|
|

|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, 2003 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, 2003 as reported on the New
York Stock Exchange Market, was approximately $223,603,303. 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) | 13,965,343
      (No. of Shares Outstanding at March 12, 2004)
|--------------------------------------------------- | --------------------------------------------------------------

| | 
| | 

| | Portions
of the Registrants Proxy Statement for the Annual Meeting of Stockholders to be
held on May 27, 2004 are incorporated by reference into Part III of this Form 10-K Report.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|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                                                                     |  | 4       
|Item 4                |  | Submission of Matters to a Vote of Security Holders                                   |  | 4       
|                      |  |                                                                                      
|PART II               |  |                                                                                       |  |         
|Item 5                |  | Market for the Registrants Common Equity and Related Stockholder Matters             |  | 5       
|Item 6                |  | Selected Consolidated Financial Data                                                  |  | 5       
|Item 7                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 6       
|Item 7A               |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 15      
|Item 8                |  | Financial Statements and Supplementary Data                                           |  |         
|Item 9                |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 15      
|Item 9A               |  | Controls and Procedures                                                               |  | 15      
|                      |  |                                                                                      
|PART III              |  |                                                                                       |  |         
|Item 10               |  | Directors and Executive Officers of the Registrant                                    |  | 15      
|Item 11               |  | Executive and Director Compensation                                                   |  | 15      
|Item 12               |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 15      
|Item 13               |  | Certain Relationships and Related Transactions                                        |  | 15      
|Item 14               |  | Principal Accountant Fees and Services                                                |  | 16      
|                      |  |                                                                                      
|PART IV               |  |                                                                                       |  |         
|Item 15               |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 17      

|
|

| | 
| | 

| | PART
I
| | ------

| | Item
1. Business
| | ----------------

| | (a)       GeneralDevelopment
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 youth oriented           market with operations in the following
business segments: Licensing,           Advertising Media and Broadcast, Television and
Film Production/Distribution.           The Company was organized as a New York
Corporation in 1970.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Licensing  The
Companys wholly-owned subsidiaries, 4Kids Entertainment Licensing, Inc. (4Kids
Licensing) and 4Kids Entertainment International, Ltd. (4Kids International),
are engaged in the business of licensing the commercial rights to popular childrens
television and film properties, personalities and product concepts. 4Kids Licensing
typically acts as exclusive agent in connection with the grant to third parties of
licenses to manufacture and sell all types of merchandise based on such properties,
personalities and concepts. The licensing of these rights has been primarily in the areas
of toys, electronic games, trading cards, food, toiletries, apparel, housewares, footwear
and publishing rights. 4Kids Licensing also licenses merchandising rights in connection
with certain television shows and motion pictures produced by the Company. 4Kids
International, which is based in London, manages the properties represented by the
Company in the United Kingdom and European marketplace. Licensing revenues accounted for
approximately 54%, 54% and 68% of consolidated net revenues for the years ended December
31, 2003, 2002 and 2001, 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 holds worldwide rights outside of Asia for
The Dog through December 2007.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Cabbage Patch Kids: the Company represents all merchandise licensing rights
for Cabbage Patch Kids through December 31, 2004 under a rolling one year
agreement. The one-of-a-kind Cabbage Patch Kids created by Original
Appalachian Artworks, Inc., are not purchased, but rather are adopted.  Each
Cabbage Patch Kid comes with its own name and birth certificate.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | o | Nintendo of America Inc. (Nintendo): the Company represents Nintendo for
merchandise licensing and television rights to such classic Nintendo characters as the
Super Mario Bros., Kirby, Donkey Kong and Zelda on a worldwide basis, other than Japan
through December 31, 2005.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Pokémon: the Company represents the worldwide merchandising rights
(exclusive of strategy cards and videogames), and the worldwide television and home video
rights to Pokémon outside of Asia through December 31, 2005.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Sonic X: the Company is the exclusive licensee of television and home video
rights to the Sonic X animated series based on the popular Sonic the Hedgehog character in
the USA and Canada through 2011.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Teenage Mutant Ninja Turtles (TMNT): the Company is the exclusive
worldwide licensing agent as well as co-owner and co-producer of an animated series
featuring all new TMNT episodes which began broadcasting in 2003 on the Saturday morning
programming block (Fox Box) that the Company leases from Fox Broadcasting
Company (Fox). TMNT was originally launched in 1984 as a 40-page comic book
created by Peter Laird and Kevin Eastman.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|-1-
|---

| | o | The Shaman King: the Company represents the broadcast rights in North America,
Australia and New Zealand, and the merchandising rights in North America, Europe
(excluding Spain and Portugal), Africa, Middle East, Australia and New Zealand for
The Shaman King, animated television series through 2010.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Ultimate Muscle: the Company represents all worldwide television and merchandise
licensing rights for Ultimate Muscle, an animated television series that was
produced by Toei Animation in Japan outside of Asia through August 31, 2008.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Winx Club": the Company represents all worldwide television and merchandising
rights for Winx Club", an animated series produced by Rainbow in Italy in
the United States, Canada, Australia, and New Zealand through 2010.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Yu-Gi-Oh!": the Company is the exclusive representative for all television and
merchandise licensing (exclusive of trading cards and video games) outside of Asia through
August 31, 2010. Additionally, the Company receives certain marketing fees with respect to
Yu-Gi-Oh! trading cards and video games.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

| | 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 Cubix and the new Teenage Mutant Ninja Turtles 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Advertising
Media and Broadcast  The Company, through a multi-year agreement with Fox,
leases the Fox Box. The Company provides all programming content to be broadcast on the
Fox Box, 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, manages and
accounts for the revenue and costs associated with the Fox Box.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Advertising
Media and Broadcast services accounted for 22%, 21% and 7% of consolidated net revenues
for the years ended December 31, 2003, 2002 and 2001, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Television
and Film Production/Distribution  The Companys wholly-owned subsidiary,
4Kids Productions, Inc. (4Kids Productions), produces and adapts animated and
live-action television programs and theatrical motion pictures for distribution to the
television, home video and theatrical markets. 4Kids Productions adapts foreign
programming for the US market and also 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Television
and Film Production/Distribution accounted for 24%, 25%, and 25% of consolidated net
revenues for the years ended December 31, 2003, 2002 and 2001, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4Kids
Entertainment Music, Inc. (4Kids Music), a wholly-owned subsidiary, markets
and administers 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, markets and administers
the Companys home video operations associated with its television programming.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|-2-
|---

| | (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.           Because
the Companys revenues are highly subject to changing trends in the           toy,
game and entertainment business, its revenues from year to year from           particular
sources are subject to dramatic increases and decreases. It is not           possible to
accurately predict the length of time that 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           has
little control over the timing of payments made by licensees of various           rights
to the properties, some of which are made upon the execution and delivery           of
license agreements and some of which 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Three
properties Yu-Gi-Oh!", Pokémon and Teenage Mutant
Ninja Turtles, represented approximately 69% of consolidated net revenues for
fiscal 2003. From a licensee perspective, the Konami Corporation contributed 29% of
consolidated net revenues for fiscal 2003. 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 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 episodes.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (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. As a result, in the Companys usual           experience,
its 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
          the Fox Box will be higher in the fourth quarter commensurate with the demand
          for commercial time by childrens advertisers for the holiday season.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f)       Competition
 The Companys principal competitors in the area           of 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 acting as           licensing
representatives. 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 the           properties
and its know-how in negotiating and subsequently           administering
of licenses.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys Advertising Media and Broadcast activities operate in highly competitive
industries and compete with many companies with substantially greater resources and
distribution networks than the Company.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys Television and Film Production/Distribution activities compete with all
forms of entertainment. A significant number of companies produce and/or broadcast
television programming and distribute theatrical releases and television films and
exploit products in the home entertainment market. The Company also competes to obtain
creative talents, properties, advertiser support, broadcast rights and market share,
which are essential to the success of this business segment.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys ability to derive advertising revenue from the sale of commercial time on
the Fox Box will depend on the popularity of the television shows the Company broadcasts.
The Company also faces significant competition from other television shows, including
competition from shows it produces (Pokémon and Yu-Gi-Oh!),
which are broadcast on a competing network.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g)       Employees  As
of March 15, 2004, the Company had a total of 218           full-time employees
consisting of 89 employees in licensing, 31 in Advertising           Media and Broadcast
and 98 in Television and Film Production/Distribution.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|-3-
|---

| | Item
2. Properties
| | ------------------

| | The
following table sets forth, with respect to properties leased (none are owned) by the
Company at December 31, 2003, 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      | Executive and Sales Office, | 21,000                 
|New York, New York          |                     | Media Buying and            |                        
|                            |                     | Television Production       |                        
|                           
|                           
|116 Putney Bridge Road      | January 6, 2005     | International Sales Office  | 4,000                  
|Alice Court                
|London, England            
|                           
|53 West 23rd Street         | December 31, 2006   | Production Facilities       | 25,000                 
|New York, New York         

