 in this segment increased primarily from the Pokémon movies and
international broadcast agreements for the Yu-Gi-Oh!", Teenage Mutant
Ninja Turtles and Pokémon television programs.
Pokémon and Yu-Gi-Oh! ranked among the most popular
childrens television programs during 2003.


Selling, General and
Administrative Expenses


Selling, general and administrative
expenses increased 33%, or $8,369 to $33,743 for the year ended December 31, 2003, when
compared to the same period in 2002, primarily due to increased marketing and advertising
costs for the expanded property line-up and home video operations, payroll and employee
benefits resulting from higher staffing levels in advertising sales, the operation of, and
marketing and promotion relating to, 4Kids TV and the Companys 4Kids.TV website both
of which commenced significant operations in September 2002. These increased payroll and
employee benefits costs include bonus accruals which are based on pre-tax earnings. In
addition, the Company continued to incur additional infrastructure costs to support the
aforementioned new operations. For the year ended December 31, 2003, the Chairman and CEO
of the Company received bonus compensation under the Bonus Plan of $1,275, as compared to
$0 for the year ended December 31, 2002. Additionally, other bonuses were granted under
the Bonus Plan of $1,466 for the year ended December 31, 2003, as compared to $0 for the
year ended December 31, 2002.


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

|                                          | 2003 | 2002   | $ Change | % Change
|----------------------------------------- | ---- | ------ | -------- | --------
|Production Service Costs                  |      | $7,819 |          | $3,375  
|Amortization of Television and Film Costs |      | 9,943  |          | 4,911   

|The increase in production service
costs during 2003 was attributable to certain television production costs related to the
Teenage Mutant Ninja Turtles, Kirby, and
Pokémon television programs for which the Company incurs production
costs that are billed to the property owners. When the Company expects to be reimbursed
for 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.


-13-

As of December 31, 2003, there was
$8,183 of capitalized film production costs in the accompanying consolidated balance
sheets relating primarily to various stages of production on 257 episodes of animated
programming. The increase in amortization of capitalized film costs during 2003 was
primarily due to increased amortization of programs broadcast on 4Kids TV and the
Yu-Gi-Oh!" television programs. Based on managements ultimate revenue
estimates as of December 31, 2003, approximately 77% of the total completed and
unamortized film and television costs are expected to be amortized during 2004, 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


Amortization of the 4Kids TV
broadcasting fee increased 186%, or $17,559 to $27,003 for the year ended December 31,
2003, as compared to the same period in 2002. The increase was due to the fact that 2003
reflected a full year of amortization of the 4Kids TV fee, where as 2002 reflected
amortization of the 4Kids TV fee from the date 4Kids TV commenced operations in September
2002. The annual fee paid to Fox and certain affiliates is capitalized and amortized
during each broadcast year, which commences in September, based on estimated advertising
revenue for the applicable broadcast year. During 2003, the Company had paid Fox and
certain affiliates $6,328 and $19,506 attributable to the first and second years
broadcast fee, respectively, and during 2002, the Company had paid $19,301 attributable to
the first years broadcast fee. The unamortized portion of these fees of $8,688 and
$9,857, are included in Prepaid 4Kids TV broadcast fee on the accompanying
consolidated balance sheets as of December 31, 2003 and 2002, respectively.


In addition to advertising revenues,
the operating costs of 4Kids Ad Sales, Inc. and the amortization of the Fox 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 Fox Box               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, 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 decreased 33%, or
$544 to $1,112 for the year ended December 31, 2003, as compared to the same period in
2002, as a result of the decreasing interest rate environment, that was partially offset
by higher average cash balances invested.


Income Tax Expense


Income tax expense increased 110%, or
$5,182 to $9,884 for the year ended December 31, 2003, as compared to the same period in
2002, due to increased income before income taxes. The Companys effective tax rate
remained relatively consistent at approximately 40% for both 2003 and 2002.


Net Income


As a result of the above, the Company
had net income for the year ended December 31, 2003 of $14,799, as compared to net income
for the same period in 2002 of $6,990.


Liquidity and Capital
Resources


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

|                          | 2004 | 2003     | $ Change
|------------------------- | ---- | -------- | --------
|Cash and cash equivalents |      | $111,759 |         
|Investments               |      | 16,067   |         
|                          |      |          |         
|                          |      | $127,826 |         
|                          |      |          |         

|During 2004, the Companys cash
and cash equivalents and short-term investment balances increased by $8,247 to $127,826,
primarily as a result of net income, increases in due to licensors and cash and tax
benefits derived from option exercises substantially offset by payments incurred for
licensing 4Kids TV and repurchases of common stock made under the Companys
repurchase program.


-14-

Sources and Uses of Cash


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

|                     |  |          |   | $ Changes
|-------------------- |  | -------- | - | ---------
|
|Operating Activities |  | $ 21,317 |   | $ 23,800 
|Investing Activities |  | 7,520    |   | (14,405  
|Financing Activities |  | (12,645  | ) | 6,408    

|Working capital, consisting of
current assets less current liabilities, was $139,699 as of December 31, 2004 and $137,929
as of December 31, 2003.


As of December 31, 2004, the Company
had $16,067 invested primarily in short-term government obligations. During 2004, the
Company purchased property and equipment of $856, which was comprised primarily of
computer and television production equipment and leasehold improvements, as compared to
purchases of property and equipment of $749 in 2003. Funds required for the purchase of
property and equipment in 2005 are expected to be similar to that of 2004.


Cash flows used in financing
activities were the result of the Companys purchase of shares of its common stock of $14,944,
partially offset by proceeds from the exercise of stock options by the Companys
employees of $2,299.


During 2004, the Companys cash
flow from operations was directly the result of strong 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.


4Kids TV Broadcast
Agreement


The Company, through a multi-year
agreement with Fox, leases Foxs four hour Saturday morning childrens
programming block. The agreement, which commenced in September 2002, requires the Company
to pay annual fees of $25,312 through 2006. Under the terms of the agreement, during 2004,
the Company paid Fox and certain affiliates a total of $6,934 and $19,228 attributable to
the second and third years broadcast fees, respectively, with two additional
payments for the third broadcast season of $3,162 each due in February and April 2005.
Fees for each subsequent broadcast year are payable 50% in the June preceding the
beginning of the broadcast year (which begins in September) with the balance of the fee
for the broadcast year payable in four equal installments in September, December, February
and April. Additionally, the Agreement requires the Company to establish a $25,000 Letter
of Credit for the benefit of Fox, which Letter of Credit may be reduced by the Company as installments of the final
years license fee are paid. As of December 31, 2004, the Company had received a
commitment for the letter of credit, but the letter of credit had not been issued pending
completion of the long form agreement with Fox. Upon the issuance of the letter of credit,
the Company will grant a security interest in its cash balances to the issuing bank to
secure the amount of such letter of credit and will appropriately disclose these amounts
as restricted cash in its financial statements.


The agreement further provides that,
at the Companys option, up to $10,300 of each years fee may be paid by
delivering shares of the Companys common stock. Further, the Company will incur
additional costs to program the four hour block and to sell the related network
advertising time. These costs will include direct programming costs to acquire, adapt and
deliver programming for broadcast during the weekly four hour block as well as additional
indirect costs of advertising sales, promotion and administration.


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, 2004 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.



-15-
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | As of December 31, 2004
Payments Due In:
|---------------------------- | ----------------------------------------
|
|4Kids TV Broadcast Agreement |                                         
|Operating Leases             |                                         
|                             |                                         
|                             |                                         
|                             |                                         

|In addition to the above-noted
contractual obligations under the 4Kids TV Broadcast Agreement, the Company has the option
to extend the term through 2008, which represents up to two additional broadcast seasons.
If such option is exercised, the Company would incur additional obligations of $47,509 in
2006-2007 and $6,976 in 2008-2009. See Note 12 of the Notes to the Companys
consolidated financial statements for additional information on the 4Kids TV Broadcast
Agreement and operating leases.


