FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1996

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

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

Registrant's telephone number, including area code: (212) 758-7666

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to 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.  [X]

     State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: $3,331,247 (based upon the average of the high and low prices
of Registrant's Common Stock, $.01 par value, as of March 17, 1997).

     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                   2,944,831
     (Title of Class)                 (No. of Shares Outstanding
                                           at March 17, 1997)

      DOCUMENTS INCORPORATED BY REFERENCE:  Definitive Proxy Statement on 
    Schedule 14A for Annual Meeting of Shareholders to be Held April 30, 1997


<PAGE>



                                     PART I


Item 1.           Business

                  (a)      General Development of Business.    4Kids
Entertainment, Inc.,(the "Company" ) is a vertically integrated entertainment
based company.  The Company provides a comprehensive range of services including
toy design and development, domestic and international merchandise licensing,
media buying and planning, international and domestic television distribution
and television production.

The Company operates through four wholly owned subsidiaries, Leisure Concepts,
Inc., Leisure Concepts International, Inc., The Summit Media Group, Inc. and
4Kids Productions, Inc.

Leisure Concepts, Inc. is engaged primarily in the business of domestic and
international licensing of the commercial rights to properties, personalities,
and product concepts. Leisure Concepts 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, games and
other juvenile merchandise, although grants have also been made in other fields,
including the food, toiletries, apparel and footwear industries. These rights
are also licensed in connection with the production of television shows, motion
pictures and publications such as magazines, juvenile books and comic strips.

Leisure Concepts International, Inc. based in the Company's
London office, provides hands-on management of properties in the important
United Kingdom and European marketplace.

The Summit Media Group, Inc. provides media planning, buying and marketing
services primarily for toy and video game companies. Summit Media also provides
television distribution services.

4Kids Productions, Inc. is a television and home video production
company specializing in youth-oriented entertainment programming.


                  (b) Financial Information About Industry Segments. For the
past three fiscal years, the Company has been engaged in only one industry
segment. Substantially all its revenue, operating profit or loss and
identifiable assets during such fiscal years were attributable to that segment.



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<PAGE>



                  (c)      Narrative Description of the Business.

                           (1)      Licensing (Other Than Product Concepts). The
Company's licensing activities are conducted through its subsidiary, Leisure
Concepts, Inc. ("LCI"). The licenses in this category of activity are typically
based upon well-known personalities, fictional and fanciful characters, and
established properties often from the entertainment field. These rights in some
cases may be licensed from the owners of such properties and sublicensed to
others, or LCI may acquire the right to represent such owners, usually
exclusively, in the granting of such rights to third parties, negotiating
licensing arrangements directly with manufacturers or users and supervising the
implementation of the agreements.

                  A license agreement offered to manufacturers in the industry
or industries LCI considers appropriate, may provide the right to manufacture
and sell a broad range of toy products of various categories (a "master toy
license") or it may be limited to the right to manufacture and sell a specific
product or product lines. The typical licensing arrangement provides for the
payment of royalties based upon a percentage of the manufacturer's aggregate net
sales, at wholesale, of the products in question. LCI usually retains between
15% and 50% of the owner's licensing royalties, which generally range from 4% to
12% of net wholesale sales.

                  As part of the standard licensing arrangements, the
manufacturer usually pays LCI a nonrefundable advance which is applied in most
cases against a guaranteed minimum royalty. The percentage of sales or royalty
rate, and any nonrefundable advance on guaranteed minimum payment, are
negotiated for each transaction and vary from industry to industry and from
property to property. Generally the term of the license runs for one to three
years, and may be renewed if certain minimum annual payments are received under
the license agreement. In addition, the agreements usually provide that the
rights under license will revert to the owner unless the manufacturer commences
its marketing activities by a specified date and continues to market the
products thereafter on a regular basis. The average start-up or lead time
necessary for product manufacture and marketing is between approximately six and
eighteen months. LCI does not assist in financing any of these endeavors.

                  In the case of licenses for motion picture and television
productions, the licensees pay fees for each production, sometimes preceded by
option payments, and, usually in connection with television series, rerun
payments for multiple exhibitions in the United States. In some cases LCI
participates in the "net profits" (that is, income less deduction of fees and
chargeable expenses and production costs) that may be realized from the
exploitation of the property in question.



                                     - 3 -

<PAGE>



                  Licensing revenues accounted for approximately 32%, 41% and
60% of consolidated net revenues for the years ended December 31, 1996, 1995 and
1994, respectively.