| | 
| | 

| | The
Company considers that, in general, its physical properties are well maintained, in good
operating condition and adequate for its purposes.
| | -----------------------------------------------------------------------------------------------------------------------------------------------

| | Item
3. Legal Proceedings
| | -------------------------

| | (i)  Morrison
v. Nintendo, et al. On March 29, 2000, Morrison Entertainment Group, Inc., filed suit in
the United States District Court for the Central District of California against Nintendo
of America Inc., 4Kids Entertainment, Inc., and Leisure Concepts, Inc. The suit alleged
that the Pokémon trademark infringes upon the Plaintiffs Monster in my
Pocket trademark. The complaint also alleged trademark dilution, unfair competition,
and a breach of implied contract. The complaint sought injunctive relief as well as
monetary damages. On August 6, 2001, the United States District Court granted summary
judgment dismissing the suit. Plaintiff appealed the dismissal of the case by the U.S.
District Court. On February 4, 2003, the U.S. Court of Appeals for the Ninth Circuit
affirmed the decision by the U.S. District Court to dismiss the suit.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii)  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 Law in the United States Bankruptcy Court for
the Southern District of Texas.  In
January 2004, the Trustee for the bankruptcy estateof 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 the DSIs bankruptcy filing and assertingthat such payments
constituted avoidable preferencepayments. The Trustee formally demanded that
Summit Media repay the Amount to the Trustee.  The
Company believes it has meritorious defenses to this claim. This amount paid to Summit Media was
not a payment with respect to an antecedent debt, but rather payment by DSI to Summit Media for certain DSI advertising in advance of the broadcast. The Company intends to
vigorously defend its position.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, 2003, there were no matters
submitted to a vote of security holders.
| | ------------------------------------------------------------------------------------------------------------------------------------

|-4-
|---

| | 
| | 

| | PART
II
| | -------

| | 
| | 

| | Item
5. Market for Registrants Common Equity and Related Stockholder Matters
| | -----------------------------------------------------------------------------

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

|2003           | Low | High
|-------------- | --- | ----
|First Quarter  |     |     
|Second Quarter |     |     
|Third Quarter  |     |     
|Fourth Quarter |     |     

|2002           | Low | High
|-------------- | --- | ----
|First Quarter  |     |     
|Second Quarter |     |     
|Third Quarter  |     |     
|Fourth Quarter |     |     

| | 
| | 

| | (b)       Number
of Holders of Common Stock  The number of holders of record           of the
Companys Common Stock on March 9, 2004 was 353, which does not           include
individual participants in security position listings.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c)       Dividends  There
were no dividends or other distributions made by           the Company during 2003 or
2002. 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)       Stock
Purchases  On November 25, 2003, the Company announced that           its Board
of Directors had authorized the Company to purchase up to 750,000           shares of its
common stock in the open market or through negotiated prices from           time-to-time
through December 31, 2004. Such purchases are to be made out of the           Companys
surplus. No such purchases were made by the Company during 2003.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
following consolidated selected financial data has been derived from and should be read
in conjunction with the Companys related consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                           | Year Ended December 31,
|-------------------------- | -----------------------
|
|Total Net Revenues         |                        
|
|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 |                        
|

|-5-
|---

|December 31,         | 2003 | 2002 | 2001 | 2000    | 1999
|-------------------- | ---- | ---- | ---- | ------- | ----
|Total Assets         |      |      | $    | 192,380 |     
|
|Working Capital      |      |      |      | 137,929 |     
|
|Stockholders' Equity |      |      |      | 160,487 |     

| | 
| | 

| | The
amounts shown above give effect to the April 1999 three for two stock split and the
September 1999 two for one stock split. The Company did not declare or pay any cash
dividends during the five-year period ended December 31, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Overview
| | --------

| | The
 Companys  results for the year ended  December  31, 2003 were driven by strong
 consumer  demand for  Yu-Gi-Oh!  and to a lesser extent  Teenage
 Mutant  Ninja  Turtles  licensed  merchandise,  which grew  steadily  throughout
 the year into the  holiday  season. Additionally,  business initiatives launched during
2002, such as the Fox Box, which generated  advertising sales, and 4Kids Home Video, were
 contributors  to higher  revenues.  The Companys  costs for 2003 were also
 significantly  higher  primarily due to a full twelve months of operations for the Fox
Box.  These higher costs  included the fee paid to the Fox  Broadcasting  Company,
 programming  costs, and sales, marketing and promotional costs.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | General
| | -------

| | 
| | 

| | The
Company receives revenues from a number of sources, principally Licensing, Advertising
Media and Broadcast and 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. Because the Companys licensing
revenues are highly subject to the changing trends in the toy, game and entertainment
business, its licensing revenues from year to year from particular sources are subject to
dramatic increases and decreases. It is not possible to precisely anticipate the length
of time a property will be commercially successful, if at all. Popularity of properties
can vary from months to years. As a result, the Companys revenues and net income
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. In addition, the Companys
media buying subsidiary 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 related to its lease of the Fox
Saturday morning television block as more fully described in Note 12 to the Companys
consolidated financial statements.  In view of the increased demand for commercial time on the Fox
Box by childrens advertisers for the holiday season, the Companys advertising
sales subsidiary sells advertising time at higher rates in the fourth quarter generally
resulting in higher advertising revenues for the fourth quarter. As a result, much of
these subsidiaries revenues are earned in the fourth quarter when the majority of
toy and video game advertising occurs. In the Companys usual experience for many of
the reasons stated above, the Companys revenues during the second half of the year
have generally been greater than during the first half of the year. However, the Companys
revenues in the most recent fiscal years have been heavily influenced by popularity
trends of Yu-Gi-Oh!", Pokémon and Teenage Mutant
Ninja Turtles and advertising revenue derived from the sale of commercial time on
the Fox Box which is typically sold with a guaranteed audience delivery, rather than the
historical seasonal trends of toy and game sales. Further, revenue fluctuations result
from guarantee and minimum royalty payments occurring throughout the year, some of which
are recognized as revenue upon the execution and delivery of license agreements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Critical
Accounting Policies
| | ----------------------------

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

|-6-
|---

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

| | Revenue
Recognition
| | -------------------

| | The
Company has revenue recognition policies for its various operating segments, which are
appropriate to the circumstances of each business. See Note 2 of the Notes to the Companys
consolidated financial statements for a discussion of these revenue recognition policies.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company records reductions to revenues for estimated future returns of merchandise,
primarily home video products. These estimates are based on trends and projections of
customer demand for and acceptance of various products. Differences may result in the
amount and timing of the Companys revenue for any period if actual performance
varies from these estimates. In addition, the Company records a reduction to advertising
revenue for any under-delivered audience guarantees with regard to advertising time sold
on the Fox Box.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Film
and Television Costs
| | -------------------------

| | Film
and television costs -   In accordance with Statement of Position No.
00-2, Accounting by Producers or Distributors of Films (SOP 00-2),
managements judgment is required as it relates to total revenues to be received and
costs to be incurred throughout the life of each program or its license period, to
determine the amortization of capitalized film and television programming costs
associated with revenues earned and any fair value adjustments.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

| | Film
and television programming costs are amortized in the consolidated statements of income
in the direct proportion that revenues currently recognized bears to managements
estimate of total future revenues to be received throughout the life of each motion
picture or television program. Estimates of revenues are reviewed and reassessed
periodically on a title-by-title basis.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

| | Fox
Broadcast Fee
| | -----------------

| | Fox
Broadcast Agreement The Company leases from Fox its television networks
Saturday morning programming block. The cost of the Fox Box has been and will be
capitalized and amortized over the broadcast season 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 programs the
Company broadcasts on the Fox Box 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. 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 Fox Broadcast Agreement.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Recently
Issued Accounting Pronouncements
| | -----------------------------------------

| | Recently
Issued Accounting Pronouncements Costs Associated with Exit or
Disposal Activities  In June 2002, Financial Accounting Standards Board (FASB)
issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS
No. 146). Such standard requires costs associated with exit or disposal activities
(including restructurings) to be recognized when the costs are incurred, rather than at a
date of commitment to an exit or disposal plan. SFAS No. 146 nullifies Emerging Issue
Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring). Under SFAS No. 146, a liability related to an exit or
disposal activity is not recognized until such liability has actually been incurred
whereas under EITF Issue No. 94-3 a liability was recognized at the time of a commitment
to an exit or disposal plan. The provisions of this standard are effective for exit or
disposal activities initiated after December 31, 2002. The adoption of this standard by
the Company did not have a material effect on its consolidated financial position or
results of operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Guarantees In November 2002, the FASB issued Interpretation (FIN) No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. Such Interpretation elaborates on the disclosures to be made
by a guarantor about its obligations under certain guarantees issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions of this Interpretation apply to guarantees issued
or modified after December 31, 2002. The disclosure provisions of this Interpretation are
effective for financial statements with annual periods ending after December 31, 2002. The
adoption of this standard by the Company did not have a material effect on its
consolidated financial position or results of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-7-
|---