Forward Looking
Information and Risk Factors That May Affect Future Results


The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on
behalf of the Company. We may from time to time make written or oral statements that are
forward-looking, including statements contained in this report and other
filings with the Securities and Exchange Commission and in reports to our
stockholders. These forward-lookingstatements may relate to
such matters as anticipated financial performance,businessprospects,technological developments,new products, research and development activities,
liquidity, and similar mattersortodevelopments beyond our control,
including changes in domestic or global economic conditions. Forward-looking statements
are inherently subject to risks and uncertainties and are made on the basis of
managements views and assumptions as of the time the statements are made. There can
be no assurance, however, that our expectations will necessarily come to pass. A variety
of factors could cause our actual results and experience to differ materially from the
anticipated results or other expectations expressed or anticipated in our forward-looking
statements. The factors listed below are illustrative and other risks and uncertainties
may arise as are or may be detailed from time to time in our public announcements and
filings with the Securities and Exchange Commission.


Sarbanes-Oxley Act of 2002 Section
404 compliance.


Under Section 404 of the
Sarbanes-Oxley Act of 2002, we are required to include in this Annual Report on Form 10-K
(i) a report from our management regarding the Companys internal controls over
financial reporting, which report is required to include, among other things, an
assessment and statement as to the effectiveness of our internal controls over financial
reporting as of December 31, 2004 and (ii) an attestation report of our independent
registered public accounting firm on managements assessment of such internal
controls.


On November 30, 2004, the SEC issued
an exemptive order (SEC Release No. 50754) which provides a 45-day extension for the
filing of the management report and the related attestation report by eligible companies.
We have elected to rely on this 45-day extension, and therefore, this Annual Report on
Form 10-K does not include such reports. We intend to include such reports in an amendment
to this Annual Report on Form 10-K in accordance with the SECs exemptive order.


During 2004, we spent considerable
time and internal and external resources analyzing, documenting and testing our system of
internal controls over financing reporting and have substantially completed our internal
evaluation. In addition, our management has provided our independent registered public
accounting firm with a draft of its report and we are not currently aware of any material
weaknesses in our internal controls over financial reporting.


There can be no assurance, however,
that one or more material weaknesses in our internal controls over financial reporting
will not be identified during the 45-day extension period, that management will be able to
assert that our internal controls over financial reporting are effective as of December
31, 2004, or that our independent registered public accounting firm will be able to attest
that managements report is fairly stated or express an unqualified opinion on the
effectiveness of our internal controls. If such weaknesses are identified or if our
independent registered public accounting firm does not deliver an unqualified attestation,
it could result in a loss of investor confidence in our financial reports, adversely
affect our stock price and/or subject us to sanctions or investigation by regulatory
authorities.


The Companys revenues are
subject to the high volatility of consumer preferences with respect to entertainment.


The Companys business and
operating results ultimately depend upon the appeal of its Properties, product concepts
and programming to consumers. A decline in the popularity of our existing Properties or
the failure of new Properties and product concepts to achieve and sustain market
acceptance could result in reduced overall revenues, which could have a material adverse
effect on our business, financial condition and results of operations. Consumer
preferences with respect to entertainment are continuously changing and are difficult to



-16-

predict and can vary from months to years.  Entertainment properties often have short life
cycles. There can be no assurances that:


     (1)    
          any of our current Properties, product concepts or programming will continue to
          be popular for any significant period of time;


     (2)    
          any new Properties, product concepts or programming we represent or produce will
          achieve an adequate degree of popularity; or


     (3)    
          any Propertys life cycle will be sufficient to permit us to profitably
          recover advance payments, guarantees, development, marketing, royalties and
          other costs.


Our failure to successfully
anticipate, identify and react to consumer preferences could have a material adverse
effect on our revenues, profitability and results of operations. In addition, the
volatility of consumer preferences may cause our revenues and net income to vary
significantly between comparable periods.


A substantial portion of our
licensing revenue typically derives from a small number of properties.


We typically derive a substantial
portion of our licensing revenues from a small number of properties, which properties
usually generate revenues only for a limited period of time. Because our licensing
revenues are highly subject to the changing trends in the toy, game and entertainment
business, our licensing revenues from year to year from particular sources are subject to
dramatic increases and decreases.


Our business is typically seasonal
and therefore our annual operating results will depend significantly on our performance
during the holiday season.


Sales of our licensed toy and game
concepts are seasonal, with a majority of retail sales occurring during the third and
fourth calendar quarters. The revenues of Summit Media, which provides media services to a
significant number of toy and video game companies, and 4Kids Ad Sales, which sells
advertising time on 4Kids TV, are also seasonal, with a significant portion of the revenue
typically generated during the fourth quarter commensurate with the increased demand for
commercial time by childrens advertisers during the holiday season. In addition, a
failure by us to supply programming on 4Kids TV which attracts viewers during the holiday
season could have a material adverse effect on our financial condition and results of
operations.


As a result of the seasonal nature of
our business, we would be significantly and adversely affected by unforeseen events, such
as a terrorist attack or a military engagement, that negatively affect the retail
environment or consumer buying patterns, if such events were to impact the key selling
season.


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


We rely on a combination of trade
secret, copyright, trademark, patent and other proprietary rights laws to protect the
intellectual property we own or license. Third parties may try to challenge the ownership
by the Company or its licensors of such intellectual property. In addition, our business
is subject to the risk of third parties infringing on the intellectual property rights of
the Company or its licensors and producing counterfeit products. We may need to resort to
litigation in the future to protect the intellectual property rights of the Company or its
licensors, which could result in substantial costs and diversion of resources and could
have a material adverse effect on our business and competitive position.


We may be negatively
affected by adverse general economic conditions.


Current conditions in the domestic
and global economies are extremely uncertain. Adverse changes may occur as a result of
softening global economies, wavering consumer confidence caused by the threat or
occurrence of terrorist attacks, war or other factors affecting economic conditions
generally. Such changes could have a material adverse effect on our business, financial
condition and results of operations.


Other factors may affect
our performance.


A wide range of factors could materially
affect our performance, including the following:


Changes in Company-wide or
business-unit strategies, which may result in changes in the types or mix of businesses in
which the Company is involved or chooses to invest;


Technological developments that may
affect the distribution of the Companys creative products or create new risks to the
Companys ability to protect its intellectual property;


-17-

Labor disputes, which may lead to
increased costs or disruption of operations in any of the Companys business units;


International, political and military
developments that may, among other things, result in increases in broadcasting costs or
loss of advertising revenue due to pre-emptions of 4Kids TV.


If Alfred Kahn, the Chairman and CEO
becomes unavailable due to death, disability or termination and an acceptable replacement
for Mr. Kahn is not found within a specified period of time, or there is change of control
of the Company resulting in a significant change of duties for Mr. Kahn.


This list of factors that may affect
future performance and the accuracy of forward-looking statements are illustrative, but by
no means exhaustive. Accordingly, all forward-looking statements should be evaluated with
the understanding of their inherent uncertainty.


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 Report of Registered Public
Independent Accounting Firm, our Consolidated Financial Statements and Schedules 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 disclosure controls and
procedures that are designed to ensure that information required to be disclosed in our
reports filed pursuant to the Securities and Exchange Act of 1934, as amended (the
Exchange Act) is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms, and
that such information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures.




As of the end of the period covered
by this report (the Evaluation Date), we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive
Officer and our Chief Financial Officer, of the effectiveness of the design and operation
of our disclosure controls and procedures. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our
disclosure controls and procedures were effective.


Design and Evaluation of
Internal Control Over Financial Reporting


Under Section 404 of the
Sarbanes-Oxley Act of 2002, we are required to include in this Annual Report on Form 10-K
(i) a report from our management regarding the Companys internal controls over
financial reporting, which report is required to include, among other things, an
assessment and statement as to the effectiveness of our internal controls over financial
reporting as of December 31, 2004 and (ii) an attestation report of our independent
registered public accounting firm on managements assessment of such internal
controls.