                  (2)      Certain Licensed Properties Represented Exclusively
by Leisure Concepts, Inc.  Among the licensed properties represented exclusively
by LCI are the following:

                           o        The animated weekly television series "Mr.
                                    Men" scheduled for September, 1997
                                    syndication in the United States and the
                                    development of a line of toys based on the
                                    characters.

                           o        Nintendo of America Inc. ("Nintendo"), for
                                    the various characters, trademarks, and
                                    copyrights arising out of the software for
                                    the video cartridge games developed and
                                    owned by Nintendo.  LCI represents Nintendo
                                    on a worldwide basis, other than Japan.
                                    These video games ranked among the top toy
                                    sellers in the United States in 1994, 1995
                                    and 1996.

                           o        The syndicated weekly TV show, "WMAC
                                    Masters", which features the nation's first
                                    live action martial arts competition series.

                           o        James Bond 007, US and UK representation for
                                    this classic character of seventeen action
                                    films.

                           o        Borden, including Borden's well known brands
                                    Crackers Jacks, Elmer's Glue and Elsie the
                                    Cow.

                           o        The "Polly Pocket" miniature playsets for
                                    girls distributed by Mattel.


                  (3) Company-Owned Properties. World Martial Arts Council
("WMAC") is an entertainment-based property utilizing skilled martial arts
professionals that was developed and is owned by the Company. The WMAC Masters
television series was launched in September of 1995. The Company has entered
into a master toy license agreement under which Bandai has the right to market
and distribute toys and video games for the WMAC.

                  "Charlie Chan" the fictional Asian detective who has been the
subject of numerous films based on the character created by Earl DeBiggers. 
Charlie Chan movie rights have been optioned to Miramax films.

                  (4)      Product Concepts.  The product concepts developed by
LCI usually consist of a novel theme for a line of merchandise.  LCI may
conceive of an idea and then develop it at


                                     - 4 -

<PAGE>



its expense by preparing drawings or models of the products or examples of
various uses of the concepts, including descriptions or illustrations of plans
for the marketing and merchandising of the product lines in question. LCI will
then seek to license the product concept to manufacturers for which LCI will
typically receive a royalty based upon the manufacturer's wholesale sales. Other
times, although LCI has not created the original concept, it will assist in
developing a concept, initially conceived by others, into a commercially viable
product line, in which case LCI may act as the licensor, as the agent for the
rights holder of the concept in question or may simply receive a royalty for
services rendered. LCI does not typically finance the activities of the
manufacturers to which it licenses product concepts. However, LCI sometimes
enters into arrangements under which it defers its royalties until after the
manufacturer has recouped its cost of production. Furthermore, because the
overhead associated with the development of product concepts is relatively low,
this activity has generally been profitable for LCI. There can be no assurance,
however, that the development of product concepts will be successful in the
future.

                  Examples of product concepts are "Quiz Wiz", "2-XL," "Toby
Terrier" and "Grave Danger," which the Company represents on a worldwide basis.
"Quiz Wiz" is an electronic hand-held computer answer game. "2-XL" is an
interactive toy robot that questions and teaches children about a variety of
educational subjects.  Grave Danger is a board game licensed to Pressman Toys.
"Toby Terrier" is a toy dog which interacts with specially programmed 
videotapes. LCI licenses these properties to Tiger Electronics Inc.
("Tiger"), which is a major shareholder of the Company.

                  The Company's agreements with Tiger are on substantially
similar terms and conditions as other agreements for similar properties
represented by the Company. For a description of certain agreements among Tiger,
Mr. Randy Rissman, the President and controlling shareholder of Tiger and Alfred
R. Kahn, the Company's Chairman, see "Business Experience", "Executive
Compensation", "Security Ownership of Certain Beneficial Owners and Management"
and "Certain Relationships and Related Transactions" below.

                  (5) Media Buying, Planning and Television Syndication. The
Company's subsidiary The Summit Media Group, Inc. ("Summit Media"), provides
clients, including among others, Tiger, with media planning, buying and
marketing services, and television syndication services. Media buying accounted
for 42%, 33% and 26% of consolidated net revenues for the years ended December
31, 1996, 1995 and 1994, respectively. Summit Media's current syndications
include "Oscar's Orchestra," the animated television series designed to
introduce children to classical music, "WMAC Masters", the weekly live action
martial arts competition and "Mega Man," an animated series based on the popular
video game character. Summit Media also syndicates certain animated holiday
specials for Sony Music Entertainment.


                                     - 5 -

<PAGE>




                  (6)      Television and Home Video Production.  The Company's
subsidiary 4Kids Productions, Inc. ("4Kids Productions") is a television and
home video production company specializing in youth-oriented entertainment
programming. In 1996, 4Kids Productions completed a series of nine one-half hour
programs for the Atlanta Committee for the 1996 Olympic Games which ran on the
NBC television network. In addition, 4Kids Productions produced the second
season of "WMAC Masters".