| | Revenue
Arrangements  In November 2002, EITF reached a consensus on Issue No. 00-21,
Revenue Arrangements with MultipleDeliverables (EITF Issue No.
00-21). EITF Issue No. 00-21 provides guidance on how to account for arrangements
that involve the delivery or performance of multiple products, services and/or rights to
use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. The adoption of this consensus by
the Company did not have a material impact on its consolidated financial position or
results of operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consolidation
of Variable Interest Entities  On January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities. In December 2003, the FASB issued FIN
No. 46 (Revised) (FIN 46-R) to address certain FIN implementation issues.
This interpretation clarifies the application of Accounting Research Bulletin (ARB)
No. 51, Consolidated Financial Statements for companies that have interests in entities
that are Variable Interest Entities (VIE) as defined under FIN 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 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 is effective no later than the end
of the first interim or reporting period ending 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 ending after December
15, 2003. 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Derivative
Instruments and Hedging Activities  In April 2003, the FASB issued SFAS No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities(SFAS
No. 149). SFAS No. 149 amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. SFAS No. 149 is effective for contracts entered
into or modified after June 30, 2003, except as stated in the statement for hedging
relationships designated after June 30, 2003. The adoption of this standard by the
Company did not have a material effect on its consolidated financial position or results
of operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Financial
Instruments  In May 2003, the FASB issued SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS
No. 150). SFAS No. 150 requires that certain financial instruments, which under
previous guidance were accounted for as equity, must now be accounted for as liabilities.
The financial instruments affected include mandatory redeemable stock, certain financial
instruments that require or may require the issuer to buy back some of its shares in
exchange for cash or other assets and certain obligations that can be settled with shares
of stock. SFAS No. 150 is effective for all financial instruments entered into or
modified after May 31, 2003, and to all other instruments that exist as of the beginning
of the first interim financial reporting period after June 15, 2003. The Company adopted
the provisions of SFAS No. 150 on July 1, 2003. The adoption of this standard by the
Company did not have a material effect on its consolidated financial position or results
of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | 2003 | 2002 | 2001
|------------------------------------ | ---- | ---- | ----
|Net Revenues                         |      | 100  | %   
|                                     |      |      |     
|                                     |      |      |     
|                                     |      |      |     
|Selling, general & administrative    |      | 33   | %   
|Production service costs             |      | 8    | %   
|Amortization of television           |     
|and film costs and Fox broadcast fee |      | 36   | %   
|                                     |      |      |     
|Total Costs and Expenses             |      | 77   | %   
|                                     |      |      |     
|Income from Operations               |      | 23   | %   
|                                     |     
|Interest income                      |      | 1    | %   
|                                     |      |      |     
|Income before income taxes           |      | 24   | %   
|                                     |     
|                                     |      |      |     
|Income taxes                         |      | 10   | %   
|                                     |      |      |     
|Net Income                           |      | 14   | %   
|                                     |      |      |     

|-8-
|---

| | 
| | 

| | 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 the Fox Box 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, the Fox Box
and the Companys Fox Box 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 $1,475,
as compared to $0 for the year ended  December 31, 2002.  Additionally,  other  bonuses were granted  under the Bonus Plan of $1,268 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 property owners. When the Company expects to be paid 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 the Fox Box 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-9-
|---

| | Fox
Broadcast Fee
| | -----------------

| | Amortization  of the Fox  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 Fox Box fee,  where
as 2002 reflected  amortization of the Fox Box fee from the date Fox Box 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 Fox  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 the Fox Box 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 the
Fox Box.
| | -----------------------------------------------------------------------------------------------------------------------------

| | The
ability of the Company to further develop its merchandising, home video and music
publishing revenue streams was a significant component of its evaluation to lease the Fox
Box 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 declining interest rate environment,
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 higher pre-tax income. 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Year
Ended December 31, 2002 as compared to Year Ended December 31, 2001
| | ------------------------------------------------------------------------

| | Revenues
| | --------

| | 
| | 

| | Revenues
for the years ended December 31, 2002 and 2001, by reportable segment and for the Company
as a whole, were as follows:
| | -------------------------------------------------------------------------------------------------------------------------------

|                                            | 2002 | 2001 | $ Change | % Change
|------------------------------------------- | ---- | ---- | -------- | --------
|Licensing                                   |      |      | $        | 28,937  
|Advertising Media & Broadcast               |      |      |          | 11,200  
|Television and Film Production/Distribution |      |      |          | 13,003  
|                                            |      |      |          |         
|Total                                       |      |      | $        | 53,140  
|                                            |      |      |          |         

| | 
| | 

| | The
increase in consolidated net revenue for 2002 was primarily attributable to increased
revenue in the Advertising Media and Broadcast segment where net revenue increased
primarily due to sales of advertising time on the Fox Box which began broadcast
operations in September 2002.The increase in net revenue in the Licensing segment
resulted from significantly increased licensing and fee revenue from the Yu-Gi-Oh! property,
offset by decreased licensing revenue from Pokémon and Cabbage
Patch Kids. Pokémon and Yu-Gi-Oh! ranked among the
most popular childrens television programs during 2002. In the Television and Film
Production/Distribution segment increased revenues from home video, music and television
program license fees earned on Yu-Gi-Oh!" and additional production service
revenue for work performed on the Kirby and Teenage Mutant Ninja Turtles television
programs were partially offset by decreased revenues earned from the Pokémon movies
and Cubix television program license fees.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-10-
|----

| | Selling,
General and Administrative Expenses
| | --------------------------------------------

| | Selling,
general and administrative expenses increased 13%, or $2,892 to $25,374 for the year
ended December 31, 2002, when compared to the same period in 2001, primarily due to
increased payroll and benefits resulting from higher staffing levels in advertising
sales, the Fox Box network and the Companys website operations; all of which began
operations in 2002. Along with these increased payroll and benefits costs, the Company
incurred additional infrastructure costs to support these new operations. The Company
also recognized increased bad debt expense primarily due to the bankruptcy filing of an
advertising customer of the Fox Box. These increases were partially offset by reduced
advertising and marketing costs. The Companys initial promotional campaign for the
Fox Box which began in the second half of 2002 involved lower spending compared to the
promotional and advertising campaign which launched the Yu-Gi-Oh!", Cubix and
Tama and Friendsproperties in the second half of 2001. For the year ended December 31, 2002, the Chairman and CEO
of the Company did not receive any bonus  compensation  under the Bonus Plan,
as compared to $370 for the year ended  December  31, 2001.  Additionally,  no other  bonuses were granted  under the Bonus Plan for the
year ended December 31, 2002, as compared to $907 for the year ended December 31, 2001.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                          | 2002 | 2001 | $ Change | % Change
|----------------------------------------- | ---- | ---- | -------- | --------
|Production Service Costs                  |      |      | $        | 3,375   
|Amortization of Television and Film Costs |      |      |          | 4,911   

| | 
| | 

| | The
increase in production service costs increased during 2002 was attributable to certain
television production costs related to the Kirby and Teenage Mutant
Ninja Turtles television programs which began production in 2002 for which the
Company bills back to the property owners. When the Company expects to be paid for production costs, the Company
categorizes such production services as Production service costs and reflects a
corresponding amount in revenue for the amount billed back to the property owners.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2002, there was approximately $5,653 of capitalized film production costs in the accompanying consolidated balance sheets
relating primarily to various stages of production on 26 episodes of Cubix,
37 episodes of Tama and Friends, 104 episodes of Yu-Gi-Oh! 52
episodes of Ultra-Man, 52 episodes of Ultimate Muscle, and 26
episodes of Fighting Foodons and 26 episodes of Teenage Mutant Ninja
Turtles. The increase in amortization of capitalized film costs during 2002
included a write-down of certain film and television costs of $462 resulting from
increased amortization of Yu-Gi-Oh!", Ultra Man, Ultimate
Muscle and the Cubix television programs as compared to the prior year.
Based on managements ultimate revenue estimates as of December 31, 2002,
approximately 43% of the total completed and unamortized film and television costs are
expected to be amortized during 2003, and over 80% of the total completed and unamortized
film and television costs are expected to be amortized during the next three years.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fox
Broadcast Fee
| | -----------------

| | Amortization
of the Fox broadcast fee was $9,444 as the Fox Box commenced operations in September
2002. The fees payable to Fox and affiliates have been and will be capitalized and
amortized over the broadcast season based on estimated advertising revenue. During 2002, the Company had paid Fox and certain affiliates a total amount of
$19,301, representing a portion of the first year fees of which $9,444 was amortized as
of December 31, 2002. The remaining $9,857 representing the unamortized portion of the
first broadcast seasons fee paid is included in Prepaid Fox broadcast fee on
the accompanying consolidated balance sheets as of December 31, 2002.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Interest
Income
| | ---------------