On November 30, 2004, the SEC issued
an exemptive order (SEC Release No. 50754) which provides a 45-day extension for the
filing of the management report and the related attestation report by eligible companies.
We have elected to rely on this 45-day extension, and therefore, this Annual Report on
Form 10-K does not include such reports. We intend to include


-18-

such reports in an amendment to this
Annual Report on Form 10-K in accordance with the SECs exemptive order.


During 2004, we spent considerable
time and internal and external resources analyzing, documenting and testing our system of
internal controls over financing reporting and have substantially completed our internal
evaluation. In addition, our management has provided our independent registered public
accounting firm with a draft of its report and we are not currently aware of any material
weaknesses in our internal controls over financial reporting.


There can be no assurance, however,
that one or more material weaknesses in our internal controls over financial reporting
will not be identified during the 45-day extension period, that management will be able to
assert that our internal controls over financial reporting are effective as of December
31, 2004 or that our independent registered public accounting firm will be able to attest
that managements report is fairly stated or express an unqualified opinion on the
effectiveness of our internal controls. If such weaknesses are identified or if our
independent registered public accounting firm does not deliver an unqualified attestation,
it could result in a loss of investor confidence in our financial reports, adversely
affect our stock price and/or subject us to sanctions or investigation by regulatory
authorities.


Changes in Internal
Control Over Financial Reporting


There have not been any changes in
our internal controls over financial reporting during the fiscal quarter ended
December 31, 2004 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reports.


Item 9B. Other
Information


Not applicable.


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 28, 2004, 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.  In
addition, the Company has filed as exhibits to this Annual Report on Form 10-K, the
certifications of its Chief Executive Officer and its Chief Financial Officer required
under Section 302 of the Sarbanes-Oxley Act of 2002, regarding the quality of the
Companys public disclosures, taking into account the Companys reliance on the
exemptive order issued by the SEC regarding Section 404 of the Sarbanes-Oxley Act.


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.



-19-

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
|-------------------------------------------------------------------------------------------- | -----------
|Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements | F-1        
|                                                                                            
|Consolidated Balance Sheets - December 31, 2004 and 2003                                     | F-2        
|                                                                                            
|Consolidated Statements of Income - Years Ended                                             
|December 31, 2004, 2003 and 2002                                                             | F-3        
|                                                                                            
|Consolidated Statements of Stockholders' Equity and Comprehensive                           
|Income - Years Ended December 31, 2004, 2003 and 2002                                        | F-4        
|                                                                                            
|Consolidated Statements of Cash Flows - Years Ended                                         
|December 31, 2004, 2003 and 2002                                                             | F-5        
|                                                                                            
|Notes to Consolidated Financial Statements                                                   | F-6 to F-20

|(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.






-20-
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

| | 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, 2005
| | ---------------------------------------------

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4KIDS
ENTERTAINMENT, INC.Date: March 16, 2005
| | ---------------------------------------------

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

| | Alfred
R. Kahn   Chairman of the Board and   Chief Executive Officer and              Director
| | ----------------------------------------------------------------------------------------------

| | Date: March 16, 2005
| | --------------------

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

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

| | Date: March 16, 2005
| | --------------------

| | By:
/s/ Steven M. Grossman
| | --------------------------

| | Steven M. Grossman             Director
| | ---------------------------------------

| | Date: March 16, 2005
| | --------------------

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

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

| | Date: March 16, 2005
| | --------------------

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

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

| | Date: March 16, 2005
| | --------------------

| | By:
/s/ Joseph P. Garrity
| | -------------------------

| | Joseph P. Garrity    Executive Vice President, Treasurer, Principle Financial Officer, Principle Accounting       Officer and Director
| | --------------------------------------------------------------------------------------------------------------------------------------

|-21-
|----

| | 
| | 

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

|Exhibit
Number | Description                                                                                                                                                                                                                                                                                                                                                                                                       | Page
Number
|-------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------
|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           | 1994 Stock Option Plan (*) (8)                                                                                                                                                                                                                                                                                                                                                                                   
|              
|10.3           | 1997 Stock Option Plan (*) (9)                                                                                                                                                                                                                                                                                                                                                                                   
|              
|10.4           | 1998 Stock Option Plan (*) (10)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.5           | 1999 Stock Option Plan (*) (2)                                                                                                                                                                                                                                                                                                                                                                                   
|              
|10.6           | 2000 Stock Option Plan (*) (3)                                                                                                                                                                                                                                                                                                                                                                                   
|              
|10.7           | 2001 Stock Option Plan (*) (11)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.8           | 2002 Stock Option Plan (*) (12)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.9           | 2003 Stock Option Plan (*) (13)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.10          | 2004 Stock Option Plan (*) (14)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.11          | Agreement between Nintendo of America, Inc. and the Registrant dated December 17, 1987. (6)                                                                                                                                                                                                                                                                                                                      
|              
|10.12          | Agreement of Lease, dated March 28, 1988, between the Registrant and 1414 Avenue of the Americas Company ("1414 Lease"). (4)                                                                                                                                                                                                                                                                                     
|              
|10.13          | Amendment, dated July 8, 1994, to the 1414 Lease (4)                                                                                                                                                                                                                                                                                                                                                             
|              
|10.14          | Amended and Restated Employment Agreement, dated January 1, 2002, between 4Kids Entertainment
              Licensing, Inc. and Alfred R. Kahn.  (*)(15)                                                                                                                                                                                                                                                         
|              
|10.15          | Employment Agreement, dated January 1, 2002, between 4Kids Entertainment Licensing, Inc. and Joseph P.
              Garrity. (*)(15)                                                                                                                                                                                                                                                                            
|              
|10.16          | Amendment, dated as of June 19, 2003, to the Employment Agreement between 4Kids Entertainment
              Licensing, Inc. and Joseph P. Garrity.  (*)(15)                                                                                                                                                                                                                                                      
|              
|10.17          | Employment Agreement, dated January 1, 2002, between 4Kids Productions, Inc. and Norman Grossfeld.
              (*)(15)                                                                                                                                                                                                                                                                                         
|              
|10.18          | Amendment, dated as of June 16, 2003, to the Employment Agreement between 4Kids Productions, Inc. and
              Norman Grossfeld.  (*)(15)                                                                                                                                                                                                                                                                   
|              
|10.19          | Employment Agreement, dated January 1, 2002, between 4Kids Entertainment Licensing, Inc. and Samuel R.
              Newborn.  (*)(15)                                                                                                                                                                                                                                                                           

|-22-
|----

|Exhibit
Number | Description                                                                                                                                                 | Page
Number
|-------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------
|
|10.20          | Amendment, dated as of June 16, 2003, to the Employment Agreement between 4Kids Entertainment
              Licensing, Inc. and Samuel R. Newborn.  (*)(16)
|              
|10.21          | Employment Agreement, dated January 1, 1995 between The Summit Media Group, Inc. and Sheldon Hirsch.
              (*)(1)                                  
|              
|10.22          | Amendment, dated as of January 1, 1997, to the Employment Agreement between The Summit Media Group,
              Inc. and Sheldon Hirsch.  (*)(16)        
|              
|10.23          | Employment Agreement, dated January 1, 1995 between The Summit Media Group, Inc. and Thomas J.
              Kenney.  (*) (1)                              
|              
|10.24          | Amendment, dated as of January 1, 1997, to the Employment Agreement between The Summit Media Group,
              Inc. and Thomas Kenney.  (*)(16)         
|              
|21.1           | List of Subsidiaries of the Registrant                                                                                                                     
|              
|23.1           | Consent of Deloitte & Touche LLP, Certified Public Accountants                                                                                             
|              
|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).
| | --- | --------------------------------------------------------------------------------------

|-23-
|----

| | (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).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------

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

| | (16) | Incorporated by reference to Annual Report on Form 10-K for the year ended
               December 31, 1996 (File No. 000-07843).
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------

|-24-

REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS


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


We have audited the accompanying
consolidated balance sheets of 4Kids Entertainment, Inc. and Subsidiaries (the
Company) as of December 31, 2004 and 2003, and the related consolidated
statements of income, stockholders equity and comprehensive income and cash flows
for each of the three years in the period ended December 31, 2004. 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 consideration of internal controls
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion.
An audit also includes examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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, such consolidated
financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2004 and 2003, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2004,
in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole, present fairly
in all material respects, the information set forth therein.