| | Interest
income decreased 64%, or $2,892 to $1,656 for the year ended December 31, 2002, as
compared to the same period in 2001, as a result of lower levels of invested cash during
2002 and the declining interest rate environment.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income
Tax Expense
| | ------------------

| | Income
tax expense decreased 43%, or $3,568 to $4,702 for the year ended December 31, 2002, as
compared to the same period in 2001, due to lower pre-tax income. The Companys
effective tax rate remained relatively consistent at approximately 40% for both 2002 and
2001.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net
Income
| | ----------

| | As
a result of the above, the Company had net income for the year ended December 31, 2002 of
$6,990, as compared to net income for the same period in 2001 of $12,244.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-11-
|----

| | Liquidity
and Capital Resources
| | -------------------------------

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

|                          | 2003 | 2002      | $ Change
|------------------------- | ---- | --------- | --------
|Cash and cash equivalents |      | $  95,136 |         
|Investments               |      | 24,443    |         
|                          |      |           |         
|                          |      |           |         
|                          |      | $119,579  |         
|                          |      |           |         

| | 
| | 

| | During
2003, the Companys cash and cash equivalents and short-term investment balances
increased by $30,080 to $119,579, primarily as a result of net income, decreases in accounts
receivable, increases in due to licensors and deferred revenue, and cash and tax benefits from the option exercises.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Sources
and Uses of Cash
| | ------------------------

| | Cash
flows for the three years ended December 31, 2003 were as follows:
| | -----------------------------------------------------------------------

|                     |  |  |   | $ Change
|-------------------- |  |  | - | --------
|
|Operating activities |  |  | $ | 23,800  
|Investing activities |  |  |   | (14,405 
|Financing activities |  |  |   | 6,408   
|                     |  |  |   |         

| | 
| | 

| | Working
capital, consisting of current assets less current liabilities, was $137,929 as of
December 31, 2003 and $114,298 as of December 31, 2002.
| | --------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2003, the Company had $24,443 invested primarily in short-term government
obligations. During 2003, the Company purchased property and equipment of $749, which was
comprised primarily of computer and television production equipment and leasehold improvements, as
compared to purchases of property and equipment of $2,619 in 2002. Funds to be used to purchase
property and equipment in 2004 is expected to be similar to that of 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
flows from financing activities were generated by proceeds from the exercise of stock
options by the Companys employees.
| | ------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

| | During
2003, the Company's  substantial  improvement in its cash flow from  operations was
directly the result of strong consumer demand for a small 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fox
Broadcast Agreement
| | -----------------------

| | The
Companys license agreement with Fox to program the networks four hour
Saturday morning childrens block commenced in September 2002, requiring the Company
to pay annual fees of $25,312 through 2006. Under the terms of the agreement, during
2003, the Company paid Fox and certain affiliates a total of $6,328 and $19,506
attributable to the first and second years broadcast fee, respectively, with two
additional payments for the second broadcast season of $3,162 each due in February and
April 2004. 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, 2003, 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-12-
|----

| | 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, 2003 and the impact that such obligations are expected to
have on the Companys liquidity and cash flow in future periods. The Company expects
to fund these commitments primarily with operating cash flow generated in the normal
course of business.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | As of December 31, 2003
Payments Due In:
|----------------------- | ----------------------------------------
|
|Fox Broadcast Agreement |                                         
|Operating Leases        |                                         
|                        |                                         
|                        |                                         
|                        |                                         

| | 
| | 

| | See
Note 12 of the Notes to the Companys consolidated financial statements for
additional information on the Fox 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, business prospects,
technological developments new products, research and development activities,
liquidity, and similar matters or to developments 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 our
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 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-13-
|----

| | 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 for the Fox Box, are also seasonal, with
a significant portion of the revenue typically generated during the fourth quarter
commensurate with the demand for commercial time by childrens advertisers for the
holiday season. In addition, a failure by us to supply programming on Fox Box 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 such as those in the US on September 11,
2001, 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;
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 the Fox Box.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 a change in 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-14-
|----

| | 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
| | ---------------------------------------------------

| | Financial
Statements and Supplementary Data are attached hereto.
| | ----------------------------------------------------------------

| | Item
9. Changes in and Disagreements With Accountants and Accounting and Financial Disclosure
| | ---------------------------------------------------------------------------------------------

| | None.
| | -----

| | Item
9a. Controls and Procedures
| | --------------------------------

| | The
Company has evaluated the effectiveness of the design and operation of its disclosure
controls and procedures under the supervision of and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer, as of the
end of the period covered by this report. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Companys disclosure
controls and procedures are effective in ensuring that information required to be
disclosed by the Company in the reports it files or submits under the Exchange Act is
included in such reports.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | There
have not been any changes in the Companys internal control over financial reporting
during the fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Companys internal controls over
financial reporting.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Item
11. Executive Compensation
| | -------------------------------

| | Information
concerning executive 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
| | -----------------------------------------------------------------------

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

|-15-
|----

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

|-16-
|----

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

| | PART
IV
| | -------

| | Item
15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
| | -------------------------------------------------------------------------

| | a)              1.
Financial Statements:
| | ----------------------------------------

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

|                                                                  | Page
Number
|----------------------------------------------------------------- | -----------
|Independent Auditors' Report                                      | F-1        
|                                                                 
|Consolidated Balance Sheets - December 31, 2003 and 2002          | F-2        
|                                                                 
|Consolidated Statements of Income - Years Ended                  
|December 31, 2003, 2002 and 2001                                  | F-3        
|                                                                 
|Consolidated Statements of Stockholders' Equity and Comprehensive
|Income - Years Ended December 31, 2003, 2002 and 2001             | F-4        
|                                                                 
|Consolidated Statements of Cash Flows - Years Ended              
|December 31, 2003, 2002 and 2001                                  | F-5        
|                                                                 
|Notes to Consolidated Financial Statements                        | F-6 to F-20

| | 
| | 

| | (a)              2.
and (d) 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 (c) Exhibits. See Index of Exhibits annexed hereto.
| | --- | ----------------------------------------------------------

| | (b) | Reports on Form 8-K
| | --- | -------------------

| | 1. | The Registrant filed a Current Report on Form 8-K on November 13, 2003 in
          connection with the issuance of its press release announcing the results
          for the quarterly period ended  September 30, 2003.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | The Registrant filed a Current Report on Form 8-K on November 25, 2003 in
          connection with the issuance of its press release announcing authorization
          of a stock repurchase program.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-17-
|----

| | 
| | 

| | 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 15, 2004
| | ---------------------------------------------

| | 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 15, 2004
| | ---------------------------------------------

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

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

| | Date: March 15, 2004
| | --------------------

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

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

| | Date: March 15, 2004
| | --------------------

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

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

| | Date: March 15, 2004
| | --------------------

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

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

| | Date: March 15, 2004
| | --------------------

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

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

| | Date: March 15, 2004
| | --------------------

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

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

|-18-
|----

| | 
| | 

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

|Exhibit
Number | Description                                                                                 | Page
Number
|-------------- | ------------------------------------------------------------------------------------------- | -----------
|3.1            | Certificate of Incorporation of the Registrant, as amended (12)                            
|              
|3.2            | By-Laws of the Registrant adopted by the Board of Directors on March 28, 1991 (1)          
|              
|4.1            | Form of Common Stock Certificate (2)                                                       
|              
|10.1           | Bonus Plan of the Registrant (*) (3)                                                       
|              
|10.2           | 1985 Non-Qualified Stock Option Plan, as amended (*) (3)                                   
|              
|10.3           | 1986 Stock Option Plan, as amended (*) (3)                                                 
|              
|10.4           | 1992 Stock Option Plan (*) (4)                                                             
|              
|10.5           | 1993 Stock Option Plan (*) (5)                                                             
|              
|10.6           | 1994 Stock Option Plan (*) (9)                                                             
|              
|10.7           | 1995 Stock Option Plan (*) (10)                                                            
|              
|10.8           | 1996 Stock Option Plan (*) (13)                                                            
|              
|10.9           | 1997 Stock Option Plan (*) (15)                                                            
|              
|10.10          | 1998 Stock Option Plan (*) (16)                                                            
|              
|10.11          | 1999 Stock Option Plan (*) (17)                                                            
|              
|10.12          | 2000 Stock Option Plan (*) (18)                                                            
|              
|10.13          | 2001 Stock Option Plan (*) (19)                                                            
|              
|10.14          | 2002 Stock Option Plan (*) (20)                                                            
|              
|10.15          | 2003 Stock Option Plan (*) (21)                                                            
|              
|10.16          | Stock Option Agreement, dated June 10, 1992, between the Registrant                        
|               | and Randy O. Rissman (*) (6)                                                               
|              
|10.17          | Stock Option Agreement, dated June 10, 1992, between the Registrant                        
|               | and Gerald Rissman (*) (6)                                                                 
|              
|10.18          | Agreement between Nintendo of America, Inc. and the Registrant dated December 17, 1987 (3) 
|              
|10.19          | Agreement of Lease, dated March 28, 1988, between the Registrant and                       
|               | and 1414 Americas Company Amendment, dated July 8, 1994,                                   
|              
|10.20          | Agreement of Lease between the Registrant and                                              
|               | 1414 Avenue of the Americas Company (1)                                                    
|              
|10.21          | First Amendment, dated January 3, 1994, to the Olympic Lease (6)                           
|              
|10.22          | Agreement of Lease, dated March 23, 1993, between                                          
|               | Leisure Concepts International, Inc. and Svenska Handelsbanken (6)                         
|              
|10.23          | Employment Agreement, dated March 12, 1991 between the Registrant and                      
|               | and Alfred R. Kahn(*) (7)                                                                  
|              
|10.24          | Employment Agreement, dated June 3, 1991, between the Registrant and Joseph Garrity (*) (8)