/s/ Deloitte & Touche
LLP


New York, NYMarch 16,
2005





F-1

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

CONSOLIDATED BALANCE SHEETS
                                                 DECEMBER 31, 2004 and 2003
                                             (In thousands of dollars, except share data)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                            | 2004 | 2003     
|--------------------------------------------------------------------------- | ---- | ---------
|ASSETS                                                                      |      |          
|CURRENT ASSETS:                                                             |     
|Cash and cash equivalents                                                   |      | $111,759 
|Investments                                                                 |      | 16,067   
|                                                                            |      |          
|                                                                            |      |          
|Total cash and investments                                                  |      | 127,826  
|                                                                           
|Accounts receivable - net                                                   |      | 39,917   
|Prepaid 4Kids TV broadcast fee, net of accumulated amortization             |     
|of $64,306 and $36,447 in 2004 and 2003, respectively                       |      | 6,991    
|Prepaid income taxes                                                        |      | 3,074    
|Prepaid expenses and other current assets                                   |      | 1,759    
|Deferred income taxes                                                       |      | 158      
|                                                                            |      |          
|                                                                            |      |          
|Total current assets                                                        |      | 179,725  
|                                                                           
|PROPERTY AND EQUIPMENT - NET                                                |      | 2,821    
|                                                                           
|OTHER ASSETS:                                                               |     
|Accounts receivable - noncurrent, net                                       |      | 901      
|Investment in equity securities                                             |      | 726      
|Film and television costs - net                                             |      | 10,518   
|Deferred income taxes - noncurrent                                          |      | 2,241    
|Other assets - net                                                          |      | 8,083    
|                                                                            |      |          
|                                                                            |      |          
|TOTAL ASSETS                                                                |      | $205,015 
|                                                                            |      |          
|                                                                            |      |          
|                                                                            |      |          
|LIABILITIES AND STOCKHOLDERS' EQUITY                                        |     
|                                                                           
|CURRENT LIABILITIES:                                                        |     
|Due to licensors                                                            |      | $  16,859
|Media payable                                                               |      | 3,723    
|Accounts payable and accrued expenses                                       |      | 12,589   
|Deferred revenue                                                            |      | 6,855    
|Deferred income taxes                                                       |      | --       
|                                                                            |      |          
|Total current liabilities                                                   |      | 40,026   
|                                                                            |      |          
|                                                                           
|DEFERRED RENT                                                               |      | 1,011    
|                                                                            |      |          
|                                                                            |      |          
|Total liabilities                                                           |      | 41,037   
|                                                                            |      |          
|                                                                            |      |          
|COMMITMENTS AND CONTINGENCIES                                               |     
|                                                                           
|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, 14,411,768 and 13,965,343 shares; outstanding 13,661,768 and        |     
|13,965,343 shares in 2004 and 2003, respectively                            |      | 144      
|Additional paid-in capital                                                  |      | 58,068   
|Accumulated other comprehensive income                                      |      | 1,124    
|Retained earnings                                                           |      | 119,586  
|                                                                            |      |          
|                                                                            |      |          
|                                                                            |      | 178,922  
|Less- cost of 750,000 treasury shares                                       |      | 14,944   
|                                                                            |      |          
|                                                                            |      |          
|                                                                            |      | 163,978  
|                                                                            |      |          
|                                                                            |      |          
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  |      | $205,015 
|                                                                            |      |          
|                                                                            |      |          

|See notes to consolidated financial
statements.



F-2

4KIDS ENTERTAINMENT,
INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMEYEARS ENDED DECEMBER 31,
2004, 2003 AND 2002(In thousands of dollars, except share data)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              | 2004 | 2003             | 2002
|--------------------------------------------- | ---- | ---------------- | ----
|NET REVENUES                                  |      | $     103,306    |     
|                                              |      |                  |     
|                                              |      |                  |     
|COSTS AND EXPENSES:                           |     
|Selling, general and administrative           |      | 36,755           |     
|Production service costs                      |      | 10,029           |     
|Amortization of television and film costs and |     
|4Kids TV broadcast fee                        |      | 36,669           |     
|                                              |      |                  |     
|                                              |      |                  |     
|Total costs and expenses                      |      | 83,453           |     
|                                              |      |                  |     
|                                              |      |                  |     
|INCOME FROM OPERATIONS                        |      | 19,853           |     
|                                             
|INTEREST INCOME                               |      | 1,469            |     
|                                              |      |                  |     
|                                              |      |                  |     
|INCOME BEFORE INCOME TAXES                    |      | 21,322           |     
|                                             
|INCOME TAXES                                  |      | 8,592            |     
|                                              |      |                  |     
|                                              |      |                  |     
|NET INCOME                                    |      | $       12,730   |     
|                                              |      |                  |     
|                                              |      |                  |     
|                                              |      |                  |     
|PER SHARE AMOUNTS:                            |     
|Basic earnings per common share               |      | $           0.93 |     
|                                              |      |                  |     
|                                              |      |                  |     
|Diluted earnings per common share             |      | $           0.89 |     
|                                              |      |                  |     
|                                              |      |                  |     
|Weighted average common shares                |     
|outstanding - basic                           |      | 13,683,756       |     
|                                              |      |                  |     
|                                              |      |                  |     
|Weighted average common shares                |     
|outstanding - diluted                         |      | 14,335,343       |     
|                                              |      |                  |     
|                                              |      |                  |     

|See notes to consolidated financial
statements.




F-3

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                                                 YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
                                             (In thousands of dollars and shares)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        |  |        |  |      |  |        
|--------------------------------------- |  | ------ |  | ---- |  | -------
|
|                                        |  |        |  |      |  |        
|BALANCE, DECEMBER 31, 2001              |  | 12,547 |  | $125 |  | $33,266
|                                        |  |        |  |      |  |        
|Proceeds from exercise of stock options |  | 588    |  | 6    |  | 2,062  
|Tax benefit from exercise of stock      | 
|options                                 |  | --     |  | --   |  | 5,083  
|Comprehensive income:                   | 
|Net income                              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|Translation adjustment                  |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|                                        |  |        |  |      |  |        
|Total comprehensive income              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|BALANCE, DECEMBER 31, 2002              |  | 13,135 |  | $131 |  | $40,411
|                                        |  |        |  |      |  |        
|Proceeds from exercise of stock options |  | 830    |  | 9    |  | 6,399  
|Tax benefit from exercise of stock      | 
|options                                 |  | --     |  | --   |  | 5,988  
|Comprehensive income:                   | 
|Net income                              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|Translation adjustment                  |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|                                        |  |        |  |      |  |        
|Total comprehensive income              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|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
|                                        |  |        |  |      |  |        

|See notes to consolidated financial
statements.