|-19-
|----

|Exhibit
Number | Description                                                                               | Page
Number
|-------------- | ----------------------------------------------------------------------------------------- | -----------
|
|10.25          | Amendment, dated as of October 17, 1994, to the Employment Agreement                     
|               | between the Registrant and Joseph Garrity (*) (11)                                       
|              
|10.26          | Employment Agreement, dated January 1, 1995 between The Summit Media Group,              
|               | Inc. and Sheldon Hirsch (*) (12)                                                         
|              
|10.27          | Employment Agreement, dated January 1, 1995 between The Summit Media Group,              
|               | Group, Inc. and Thomas J. Kenney (*) (12)                                                
|              
|10.28          | Employment Agreement, dated January 9, 1996 between 4 Kids Productions,                  
|               | Inc. and Norman Grossfeld (*) (12)                                                       
|              
|10.29          | Note, dated May 29, 1997, between the Registrant and Chemical Bank (14)                  
|              
|10.30          | Security Agreement, dated May 29, 1996, by and between Leisure Concepts, Inc.)           
|               | and Chemical Bank (14)                                                                   
|              
|10.31          | Security Agreement, dated May 29, 1996, by and between 4Kids Productions, Inc. and       
|               | and Chemical Bank (14)                                                                   
|              
|10.32          | Security Agreement, dated May 29, 1996, by and between The Summit Media Group,           
|               | Inc. and Chemical Bank (14)                                                              
|              
|10.33          | Amendment,dated as of January 1, 1997, to the Employment Agreement                       
|               | between the Registrant and Joseph P. Garrity(*) (14)                                     
|              
|10.34          | Amendment,dated as of January 1, 1997, to the Employment Agreement between               
|               | The Summit Media Group, Inc. and Sheldon Hirsch(*)(14)                                   
|              
|10.35          | Amendment, dated as of January 1, 1997, to the Employment Agreement between The          
|               | Summit Media Group, Inc. and Thomas Kenney (*) (14)                                      
|              
|10.36          | Amendment, dated as of February, 1997, to the Employment Agreement between the)          
|               | Registrant and Alfred R. Kahn (*) (14)                                                   
|              
|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

|-20-
|----

|     |                                                                                              
|---- | ---------------------------------------------------------------------------------------------
|(*)  | 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, 1990.
|    
|(2)  | Incorporated by reference to Registration Statement on Form S-1 (File No. 33-3056)           
|     | declared effective March 7, 1986.                                                            
|    
|(3)  | Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1987.
|    
|(4)  | Incorporated by reference to 1992 Proxy Statement.                                           
|    
|(5)  | Incorporated by reference to 1993 Proxy Statement.                                           
|    
|(6)  | Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1992.
|    
|(7)  | Incorporated by reference to Amendment No. 1 to Schedule 13D of Alfred Kahn,                 
|     | Tiger Electronics Inc. and Owen Randall Rissman dated February 22, 1991                      
|    
|(8)  | Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1991.
|    
|(9)  | Incorporated by reference to 1994 Proxy Statement.                                           
|    
|(10) | Incorporated by reference to 1995 Proxy Statement.                                           
|    
|(11) | Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1994.
|    
|(12) | Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1995.
|    
|(13) | Incorporated by reference to 1996 Proxy Statement.                                           
|    
|(14) | Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1996.
|    
|(15) | Incorporated by reference to 1997 Proxy Statement for Annual Meeting of Shareholders         
|     | Shareholders held April 30, 1997.                                                            
|    
|(16) | Incorporated by reference to 1998 Proxy Statement for Annual Meeting of                      
|     | Shareholders held April 29, 1998.                                                            
|    
|(17) | Incorporated by reference to 1999 Proxy Statement for Annual Meeting                         
|     | of Shareholders held April 29, 1999.                                                         
|    
|(18) | Incorporated by reference to 2000 Proxy Statement for Annual Meeting                         
|     | of Shareholders held May 17, 2000.                                                           
|    
|(19) | Incorporated by reference to 2001 Proxy Statement for Annual Meeting                         
|     | of Shareholders held May 23, 2001.                                                           
|    
|(20) | Incorporated by reference to 2002 Proxy Statement for Annual Meeting                         
|     | of Shareholders held May 23, 2002.                                                           
|    
|(21) | Incorporated by reference to 2003 Proxy Statement for Annual Meeting                         
|     | of Shareholders held May 23, 2003.                                                           

|-21-
|----

| | 
| | 

| | INDEPENDENT
AUDITORS REPORT
| | ----------------------------

| | To
the Board of Directors and Shareholders 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, 2003 and 2002, 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, 2003.
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 auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of 4Kids Entertainment, Inc. and subsidiaries at
December 31, 2003 and 2002, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | /s/
Deloitte &Touche, LLP New York, New York
| | --------------------------------------------

| | March
15, 2004
| | --------------

| | F-1
| | ---

|
|

|4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
|------------------------------------------

|CONSOLIDATED BALANCE SHEETS
|---------------------------

|DECEMBER 31, 2003 AND 2002
|--------------------------

|(In thousands of dollars, except share data)
|--------------------------------------------

|2003                                                                    | 2002
|----------------------------------------------------------------------- | ----
|CURRENT ASSETS:                                                         |     
|Cash and cash equivalents                                               |     
|Investments                                                             |     
|                                                                        |     
|Total Cash and Investments                                              |     
|Accounts receivable - net                                               |     
|Prepaid Fox broadcast fee, net of accumulated amortization              |     
|of $36,447 and $9,444 in 2003 and 2002, respectively                    |     
|Prepaid income taxes                                                    |     
|Prepaid expenses and other current assets                               |     
|                                                                        |     
|Total current assets                                                    |     
|                                                                       
|PROPERTY AND EQUIPMENT - NET                                            |     
|ACCOUNTS RECEIVABLE - Noncurrent, net                                   |     
|INVESTMENT IN EQUITY SECURITIES                                         |     
|FILM AND TELEVISION COSTS - NET                                         |     
|DEFERRED INCOME TAXES - Noncurrent                                      |     
|OTHER ASSETS - NET                                                      |     
|                                                                        |     
|                                                                        |     
|TOTAL ASSETS                                                            |     
|                                                                        |     
|LIABILITIES AND STOCKHOLDERS' EQUITY                                    |     
|CURRENT LIABILITIES:                                                    |     
|Due to licensors                                                        |     
|Media payable                                                           |     
|Accounts payable and accrued expenses                                   |     
|Deferred revenue                                                        |     
|Deferred income taxes                                                   |     
|                                                                        |     
|Total current liabilities                                               |     
|                                                                       
|DEFERRED RENT                                                           |     
|                                                                        |     
|Total liabilities                                                       |     
|                                                                        |     
|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, 13,965,343 and 13,135,008 shares in 2003 and 2002, respectively |     
|Additional paid-in capital                                              |     
|Accumulated other comprehensive income                                  |     
|Retained earnings                                                       |     
|                                                                        |     
|Total stockholders' equity                                              |     
|                                                                        |     
|                                                                        |     
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              |     
|                                                                        |     
|                                                                        |     

See notes to consolidated financial
statements.

F-2

|
|

|4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
|------------------------------------------

|CONSOLIDATED STATEMENTS OF INCOME
|---------------------------------

|YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
|--------------------------------------------

|(In thousands of dollars, except share data)
|--------------------------------------------

|                                              | 2003 | 2002 | 2001
|--------------------------------------------- | ---- | ---- | ----
|NET REVENUES                                  |      |      | $   
|                                              |      |      |     
|                                              |      |      |     
|COSTS AND EXPENSES:                           |      |     
|Selling, general and administrative           |      |      |     
|Production service costs                      |      |      |     
|Amortization of television and film costs and |      |     
|Fox broadcast fee                             |      |      |     
|                                              |      |      |     
|Total costs and expenses                      |      |      |     
|                                              |      |      |     
|INCOME FROM OPERATIONS                        |      |      |     
|                                             
|INTEREST INCOME                               |      |      |     
|                                              |      |      |     
|INCOME BEFORE INCOME TAXES                    |      |      |     
|                                             
|INCOME TAXES                                  |      |      |     
|                                              |      |      |     
|NET INCOME                                    |      |      | $   
|                                              |      |      |     
|                                              |      |      |     
|PER SHARE AMOUNTS:                            |      |     
|Basic earnings per common share               |      |      | $   
|                                              |      |      |     
|Diluted earnings per common share             |      |      | $   
|                                              |      |      |     
|Weighted average common shares                |      |     
|outstanding - basic                           |      |      |     
|                                              |      |      |     
|                                              |      |      |     
|Weighted average common shares                |      |     
|outstanding - diluted                         |      |      |     
|                                              |      |      |     
|                                              |      |      |     

| | 
| | 

| | 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, 2003, 2002 AND 2001
|--------------------------------------------

|(In thousands of dollars and shares)
|------------------------------------

|                                           | Common Stock | Additional
Paid-in | Retained | Accumulated
Other
Comprehensive | 
|------------------------------------------ | ------------ | ------------------ | -------- | ------------------------------- | 
|
|BALANCE, DECEMBER 31, 2000                 |              |                    |          | 12,081                          | 
|Proceeds from exercise of stock options    |              |                    |          | 466                             | 
|Tax benefit from exercise of stock options |              |                    |          | --                              | 
|Comprehensive income:                      |              |                   
|Net income                                 |              |                    |          | --                              | 
|                                           |              |                    |          |                                 | 
|Total comprehensive income                 |              |                    |          | --                              | 
|                                           |              |                    |          |                                 | 
|                                           |              |                    |          |                                 | 
|BALANCE, DECEMBER 31, 2001                 |              |                    |          | 12,547                          | 
|Proceeds from exercise of stock options    |              |                    |          | 588                             | 
|Tax benefit from exercise of stock options |              |                    |          | --                              | 
|Comprehensive income:                      |              |                   
|Net income                                 |              |                    |          | --                              | 
|Translation adjustment                     |              |                    |          | --                              | 
|                                           |              |                    |          |                                 | 
|Total comprehensive income                 |              |                    |          | --                              | 
|                                           |              |                    |          |                                 | 
|BALANCE, DECEMBER 31, 2002                 |              |                    |          | 13,135                          | 
|Proceeds from exercise of stock options    |              |                    |          | 830                             | 
|Tax benefit from exercise of stock options |              |                    |          | --                              | 
|Comprehensive income:                      |              |                   
|Net income                                 |              |                    |          | --                              | 
|Translation adjustment                     |              |                    |          | --                              | 
|                                           |              |                    |          |                                 | 
|Total comprehensive income                 |              |                    |          | --                              | 
|                                           |              |                    |          |                                 | 
|BALANCE, DECEMBER 31, 2003                 |              |                    |          | 13,965                          | 
|                                           |              |                    |          |                                 | 
|                                           |              |                    |          |                                 | 

|See notes to consolidated financial
statements.



F-4
|------------------------------------------------------

|4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
|------------------------------------------

|CONSOLIDATED STATEMENTS OF CASH FLOWS
|-------------------------------------

|YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
|--------------------------------------------

|(In thousands of dollars)
|-------------------------

|                                                                | 2003 | 2002 | 2001
|--------------------------------------------------------------- | ---- | ---- | ----
|CASH FLOWS FROM OPERATING ACTIVITIES:                           |      |      |     
|Net income                                                      |      |      | $   
|Adjustments to reconcile net income to net cash                 |      |     
|provided by (used in) operating activities:                     |      |     
|Depreciation and amortization                                   |      |      |     
|Amortization of television and film costs and Fox broadcast fee |      |      |     
|Provision for doubtful accounts                                 |      |      |     
|Deferred income taxes                                           |      |      |     
|Tax benefit on exercise of stock options                        |      |      |     
|Changes in operating assets and liabilities:                    |      |     
|Accounts receivable                                             |      |      |     
|Film and television costs                                       |      |      |     
|Prepaid income taxes                                            |      |      |     
|Prepaid Fox broadcast fee                                       |      |      |     
|Prepaid expenses and other current assets                       |      |      |     
|Other assets - net                                              |      |      |     
|Due to licensors                                                |      |      |     
|Media Payable                                                   |      |      |     
|Accounts payable and accrued expenses                           |      |      |     
|Income taxes payable                                            |      |      |     
|Deferred revenue                                                |      |      |     
|Deferred rent                                                   |      |      |     
|                                                                |      |      |     
|Net cash provided by (used in) operating activities             |      |      |     
|                                                                |      |      |     
|                                                                |      |      |     
|CASH FLOWS FROM INVESTING ACTIVITIES:                           |      |     
|Proceeds from maturities of investments                         |      |      |     
|Purchase of investments                                         |      |      |     
|Investment in equity securities                                 |      |      |     
|Purchase of property and equipment                              |      |      |     
|                                                                |      |      |     
|Net cash (used in) provided by investing activities             |      |      |     
|                                                                |      |      |     
|CASH FLOWS FROM FINANCING ACTIVITIES -                          |      |     
|Proceeds from exercise of stock options                         |      |      |     
|                                                                |      |      |     
|Net cash provided by financing activities                       |      |      |     
|                                                                |      |      |     
|EFFECTS OF EXCHANGE RATE CHANGES ON CASH                        |      |     
|AND CASH EQUIVALENTS                                            |      |      |     
|                                                                |      |      |     
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS            |      |      |     
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                    |      |      |     
|                                                                |      |      |     
|CASH AND CASH EQUIVALENTS, END OF YEAR                          |      |      | $   
|                                                                |      |      |     
|                                                                |      |      |     
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:               |      |     
|CASH PAID DURING THE YEAR FOR:                                  |      |     
|Income Taxes                                                    |      |      | $   
|                                                                |      |      |     

|See notes to consolidated financial
statements.



F-5
|------------------------------------------------------

|4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
|------------------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

|YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
|--------------------------------------------

|(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 subsidiaries, 4Kids Entertainment Licensing, Inc. (4Kids
Licensing) and 4Kids Entertainment International, Ltd. (4Kids International),
are engaged in the business of licensing the commercial rights to popular childrens
properties, personalities and product concepts. 4Kids Licensing typically acts as
exclusive agent in connection with the grant to third parties of licenses to manufacture
and sell all types of merchandise based on such properties, personalities and concepts.
The licensing of these rights has been primarily in the areas of toys, electronic games,
trading cards, food, toiletries, apparel, housewares, footwear and publishing rights.
4Kids Licensing also licenses merchandising rights in connection with certain television
shows and motion pictures produced by the Company. 4Kids International, which is based in
London, manages the Companys properties in the United Kingdom and European
marketplaces.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 the Fox Broadcasting Company (Fox), leases Foxs Saturday morning
programming block (the Fox Box). The Company provides all programming content
to be broadcast on the Fox Box, 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 revenue and costs
associated with the Fox Box.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys wholly-owned subsidiary, The Summit Media Group, Inc. (Summit Media),
provides media planning and buying services for clients in both print and broadcast
media. 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 for distribution to the television,
home video and theatrical markets. 4Kids Productions adapts foreign programming for the
US market and also 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 administers 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, markets and administers
the Companys home video operations associated with its television programming.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 $7,819, $3,375 and $1,423 in 2003, 2002 and 2001, 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, 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, 2003 and 2002, the excess cash amounted to a
total of $46,177 and $61,105, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-F-7-
|-----

| | Prepaid
Fox 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 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 Fox broadcast fee on the accompanying consolidated balance sheets as
of December 31, 2003 and 2002, 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, 2003 and 2002, the
Company had no investments that qualified as trading or available for sale.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2003 and 2002, 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 total revenues to be realized
from all media and markets for such program. 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 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,
2003, 2002 and 2001 was $15,420, $7,062 and $12,244, respectively, which included
translation adjustments of $621, $72 and $0 for the respective periods.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|-F-8-
|-----

| | 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
Compensation  SFAS No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require, companies to record
compensation cost for stock-based compensation plans at fair value. The Company has
chosen to account for stock-based compensation awards to employees under APB No. 25, Accounting
for Stock Issued to Employees, and its interpretation, FASB Interpretation No. (FIN)
44, Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure.Among other things, SFAS No. 148
requires the disclosure in interim reports of compensation expense calculated according
to SFAS No. 123 for those awards of stock-based employee compensation that were
outstanding and accounted for under the intrinsic value method of APB No. 25. The
following table illustrates the effect on net income and earnings per share as if the
fair value based method under SFAS No. 123 had been applied to all outstanding and
unvested awards in each period.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | 2003 | 2002 | 2001
|------------------------------- | ---- | ---- | ----
|Net income as reported          |      |      | $   
|                                |      |      |     
|Deduct stock-based employee     |      |     
|compensation expense determined |      |     
|under fair value based method   |      |     
|for all awards, net of tax      |      |      |     
|                                |      |      |     
|Pro forma net income            |      |      | $   
|                                |      |      |     
|                                |      |      |     
|Net income per share:           |      |     
|Reported                        |      |     
|Basic                           |      |      | $   
|                                |      |      |     
|Diluted                         |      |      | $   
|                                |      |      |     
|Pro forma                       |      |     
|Basic                           |      |      | $   
|                                |      |      |     
|Diluted                         |      |      | $   
|                                |      |      |     