F-4

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
                                             (In thousands of dollars)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                     | 2004 | 2003        | 2002
|-------------------------------------------------------------------- | ---- | ----------- | ----
|CASH FLOWS FROM OPERATING ACTIVITIES:                                |      |             |     
|Net income                                                           |      | $   12,730  |     
|Adjustments to reconcile net income to net cash                      |     
|provided by (used in) operating activities:                          |     
|Depreciation and amortization                                        |      | 1,385       |     
|Amortization of television and film costs and 4Kids TV broadcast fee |      | 36,669      |     
|Provision for (recovery of) doubtful accounts                        |      | (354        | )   
|Deferred income taxes                                                |      | 124         |     
|Tax benefit on exercise of stock options                             |      | 2,975       |     
|Changes in operating assets and liabilities:                         |     
|Accounts receivable                                                  |      | (659        | )   
|Film and television costs                                            |      | (11,145     | )   
|Prepaid income taxes                                                 |      | (404        | )   
|Prepaid Fox broadcast fee                                            |      | (26,162     | )   
|Prepaid expenses and other current assets                            |      | (69         | )   
|Other assets - net                                                   |      | (2,069      | )   
|Due to licensors                                                     |      | 5,024       |     
|Media payable                                                        |      | 1,545       |     
|Accounts payable and accrued expenses                                |      | 2,883       |     
|Deferred revenue                                                     |      | (1,215      | )   
|Deferred rent                                                        |      | 59          |     
|                                                                     |      |             |     
|                                                                     |      |             |     
|Net cash provided by (used in) operating activities                  |      | 21,317      |     
|                                                                     |      |             |     
|                                                                     |      |             |     
|CASH FLOWS FROM INVESTING ACTIVITIES:                                |     
|Proceeds from maturities of investments                              |      | 54,529      |     
|Purchase of investments                                              |      | (46,153     | )   
|Purchase of property and equipment                                   |      | (856        | )   
|                                                                     |      |             |     
|Net cash provided by (used in) investing activities                  |      | 7,520       |     
|                                                                     |      |             |     
|CASH FLOWS FROM FINANCING ACTIVITIES -                               |     
|Proceeds from exercise of stock options                              |      | 2,299       |     
|Purchase of treasury shares                                          |      | (14,944     | )   
|                                                                     |      |             |     
|Net cash (used in) provided by financing activities                  |      | (12,645     | )   
|                                                                     |      |             |     
|EFFECTS OF EXCHANGE RATE CHANGES ON CASH                             |     
|AND CASH EQUIVALENTS                                                 |      | 431         |     
|                                                                     |      |             |     
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                 |      | 16,623      |     
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                         |      | 95,136      |     
|                                                                     |      |             |     
|CASH AND CASH EQUIVALENTS, END OF YEAR                               |      | $ 111,759   |     
|                                                                     |      |             |     
|                                                                     |      |             |     
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                    |     
|CASH PAID DURING THE YEAR FOR:                                       |     
|Income Taxes                                                         |      | $     5,941 |     
|                                                                     |      |             |     

|See notes to consolidated financial
statements.




F-5

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
                                                 YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
                                             (In thousands of dollars, except share and per share data)
1. DESCRIPTION OF
BUSINESS


4Kids Entertainment, Inc. (the
Company), 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: Licensing, Advertising Media and Broadcast, Television and Film
Production/Distribution.


Licensing 
The Companys wholly-owned subsidiary, 4Kids Entertainment Licensing, Inc.
(4Kids Licensing), is engaged in the business of licensing the merchandising
rights to popular childrens television series, properties and product concepts
(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. 4Kids Entertainment International, Ltd. (4Kids International), the
Companys wholly-owned subsidiary based in London, manages the Properties represented
by the Company in the United Kingdom and European marketplaces. Licensing revenues
accounted for approximately 49%, 54% and 54% of consolidated net revenues for the years
ended December 31, 2004, 2003 and 2002, respectively.


4Kids Technology, Inc., a
wholly-owned subsidiary, develops ideas and concepts for licensing which integrate new and
existing technologies with traditional game and toy play patterns. Websites 4Kids, Inc., a
wholly-owned subsidiary, specializes in website development by creating websites designed
to enhance and support the marketing of childrens properties represented by the
Company.


Advertising Media and
Broadcast  The Company, through a multi-year agreement with 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., 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.


The Companys wholly-owned
subsidiary, The Summit Media Group, Inc. (Summit Media), provides print and
broadcast media planning and buying services for clients which are principally in the
childrens toy and game business. Summit Media is compensated by receiving a
percentage of the cost of the media it places.


Television and Film
Production/Distribution  The Companys wholly-owned subsidiary,
4Kids Productions, Inc. (4Kids Productions), produces and acquires animated
and live-action television programs and theatrical motion pictures for distribution to the
television, home video and theatrical markets. 4Kids Productions also adapts foreign
programming for the U.S. market and produces original animated television programming for
domestic and international broadcast. Additionally, 4Kids Productions produces original
music compositions for use with its television and film production activities.


4Kids Entertainment Music, Inc.
(4Kids Music), a wholly-owned subsidiary, markets and manages the musical
operations for the Company on certain existing and newly created music associated with its
television programming. 4Kids Entertainment Home Video, Inc. (4Kids Home
Video), a wholly-owned subsidiary, distributes home videos associated with
television programming produced by 4Kids Productions.


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 after
elimination of significant intercompany transactions and balances. These consolidated
financial statements reflect the use of significant accounting policies, as described
below and elsewhere in the notes to the consolidated financial statements. These financial
statements are prepared in accordance with accounting principles generally accepted in the
United States of America.



F-6

Revenue
Recognition  Merchandising licensing revenues:
Merchandise licensing revenues are recognized when the underlying royalties from the sales
of the related products are earned. The Company recognizes guaranteed royalties 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 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 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. Fee-based commissions for media planning and buying services, for clients in
both print and broadcast media, are recognized at the time the related media runs.


Episodic television series
revenue: 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 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 $9,629, $7,005 and
$3,375 in 2004, 2003 and 2002, respectively.


Home video
revenues: Revenues from home video and DVD sales, net of a reserve for
returns, are recognized 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 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.


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 expenses are included in selling, general and
administrative expenses on the accompanying consolidated statements of income.


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, (which the Company adopted on January 2, 2002), the Company
assesses the recoverability of long-lived assets for which an indicator 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
through December 31, 2004.


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 and short-term investments. Included in
cash and cash equivalents are accounts in various banks which maintain balances in excess
of the Federal Deposit Insurance Corporation (FDIC) insured limit of $100 per bank. At
December 31, 2004 and 2003, the excess cash amounted to a total of $58,913 and
$46,177, respectively.



F-7

Prepaid 4Kids TV Broadcast
Fee  The Company has capitalized the broadcast fee paid to Fox and
amortized the amount over the broadcast season based on estimated advertising revenue.
During 2004, the Company had paid Fox and certain affiliates $6,934 and $19,228
attributable to the second and third years broadcast fees, respectively, and during
2003, the Company had paid Fox and certain affiliates $6,328 and $19,506 attributable to
the first and second years broadcast fee, respectively. The unamortized portion of
these fees of $6,991 and $8,688, are included in Prepaid 4Kids TV broadcast
fee on the accompanying consolidated balance sheets as of December 31, 2004 and
2003, respectively.


Investments
 Management determines the appropriate classification of its debt securities at the
time of purchase and re-evaluates such designation as of each balance sheet date. 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, 2004
and 2003, the Company had no investments that qualified as trading or available for sale.


At December 31, 2004 and 2003, the
Companys investments in debt securities were classified as short-term investments.
The Company maintains these balances principally in money market funds and commercial
paper with various financial institutions. These financial institutions are located in
different areas of the U.S. and Company policy is designed to limit exposure to any one
institution. The Company performs periodic evaluations of the relative standing of those
financial institutions that participate in the Companys investment strategy.


Investment in Equity
Securities  During the quarter ended September 30, 2001, the Company
completed its purchase of a 3% equity interest in the Pokémon Company, a closely
held Japanese company, which was organized in 1998 by Nintendo Co. Ltd, Creatures, Inc.
and Game Freak, Inc., the creators of Pokémon, to manage and control
all rights to Pokémon throughout the world. The Company accounts for
this investment on the cost basis and has classified it as a noncurrent asset on the
accompanying consolidated balance sheets.


Film and Television
Costs  The Company accounts for its film and television costs
pursuant to 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.


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 liabilities
approximate their fair values principally because of the short-term maturities of these
instruments.


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.


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 income for the years ended December 31,
2004, 2003 and 2002 was $13,161, $15,420 and $7,062 respectively, which included
translation adjustments of $431, $621and $72 for the respective periods.




F-8

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.


Stock-Based Employee
Compensation:Stock-based compensation is accounted for using the intrinsic
value-based method in accordance with Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees. Under APB No.
25, because the exercise price of a companys employee stock options equals the
market price of the underlying stock on the date of the grant, no compensation expense is
recognized.