| | 
| | 

| | 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 2003,
2002 and 2001 included no dividend yield for the periods, expected volatility of
approximately 60%, 48% and 56% for 2003, 2002 and 2001, respectively, a risk-free
interest rate of approximately 1.92%, 2.16% and 4.81% for 2003, 2002 and 2001,
respectively, and an option duration of 3.5, 4 and 3 years for 2003, 2002, and 2001,
respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Recently
Issued Accounting Pronouncements Costs Associated with Exit or
Disposal Activities  In June 2002, Financial Accounting Standards Board (FASB)
issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS
No. 146). Such standard requires costs associated with exit or disposal activities
(including restructurings) to be recognized when the costs are incurred, rather than at a
date of commitment to an exit or disposal plan. SFAS No. 146 nullifies Emerging Issue
Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). Under SFAS No. 146, a liability related to an
exit or disposal activity is not recognized until such liability has actually been
incurred whereas under EITF Issue No. 94-3 a liability was recognized at the time of a
commitment to an exit or disposal plan. The provisions of this standard are effective for
exit or disposal activities initiated after December 31, 2002. The adoption of this
standard by the Company did not have a material effect on its consolidated financial
position or results of operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-F-9-
|-----

| | Guarantees In
November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. Such Interpretation elaborates on the disclosures to be made by a guarantor
about its obligations under certain guarantees issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this Interpretation apply to guarantees issued or modified
after December 31, 2002. The disclosure provisions of this Interpretation are effective
for financial statements with annual periods ending after December 31, 2002. The adoption of
this standard by the Company did not have a material effect on its consolidated financial
position or results of operations.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue
Arrangements In November 2002, the EITF
reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables(EITF Issue No. 00-21).EITF Issue No. 00-21
provides guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets. The provisions of
EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of this consensus by the Company did not have
a material impact on its consolidated financial position or results of operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consolidation
of Variable Interest Entities  On January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities. In December 2003, the FASB issued FIN
No. 46 (Revised) (FIN 46-R) to address certain FIN implementation issues.
This interpretation clarifies the application of Accounting Research Bulletin (ARB)
No. 51, Consolidated Financial Statements for companies that have interests in entities
that are Variable Interest Entities (VIE) as defined under FIN 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 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 is effective no later than the end
of the first interim or reporting period ending 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 ending after December
15, 2003. 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Derivative
Instruments and Hedging Activities In April 2003, the FASB issued SFAS No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities(SFAS
No. 149). SFAS No. 149 amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. SFAS No. 149 is effective for contracts entered
into or modified after June 30, 2003, except as stated in the statement for hedging
relationships designated after June 30, 2003. The adoption of this standard by the
Company did not have a material effect on its consolidated financial position or results
of operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Financial
Instruments In May 2003, the FASB issued SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity(SFAS
No. 150). SFAS No. 150 requires that certain financial instruments, which under
previous guidance were accounted for as equity, must now be accounted for as liabilities.
The financial instruments affected include mandatory redeemable stock, certain financial
instruments that require or may require the issuer to buy back some of its shares in
exchange for cash or other assets and certain obligations that can be settled with shares
of stock. SFAS No. 150 is effective for all financial instruments entered into or
modified after May 31, 2003, and to all other instruments that exist as of the beginning
of the first interim financial reporting period after June 15, 2003. The Company adopted
the provisions of SFAS No. 150 on July 1, 2003. The adoption of this standard by the
Company did not have a material effect on its consolidated financial position or results
of operations.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

| | 3.
INVESTMENTS
| | --------------

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

|                  | December 31,
|----------------- | ------------
|
|
|Held-to-maturity: |             
|Commercial paper  |             
|Treasury bills    |             
|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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-F-10-
|------

| | Additionally,
accounts receivable include amounts due from customers for advertising revenue earned
from airing commercial spots on the Fox Box, 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 making the payment for the client for such media. In such
circumstances, the Company will record a corresponding liability for media payable.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 $9,943, $4,911 and $1,667 in 2003, 2002 and
2001, respectively. Amortization expense for 2003 includes a write-down of certain film
and television costs of $483. 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6.
PROPERTY AND EQUIPMENT
| | -------------------------

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

|                                  | December 31,
|--------------------------------- | ------------
|
|Computer equipment and software   |             
|                                  |             
|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 $54,237, $29,337 and $67,272 in 2003, 2002 and 2001,
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, 2003 and 2002, accounts receivable due from major customers/licensees
listed above represented 23% and 44% 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
income tax provision (benefit) includes the following as of:
| | ----------------------------------------------------------------

|                | Years Ended December 31,
|--------------- | ------------------------
|
|Current:        |                         
|Federal         |                         
|State and local |                         
|Foreign         |                         
|                |                         
|                |                         
|                |                         
|                |                         
|Deferred:       |                         
|Federal         |                         
|State and local |                         
|                |                         
|                |                         
|                |                         
|                |                         
|                |                         
|                |                         

|-F-12-
|------

| | 
| | 

| | The
provision for taxes as reported is different than the tax provision computed by applying
the statutory Federal rate of 35 percent. The differences are as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | Years Ended December 31,
|--------------------------------------- | ------------------------
|
|Income before income tax provision      |                         
|                                        |                         
|Provision at the statutory Federal rate |                         
|Provision for state and local income    |                         
|taxes net of Federal income tax benefit |                         
|Effect of foreign tax rate              |                         
|Other                                   |                         
|                                        |                         
|                                        |                         
|                                        |                         
|                                        |                         

| | 
| | 

| | Income
tax benefits, which related to the exercise of nonqualified stock options, reduced
current taxes payable and increased additional paid-in capital by $5,988, $5,083 and
$3,419 in 2003, 2002 and 2001, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
components of the deferred tax balances at December 31, 2003 and 2002 are as follows:
| | -----------------------------------------------------------------------------------------

|                                              | 2003 | 2002
|--------------------------------------------- | ---- | ----
|Deferred income taxes - current:              |      |     
|Commissions not currently recognized for      |      |     
|tax reporting purposes                        |      |     
|                                              |      |     
|Provision for doubtful accounts not currently |      |     
|deductible for tax reporting purposes         |      |     
|                                              |      |     
|Total deferred income taxes- current          |      |     
|                                              |      |     
|                                              |      |     

|                                                       | 2003 | 2002
|------------------------------------------------------ | ---- | ----
|Deferred income taxes - noncurrent:                    |      |     
|Film and television costs valuation adjustment         |      |     
|not currently deductible for tax reporting purposes    |      |     
|Depreciation and amortization not currently deductible |      |     
|for tax reporting purposes                             |      |     
|Straight-line rent not currently deductible for        |      |     
|tax reporting purposes                                 |      |     
|                                                       |      |     
|                                                       |      |     
|Total deferred income taxes- noncurrent                |      |     
|                                                       |      |     
|                                                       |      |     

| | 
| | 

| | The
Company has determined that earnings through 2003 of approximately $4,811 of 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 tax liability is estimated to be approximately $250.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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-
|------

| | The
Company has outstanding stock options as follows: >
| | -------------------------------------------------------

|                                 | Options | Exercise Price
Per Share | Weighted
Average
Exercise
Price
|-------------------------------- | ------- | ------------------------ | -------------------------------
|Outstanding at January 1, 2001   |         |                          |                                
|                                 |         |                          |                                
|                                 |         |                          |                                
|Exercisable at January 1, 2001   |         |                          |                                
|                                 |         |                          |                                
|                                 |         |                          |                                
|Options granted                  |         |                          |                                
|Options exercised                |         |                          |                                
|                                 |         |                          |                                
|Outstanding at December 31, 2001 |         |                          |                                
|                                 |         |                          |                                
|Exercisable at December 31, 2001 |         |                          |                                
|                                 |         |                          |                                
|Options granted                  |         |                          |                                
|Options exercised                |         |                          |                                
|Options cancelled                |         |                          |                                
|                                 |         |                          |                                
|Outstanding at December 31, 2002 |         |                          |                                
|                                 |         |                          |                                
|                                 |         |                          |                                
|Exercisable at December 31, 2002 |         |                          |                                
|                                 |         |                          |                                
|Options granted                  |         |                          |                                
|Options exercised                |         |                          |                                
|Options cancelled                |         |                          |                                
|                                 |         |                          |                                
|Outstanding at December 31, 2003 |         |                          |                                
|                                 |         |                          |                                
|Exercisable at December 31, 2003 |         |                          |                                
|                                 |         |                          |                                