SFAS No. 123, Accounting for
Stock-Based Compensation, establishes a fair value-based method of accounting for
employee stock-based compensation plans and encourages companies to adopt that method.
However, it also allows companies to continue to apply the intrinsic value-based method
currently prescribed under APB No. 25. The Company has chosen to continue to report
stock-based compensation in accordance with APB No. 25, and provides the following pro
forma disclosure of the effects of applying the fair value method to all applicable awards
granted. Under APB No. 25 and related interpretations, no compensation cost has been
recognized for the Companys stock options. Had compensation cost for the
Companys stock options been determined based on the fair value at the grant date for
those awards as permitted (but not required) under the alternative method of SFAS No. 123,
the Companys results of operations and related per share amounts would have been
reduced to the pro forma amounts indicated below.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              | 2004 | 2003       | 2002
|--------------------------------------------- | ---- | ---------- | ----
|Net income as reported                        |      | $12,730    |     
|                                             
|Deduct stock-based employee                   |     
|compensation expense determined               |     
|under fair value based method                 |     
|for all applicable awards granted, net of tax |      | 3,453      |     
|                                              |      |            |     
|Pro forma net income                          |      | $  9,277   |     
|                                              |      |            |     
|                                              |      |            |     
|                                              |      |            |     
|Net income per share:                         |     
|Reported                                      |     
|Basic                                         |      | $     0.93 |     
|                                              |      |            |     
|Diluted                                       |      | $     0.89 |     
|                                              |      |            |     
|Pro forma                                     |     
|Basic                                         |      | $     0.68 |     
|                                              |      |            |     
|Diluted                                       |      | $     0.65 |     
|                                              |      |            |     

|The Company issued stock option
grants for underlying shares of 596, 624 and 596, at exercise prices of $22.37, $11.80 and
$19.97, in 2004, 2003 and 2002, respectively. Each of the stock option grants has a (i)
five year life; (ii) is immediately exercisable with respect to 50 percent of the
underlying shares; and (iii) becomes exercisable with respect to the remaining 50 percent
on the first anniversary date of the grant.


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 2004, 2003 and 2002 included no
dividend yield for the periods, expected volatility of approximately 58%, 60% and 48% for
2004, 2003 and 2002, respectively, a risk-free interest rate of approximately 2.06%, 1.92%
and 3.62% for 2004, 2003 and 2002, respectively, and an option duration of 3.7, 3.5 and
4.1 years for 2004, 2003 and 2002, respectively.


Recently Issued Accounting
Pronouncements  Consolidation of Variable Interest Entities  On
January 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 46, Consolidation of Variable Interest
Entities. In December 2003, the FASB issued FIN No. 46 (Revised) (FIN No.
46-R) to address certain FIN implementation issues. This interpretation clarifies
the application of Accounting Research Bulletin No. 51,




F-9

Consolidated Financial Statements for
companies that have interests in entities that are Variable Interest Entities
(VIE) as defined under FIN No. 46. According to this interpretation, if a
company has an interest in a VIE and is at risk for a majority of the VIEs losses or
receives a majority of the VIEs expected gains it shall consolidate the VIE. FIN No.
46-R also requires additional disclosures by primary beneficiaries and other significant
variable interest holders. For entities acquired or created before February 1, 2003, this
interpretation was effective no later than the end of the first interim or reporting
period ended March 31, 2004, except for those VIEs that are considered to be special
purpose entities, for which the effective date is no later than the end of the first
interim period or reporting period ended after December 15, 2003. As of December 31, 2004,
the Company did not have an interest in any VIEs, and accordingly, the adoption of
the provisions of this interpretation by the Company did not have a material effect on its
consolidated financial position or results of operations.


In December 2004, the FASB
issued Statement of Financial Accounting Standards (SFAS) No. 123
(revised 2004), Share-Based Payment(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
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 in
accounting for generally all share-based payment transactions with employees.


The Company will adopt SFAS No.
123-R, effective with the beginning of its 2005 third quarter, using a modified
prospective application. This application will require the Company to record compensation
expense for all awards granted after the required effective date and for the unvested
portion of previously granted awards that remain outstanding at the date of adoption. The
provisions of SFAS No. 123-R are effective as of the beginning of the first interim
or annual reporting period that begins after June 15, 2005, but early adoption is
encouraged. The Company currently expects that the adoption of SFAS No. 123-R will not
result in the recording of compensation expense in 2005 related to unvested stock options
outstanding on July 1, 2005.


3. INVESTMENTS


Short-term investments consisted of
the following as of:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | December 31,
|----------------------------------- | ------------
|
|
|Held-to-maturity - Government Bonds |             
|                                    |             

|4. ACCOUNTS RECEIVABLE
AND MEDIA PAYABLE/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, as well as amounts due from clients for earned commissions and the
cost of related media placed on their behalf in circumstances where the Company is
assuming the liability for the client for such media. In such circumstances, the Company
will record a corresponding liability for media payable.




F-10

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 $8,810, $9,943 and $4,991 in 2004, 2003 and 2002, respectively.
Amortization expense for 2004, 2003 and 2002 includes write-downs of certain film and
television costs of $132, $483 and $462, respectively. Based on managements ultimate
revenue estimates as of December 31, 2004, approximately 69% of the total completed and
unamortized film and television costs are expected to be amortized during 2005, and over
90% of the total completed and unamortized film and television costs are expected to be
amortized during the next three years.


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                  |             
|                                  |             
|                                  |             
|Less accumulated depreciation and |             
|amortization                      |             
|                                  |             
|                                  |             
|                                  |             
|                                  |             
|                                  |             

|F-11

7. REVENUES/MAJOR
CUSTOMERS


Net revenues included in the
accompanying consolidated statements of income are net of licensor participations of
$72,531, $54,237 and $29,337 in 2004, 2003 and 2002, 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, 2004 and 2003,
accounts receivable due from major customers/licensees listed above represented 14% and
23% of the Companys total accounts receivable, respectively.


8. 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.


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

|                                     | Years Ended December 31,
|------------------------------------ | ------------------------
|
|Current tax expense:                 |                         
|Federal                              |                         
|State and local                      |                         
|                                     |                         
|Foreign                              |                         
|                                     |                         
|                                     |                         
|Total current tax expense            |                         
|                                     |                         
|Deferred tax expense (benefit):      |                         
|Federal                              |                         
|State and local                      |                         
|                                     |                         
|Foreign                              |                         
|                                     |                         
|                                     |                         
|Total deferred tax (benefit) expense |                         
|                                     |                         
|                                     |                         
|Income tax expense                   |                         
|                                     |                         

|F-12

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

|                              | 2004 | % of
Pretax | 2003 | % of
Pretax | 2002 | % of
Pretax
|----------------------------- | ---- | ----------- | ---- | ----------- | ---- | -----------
|Tax at Federal statutory rate |      | $ 7,463     |      | 35          | .0%  | $ 8,639    
|Increase (decrease) in:       |     
|State and local taxes - net   |      | 1,546       |      | 7           | .2   | 1,651      
|Other - net                   |      | (417        | )    | (2          | .0)  | (406       
|                              |      |             |      |             |      |            
|Income tax expense            |      | $ 8,592     |      | 40          | .2%  | $ 9,884    
|                              |      |             |      |             |      |            

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

|                                               | 2004 | 2003   
|---------------------------------------------- | ---- | -------
|Deferred Tax Assets:                           |      |        
|Film and television costs                      |      | $1,436 
|Accounts receivable allowances                 |      | 448    
|Deferred rent                                  |      | 458    
|Property and Equipment                         |      | 375    
|                                               |      |        
|Gross deferred tax assets                      |      | $2,717 
|                                               |      |        
|Deferred Tax Liability:                        |     
|Accrued minimum guarantees                     |      | $   318
|                                               |      |        
|Gross deferred tax liability                   |      | 318    
|                                               |      |        
|Net deferred tax asset                         |      | $2,399 
|                                               |      |        
|Amounts recognized in the Consolidated Balance |     
|Sheets consists of:                            |     
|Deferred tax asset (liability) - current       |      | $   158
|Deferred tax asset - long term                 |      | 2,241  
|                                               |      |        
|                                               |      |        
|Net deferred tax asset                         |      | $2,399 
|                                               |      |        

|Income tax benefits related to the
exercise of stock options reduced current taxes payable and increased additional paid-in
capital by $2,975, $5,988 and $5,083 in 2004, 2003 and 2002, respectively.


In accordance with SFAS No. 109, we
have performed an evaluation of the recoverability of our deferred tax assets. 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 2004 of approximately $5,415 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 $275.


9. STOCK OPTIONS


The Company has various stock option
plans (the Plans). Options may be exercised for a period of not more than ten
years after the date of grant. Unless otherwise determined by the Companys
Compensation Committee or by contract with the recipient of the stock option grant, each
option is immediately exercisable with respect to 50 percent of the shares subject to the
option and becomes exercisable with respect to the other 50 percent on the first
anniversary of the date of grant. Certain of the Plans permit the Committee to grant
nonqualified options, with an exercise price of not less than 85 percent of the fair
market value of the common stock; all other options must be at 100 percent of the fair
market value. The Companys options have all been granted at an exercise price per
share equal to the fair market value of the common stock as of the grant date.




F-13

Changes in the Companys stock
options for the three year period ended December 31, 2004 were as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | 2004 | 2003  | 2002
|-------------------------------------- | ---- | ----- | ----
|
|Options outstanding, beginning of year |      | 2,378 |     
|                                       |      |       |     
|Granted                                |      | 596   |     
|Exercised                              |      | (447  | )   
|Cancelled                              |      | (131  | )   
|                                       |      |       |     
|Options outstanding, end of year       |      | 2,396 |     
|Options exercisable, end of year       |      | 2,104 |     

|Under the Companys stock option
plans, options to purchase 735 shares of the Companys common stock were available at
December 31, 2004 for future issuance.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------

|                           | Options Outstanding | Options Exercisable
|-------------------------- | ------------------- | -------------------
|
|$ 0.7710    -    $1.1565   |                     | 420                
|$ 3.1042    -    $ 4.6563  |                     | 75                 
|$ 8.9375    -    $ 13.4060 |                     | 688                
|$ 13.4061   -   $20.1090   |                     | 454                
|$ 20.1091   -   $ 30.1635  |                     | 659                
|$ 30.1636   -   $ 33.2813  |                     | 100                
|                           |                     |                    
|                           |                     |                    
|                           |                     | 2,396              
|                           |                     |                    
|                           |                     |                    

|10. 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, 2004.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|F-14
|----

|                              | Year Ended 2003
|----------------------------- | ---------------
|
|Basic earnings per share -    |                
|Income available to common    |                
|shareholders                  |                
|                             
|Effect of dilutive security - |                
|Stock options                 |                
|                              |                
|Diluted earnings per share    |                
|                              |                

|                              | Year Ended 2002
|----------------------------- | ---------------
|
|Basic earnings per share -    |                
|Income available to common    |                
|                             
|shareholders                  |                
|Effect of dilutive security - |                
|Stock options                 |                
|                              |                
|Diluted earnings per share    |                
|                              |                

|For the years ended December 31,
2004, 2003 and 2002, approximately 1,168,100, 247,500 and 256,000 shares, respectively,
attributable to the exercise of outstanding options, were excluded from the calculation of
diluted EPS because the effect was antidilutive.


11. 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 $158, $124 and $89 for the years ended December 31, 2004, 2003 and
2002, respectively.


12. COMMITMENTS AND
CONTINGENCIES
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a. |  | Bonus Plan  Bonuses under the Companys Bonus Plan are based
          upon an amount of up to 10 percent of pretax profits. Key officers and
          employees, as designated by the Board of Directors, can be included in the Bonus
          Plan. For 2004, 2003 and 2002, the Board of Directors, under the Bonus Plan,
          awarded the Chairman and CEO of the Company approximately $900, $1,275 and $0,
          respectively. An additional amount of approximately $1,469, $1,466 and $0 under
          the Bonus Plan was granted to employees in 2004, 2003 and 2002, respectively.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b. |  | Leases  The Company leases certain office, administration and
          production facilities. Commitments for minimum rentals, not including common
          charges, under non-cancellable leases at the end of 2004 are as follows:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year Ending
                                                        December 31, | Amount
|-------------------------------------------------------------------------------- | ------
|2005                                                                             |       
|2006                                                                             |       
|2007                                                                             |       
|2008                                                                             |       
|2009 and thereafter                                                              |       
|                                                                                 |       
|                                                                                 |       
|                                                                                 |       
|                                                                                 |       
|                                                                                 |       

| |  | Rent
expense for all operating leases charged against earnings amounted to $1,936, $1,611, and
$1,497 in 2004, 2003 and 2002, respectively.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------

|F-15
|----

|c. |  | Litigation (i)   DSI Toys. During 2003, the Companys subsidiary,
          Summit Media served as the media buying agency for DSI Toys, Inc.
          (DSI). On October 17, 2003, DSI filed a voluntary petition under
          Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the
          Southern District of Texas. In January 2004, the Trustee for the bankruptcy
          estate of DSI (the Trustee) sent a letter to Summit Media alleging
          that DSI made payments to Summit Media totaling $1,159 (the Amount)
          during the ninety (90) day period prior to DSIs bankruptcy filing and
          asserting that such payments constituted avoidable preference payments, and the
          Trustee formally demanded that Summit Media repay the Amount. The Company and
          the Trustee have entered into a settlement agreement pertaining to this matter
          which provides for the payment by the Company of $5 and a full release in favor
          of the Company, which has been approved by the Bankruptcy Court. A motion by the
          Trustee to dismiss the formal action against the Company is pending in the
          Bankruptcy Court.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (ii)  Telamerica Cable Connect. During 2002, Summit Media entered into three (3)
          agreements with Telamerica Cable Connect (TCC) for the purchase of
          certain advertising units for broadcast use on the ABC Family, Cartoon Network
          and Nickelodeon cable stations. The agreements between Summit Media and TCC
          provided for a ratings and Cost per Thousand (CPM)
          guarantee for the media buys and required TCC to provide Summit Media with
          a summary affidavit analysis of the media buys. Summit Media paid TCC for the
          advertising units with respect to which TCC has provided confirmation of the
          delivery of the ratings and CPM guarantee set forth in the agreements. To date,
          TCC has been unable to provide Summit Media with appropriate documentation
          confirming the delivery of the ratings and CPM guarantee for the remainder of
          advertising units purchased by Summit Media. Summit Media has, therefore,
          refused to pay TCC for the advertising units with respect to which TCC has not
          provided confirmation of the ratings and CPM guarantee.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | On
September 27, 2004, TCC filed a Demand for Arbitration claiming that Summit Media owes
approximately $234 plus interest for advertising purchased by Summit Media from TCC.
Summit Media has denied the claim by TCC and asserted a counterclaim against TCC for up to
$150. The Company believes that it has meritorious defenses to the claim asserted by TCC.
The arbitration hearing has been scheduled for May 2005.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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 property 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. |  | Key Man Clause  Under the terms of the Companys
          representation agreements (the Agreements) with Pokémon USA,
          Inc. (PUI) with respect to the Pokémon property and Nintendo
          of America, Inc. (NOA) with respect to the Nintendo properties, in
          the event that Alfred Kahn, the Chairman and CEO becomes unavailable due to
          death, disability, termination or a major change of duties and an acceptable
          replacement for Mr. Kahn is not found within a specified period of time, or
          there is a change in control of the Company resulting in a major change of
          duties for Mr. Kahn, PUI and NOA have the option to terminate their respective
          agreements with the Company. The Company would, however, continue to be paid on
          license agreements in place at the time such options were exercised.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|e. |  | 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) 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, 2004,
          if all of the employees under contract were terminated by the Company without
          good cause or following a Change of Control, (as defined) under these contracts,
          the Companys liability would be approximately $6,965 or $12,119,
          respectively.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | These
employment agreements provide for an aggregate minimum annual base compensation of $3,143
expiring on various dates through 2009.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------