| | 
| | 

| | Under
the Companys stock option plans, options to purchase 599,625 shares of the Companys
common stock were available at December 31, 2003 for future issuance.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     | Options Outstanding | Options Exercisable
|-------------------- | ------------------- | -------------------
|
|$0.7710 - $3.3281    |                     |                    
|$6.6563 - $9.9843    |                     |                    
|$9.9844 - $13.3125   |                     |                    
|$ 16.6407 - $19.9687 |                     |                    
|$ 19.9688 - $23.2969 |                     |                    
|$ 23.2970 - $26.6250 |                     |                    
|$ 26.6251 - $29.9531 |                     |                    
|$ 29.9532 - $33.2813 |                     |                    
|                     |                     |                    
|                     |                     |                    
|                     |                     |                    
|                     |                     |                    
|                     |                     |                    

|-F-14-
|------

| | 
| | 

| | 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, 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | 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    |                
|                              |                

|                              | Year Ended 2001
|----------------------------- | ---------------
|
|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, 2003, 2002 and 2001, approximately 247,500, 256,000 and
287,000 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 $124, $89 and $62 for the years
ended December 31, 2003, 2002 and 2001, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-F-15-
|------

| | 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 2003, 2002 and 2001, the Board of Directors, under the Bonus Plan, awarded
               the Chairman and CEO of the Company approximately $1,475, $0 and $370, respectively.
               An additional amount of approximately $1,268, $0 and $907 under the Bonus Plan was
               granted to employees in 2003, 2002 and 2001, 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 2003 are as follows:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year Ending
December 31 | Amount
|----------------------- | ------
|2004                    |       
|2005                    |       
|2006                    |       
|2007                    |       
|2008                    |       
|2009 and thereafter     |       
|                        |       
|                        |       
|                        |       
|                        |       
|                        |       

| | Rent
expense for all operating leases charged against earnings amounted to $1,611, $1,497 and
$1,477 in 2003, 2002 and 2001, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Litigation  (i) Morrison v. Nintendo, et al. On March 29, 2000,
               Morrison Entertainment Group, Inc., filed suit in the United States District
               Court for the Central District of California against Nintendo of America Inc.,
               4Kids Entertainment, Inc., and Leisure Concepts, Inc. The suit alleged that the
               Pokémon trademark infringes upon the Plaintiffs Monster in my
               Pocket trademark. The complaint also alleged trademark dilution, unfair
               competition, and a breach of implied contract. The complaint sought injunctive
               relief as well as monetary damages. On August 6, 2001, the United States
               District Court granted summary judgment dismissing the suit. Plaintiff appealed
               the dismissal of the case by the U.S. District Court. On February 4, 2003, the
               U.S. Court of Appeals for the Ninth Circuit affirmed the decision by the U.S.
               District Court to dismiss the suit.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii)   

           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 Law 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 the DSIs bankruptcy
filing and asserting that such payments constituted avoidable preference payments. The
Trustee formally demanded that Summit Media repay the Amount to the Trustee.  The Company believes it has meritorious defenses to this claim. The amount paid to Summit Media was
not a payment with respect to an antecedent debt, but rather payment by DSI to Summit Media for certain DSI advertising in advance of the broadcast. The Company intends to
vigorously defend its position.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|-F-16-
|------

| | 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, 2003,
               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 $13,860.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | These
employment agreements provide for an aggregate minimum annual base compensation of
$2,200expiring on various dates through 2007.
| | --------------------------------------------------------------------------------------------------------------------------------------

| | 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 will receive $750 in June 2004 and $500 in June
               2005.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 revenue of $390 and $314 for the years ended December 31, 2003 and
2002, respectively. The Company has included $3,046 and $2,686 as deferred revenue on the
accompanying consolidated balance sheets as of December 31, 2003 and 2002,
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 $3,300 ($2,000 during the year ended
December 31, 2003) 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 $2,187 and $713 for the years ended December 31, 2003
and 2002, respectively. The Company has included $400 and $587 as deferred revenue on the
accompanying consolidated balance sheets as of December 31, 2003 and 2002, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
Agreements  In addition, the Company entered into other agreements for various
properties and advertising time on the Fox Box in which the Company has received certain
advances and/or minimum guarantees. Accordingly, as of December 31, 2003 and 2002 the
unearned portion of these advances and guaranteed payments were $4,624 and $703,
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. For each of the
years ended December 31, 2003, 2002 and 2001, the Company earned royalties relating to the
Agreement of $2,500. During 2003, the Agreement was amended extending the term to December
31, 2006.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-F-17-
|------

| | h. | Fox Broadcast Agreement  In January 2002, the Company
               entered into a multi-year agreement with Fox to lease the Fox Box. The Company
               is providing all programming content for the Fox Box and commenced doing so with
               the September 2002 broadcast year. The agreement has an initial term of four
               broadcast years, 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 season 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 the final years fee are
paid. As of December 31, 2003, 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 the Fox Box is capitalized and amortized over each broadcast season based on
estimated advertising revenue for the related broadcast season. The Company recorded
amortization expense of $27,003 and $9,444 for the years ended December 31, 2003 and 2002,
respectively. 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 Fox broadcast fee on the accompanying
consolidated balance sheets as of December 31, 2003 and 2002, 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, 2003, the minimum guaranteed payment obligations under the Fox Broadcast
Agreement are as follows:
| | ---------------------------------------------------------------------------------------------------------------------

|Year ending
December 31, | Amount
|------------------------ | ------
|2004                     |       
|2005                     |       
|2006                     |       
|                         |       
|Total                    |       
|                         |       

| | 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 the Fox Box 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 the Fox Box 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 Fox
fee. Such estimates and assumptions are subject to market forces and factors beyond the
control of the Company and are inherently subject to change.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-F-18-
|------

| | There
can be no assurance that the Company will be able to recover the full cost of the Fox fee
and in the event it cannot, it would record the resulting charge to earnings to reflect an
expected loss on the Fox 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  On November 25, 2003, the Company announced that
               its Board of Directors had authorized the Company to purchase up to 750,000
               shares of its common stock in the open market or through negotiated prices from
               time-to-time through December 31, 2004. Such purchases are to be made out of the
               Companys surplus. No such purchases were made by the Company during 2003.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-F-19-
|------

| | 
| | 

| | 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 fox 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  
|------------------------------------- | --------- | ------------------------------- | ------------------------------------ | -------
|2003:                                 |           |                                 |                                      |        
|Net revenues  from external customers |           |                                 | $                                    | 54,842 
|                                      |           |                                 |                                      |        
|Amortization of televsion             |           |                                
|and film costs and Fox                |           |                                
|broadcast fee                         |           |                                 |                                      | --     
|                                      |           |                                 |                                      |        
|Segment profit (loss)                 |           |                                 |                                      | 37,085 
|                                      |           |                                 |                                      |        
|Segment assets                        |           |                                 |                                      | 152,117
|                                      |           |                                 |                                      |        
|Interest income                       |           |                                 |                                      | 1,094  
|                                      |           |                                 |                                      |        
|2002:                                 |           |                                
|Net revenues  from external customers |           |                                 | $                                    | 28,937 
|                                      |           |                                 |                                      |        
|Amortization of television            |           |                                
|and film costs and Fox                |           |                                
|broadcast fee                         |           |                                 |                                      | --     
|                                      |           |                                 |                                      |        
|Segment profit (loss)                 |           |                                 |                                      | 16,862 
|                                      |           |                                 |                                      |        
|Segment assets                        |           |                                 |                                      | 121,442
|                                      |           |                                 |                                      |        
|Interest income                       |           |                                 |                                      | 1,619  
|                                      |           |                                 |                                      |        
|2001:                                 |           |                                
|Net revenues  from external customers |           |                                 | $                                    | 28,146 
|                                      |           |                                 |                                      |        
|Amortization of television            |           |                                
|and film costs                        |           |                                 |                                      | --     
|                                      |           |                                 |                                      |        
|Segment profit                        |           |                                 |                                      | 15,929 
|                                      |           |                                 |                                      |        
|Segment assets                        |           |                                 |                                      | 126,434
|                                      |           |                                 |                                      |        
|Interest income                       |           |                                 |                                      | 4,358  
|                                      |           |                                 |                                      |        

| | 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
revenue from international sources primarily in Europe, of $10,315, $3,161 and $5,772 for
the years ended 2003, 2002 and 2001, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | 14.
SUMMARIZED QUARTERLY DATA (UNAUDITED):
| | ------------------------------------------

| | Following
is a summary of the quarterly results of operations for the years ended December 31, 2003
and 2002:
| | -------------------------------------------------------------------------------------------------------------

|                           | Fiscal Quarter
|-------------------------- | --------------
|
|2003:                      |               
|Net revenues               |               
|Income from operations     |               
|Net income                 |               
|Basic earnings per share   |               
|Diluted earnings per share |               
|                          
|2002:                      |               
|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-21-
|------