|f. |  | 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 (excluding Pokémon)(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 (excluding
          Pokémon) ( 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 will receive $500 in June
          2005.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-16
|----

| |  | 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 $632 and $390 for the years ended December 31, 2004 and
2003, respectively. The Company has included $3,164 and $3,046 as deferred revenue on the
accompanying consolidated balance sheets as of December 31, 2004 and 2003,
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 $3,670 ($370 during the year ended
December 31, 2004) 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 $337 and $2,187 for the years ended December 31, 2004
and 2003, respectively. The Company has included $433 and $400 as deferred revenue on the
accompanying consolidated balance sheets as of December 31, 2004 and 2003, 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, 2004 and 2003 the
unearned portion of these advances and guaranteed payments were $3,258 and $4,624,
respectively, and are included in deferred revenue on the accompanying consolidated
balance sheets.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|g. |  | Master Toy Licensee  4Kids Licensing, a wholly-owned subsidiary of
          the Company, is the exclusive Merchandise Licensing Agent for the
          Pokémon property outside Asia. The master toy licensee
          (Licensee) for the Pokémon property and The
          Pokémon Company LLC, (the assignee of certain rights and obligations of
          Nintendo of America Inc. with respect to the Pokémon
          property) entered into an agreement (the Agreement) effective
          January 1, 2001.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Under
the terms of the Agreement, Licensee was required to pay a minimum royalty for the period
from January 1, 2001 to December 31, 2003. Since all of the conditions under the Agreement
were met and the full amount of the minimum guaranteed royalties were payable by the
Licensee, the Company earned $7,500 over the period of the Agreement. The Company earned
royalties relating to the Agreement of $2,500 in each of the years ended December 31, 2003
and 2002. During 2003, the Agreement was amended extending the term to December 31, 2006.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|h. |  | 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 (the Fox Box). 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. The agreement
          has an initial term of four broadcast years beginning with the September 2002
          broadcast year, with the Company having the option to extend the term for up to
          two additional broadcast years. 4Kids will pay a fee of $25,312 for each
          broadcast year during the initial term of the agreement.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
agreement provided for 50% of the fee for the first broadcast season to be paid within ten
days of the execution of the short form agreement in February 2002, with the balance of
the fee for the first broadcast year payable in four equal installments in September 2002,
December 2002, February 2003 and April 2003. The fee for each subsequent broadcast year is
payable 50% in the June preceding the beginning of the broadcast year (which begins in
September) with the balance of the fee for the broadcast year payable in four equal
installments in September, December, February and April. All payments required to be made
on or prior to March 15, 2004 have been made. Additionally, the agreement requires the
Company to establish a $25,000 letter of credit for the benefit of Fox, which letter of
credit may be reduced by the Company as installments of
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-17
|----

| |  | the
final years fee are paid. As of December 31, 2004, the Company had received a
commitment from a bank for the letter of credit, but the letter of credit had not been
issued pending completion of the long form agreement with Fox. Upon the issuance of the
letter of credit, the Company will grant a security interest in its cash balances to the
issuing bank to secure the amount of such letter of credit and will appropriately disclose
these amounts as restricted cash in its consolidated financial statements.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
cost 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
expense of $27,859 and $27,003 for the years ended December 31, 2004 and 2003,
respectively. During 2004, the Company had paid Fox and certain Fox affiliates $6,934 and
$19,228 attributable to the second and third years broadcast fees, respectively, and
during 2003, the Company had paid Fox and certain Fox affiliates $6,328 and $19,506
attributable to the first and second years broadcast fee, respectively. The
unamortized portion of these fees of $6,991 and $8,688, are included in Prepaid
4Kids TV broadcast fee on the accompanying consolidated balance sheets as of
December 31, 2004 and 2003, respectively.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
agreement further provides that, at the Companys option, up to $10,300 of each
years fee may be paid by delivering shares of the Companys common stock. Over
the initial four year term of the agreement, the Company will pay Fox an aggregate fee of
$101,250. The Company will incur additional costs to program the four hour block and to
sell the related network advertising time. These costs will include direct programming
costs to acquire, adapt and deliver programming for broadcast during the weekly four hour
block as well as additional indirect expenses of advertising sales, promotion and
administration.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | As
of December 31, 2004, the minimum guaranteed payment obligations under the 4Kids TV
Broadcast Agreement are as follows:
| |  | --------------------------------------------------------------------------------------------------------------------------

|Year ending
December 31, | Amount 
|------------------------ | -------
|2005                     | $25,312
|2006                     | 6,326  
|                         |        
|                         |        
|Total                    | $31,638
|                         |        
|                         |        

| |  | 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 merchandise licensing programs and home video sales based on such television
programs broadcast on 4Kids TV is dependent on consumer acceptance of the properties. 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 deficiency or
factors 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.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|i. |  | 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.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|j. |  | Stock Purchases  In the third quarter of 2004, the Company
          completed the purchase of 750,000 shares of the Companys stock at an
          average price of $19.93 per share that had previously been authorized by the
          Board of Directors in November 2003. In November 2004, 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, 2005 in the
          open market or through negotiated prices. Such purchases are to be made out of
          the Companys surplus. No such purchases relating to the additional
          1,000,000 shares were made by the Company during 2004. Subsequent to December
          31, 2004, 350,000 additional shares were purchased at an average price of $19.00
          per share.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-18

13. SEGMENT AND RELATED
INFORMATION


The Company applies SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. The Company has three
reportable segments; (i) Licensing, (ii) Advertising Media and Broadcast, and (iii)
Television and Film Production/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, television costs and the 4Kids TV broadcast fee and interest
income.


The accounting policies of the
segments are the same as those described in the summary of significant accounting
policies. Commencing in 2003, the Companys Television and Film Production/
Distribution segment recorded inter-segment revenues and the Companys Advertising
Media and Broadcast segment recorded 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 | Total   
|------------------------------------- | --------- | ------------------------------- | ------------------------------------ | --------
|2004:                                 |           |                                 |                                      |         
|Net revenues  from external customers |           | $  49,903                       |                                      | $ 24,113
|Amortization of televsion             |          
|and film costs and 4Kids TV           |          
|broadcast fee                         |           | --                              |                                      | 27,859  
|Segment profit (loss)                 |           | 31,268                          |                                      | (13,235 
|Segment assets                        |           | 160,114                         |                                      | 21,089  
|Interest income                       |           | 1,444                           |                                      | 25      
|2003:                                 |          
|Net revenues  from external customers |           | $  54,842                       |                                      | $ 22,544
|Amortization of television            |          
|and film costs and 4Kids TV           |          
|broadcast fee                         |           | --                              |                                      | 27,003  
|Segment profit (loss)                 |           | 37,085                          |                                      | (14,583 
|Segment assets                        |           | 152,117                         |                                      | 20,366  
|Interest income                       |           | 1,094                           |                                      | 18      
|2002:                                 |          
|Net revenues  from external customers |           | $  28,937                       |                                      | $ 11,200
|Amortization of television            |          
|and film costs and 4Kids TV           |          
|broadcast fee                         |           | --                              |                                      | 9,444   
|Segment profit (loss)                 |           | 16,862                          |                                      | (6,613  
|Segment assets                        |           | 121,442                         |                                      | 26,417  
|Interest income                       |           | 1,619                           |                                      | 37      

|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 $8,949, $10,315 and $3,161 for the years
ended 2004, 2003 and 2002, respectively.




F-19

14. SUMMARIZED QUARTERLY
DATA (UNAUDITED):


Following is a summary of the
quarterly results of operations for the years ended December 31, 2004 and 2003:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                           | Fiscal Quarter
|-------------------------- | --------------
|
|2004:                      |               
|Net revenues               |               
|Income from operations     |               
|Net income                 |               
|Basic earnings per share   |               
|Diluted earnings per share |               
|2003:                      |               
|                           |               
|Net revenues               |               
|Income from operations     |               
|Net income                 |               
|Basic earnings per share   |               
|Diluted earnings per share |               

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


     _________________



F-20
|-------------------------------------------------------------------------------------------------------------------------