                  (7) Dependence on a Few Sources of Licensing Revenues. 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 changing fashion in the toy 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 project will be commercially successful, if at all. Popularity of
properties can vary from months to years. In addition, the Company has little
control over the timing of guarantee and minimum payments, some of which are
made upon the execution and delivery of license agreements. Because of this, the
Company must continually seek new properties from which it can derive revenues.

                  The only property which contributed licensing revenues
individually in excess of 10% of consolidated net revenues for fiscal 1996 was
Nintendo. The only client/licensee which contributed revenues individually in
excess of 10% of consolidated net revenues for fiscal 1996 was Tiger.

                  (8) Trademarks and Copyrights. The Company generally does not
own any trademarks or copyrights in properties which it licenses. These rights
are typically owned by the creator or by the entity, such as a master toy
licensee or television producer, which may expend substantial amounts in
developing or promoting the concept. The Company does own the copyrights and
trademarks to "Charlie Chan" and the Company's project "WMAC Masters".

                  (9) Seasonal Aspects. 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. As a result, in the Company's usual experience, its
net income during the second half of the year will generally be greater than
during the first half of the year. In addition, Summit Media's business is also
seasonal as the majority of toy and video game advertising occurs in the second
half of the year.

                  (10) Competition. The principal competitors of the Company's
licensing activities (including product concepts) are the product development,
merchandising, marketing and advertising departments of toy and other juvenile
merchandise manufacturers and motion picture studios as well as independent
advertising


                                     - 6 -

<PAGE>



agencies, 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 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. However, the ultimate success of a new entrant in the field would
depend on its access to toy and other manufacturers, sources of properties to be
licensed, its know-how in the negotiation and subsequent administration of
licenses, and the retail market acceptance of the property in question.

                  The Company's media buying, planning and television
syndication activities as well as its television and home video production
activities operate in highly competitive industries and face as competitors many
companies with substantially greater resources and distribution networks than
the Company.

                  (11)     Employees.  As of March 21, 1997, the Company had a
total of 47 full-time employees.


Item 2.           Properties

                  The following table sets forth, with respect to properties
leased (none are owned) by the Company at March 21, 1997, the location of the
property, the date on which the lease expires and the use which the Company
makes of such facilities:

<TABLE>
<CAPTION>                                                                                                       Approximate
                                                                                                          Square
Address                                   Expiration of Lease                    Use                       Feet

<S>                                        <C>                              <C>
1414 Avenue of the Americas                   May 31, 2004                  Executive and                 13,900
New York, New York                                                          Sales Office,
                                                                            Media Buying
                                                                            and Television
                                                                            Production

11400 West Olympic Boulevard                  March 18, 1999                Subleased                          2,460
Los Angeles, California

403-404 The Plaza                             November 22,                  International                      1,200
535 Kings Road                                 1997                         Sales Office
London, England

</TABLE>

                  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

                  In November, 1996, the Company commenced an action in New York
Supreme Court against Toymax, H.K. Ltd., and its wholly owned subsidiary,
Toymax, Inc. in connection with the Company's licensing of the "Creepy Crawlers"
property to the Farley Candy Company. In response, the defendants brought
counterclaims


                                     - 7 -

<PAGE>



alleging misrepresentation against the Company. The Company believes that it has
meritorious defenses to the counterclaims and that they have been brought in
retaliation for the primary suit.

                  Except for this lawsuit, as of March 17, 1997, there were no
legal proceedings pending against the Company other than routine litigation
incidental to its business. Some matters involve claims for large amounts as
well as other relief. Although the consequences are not presently known, in the
opinion of management, they will not materially affect the Company's liquidity,
financial position or results of operations.

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

                  During the Company's fiscal quarterly period ended December
31, 1996, there were no matters submitted to a vote of security holders.

                                    PART II

Item 5.           Market for Registrant's Common Equity and Related
                  Stockholder Matters

                  (a) The Company's Common Stock is traded on the Nasdaq
National Market System. The following table indicates high and low sales
quotations for the periods indicated based upon information supplied by Nasdaq,
Inc. Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.


   1996                               Low                       High

First Quarter                         2 1/8                     3 5/8
Second Quarter                        2                         3
Third Quarter                         1                         2 3/8
Fourth Quarter                        1                         2 1/8



   1995                               Low                       High

First Quarter                         2 1/2                     4
Second Quarter                        2 1/2                     4 1/4
Third Quarter                         3                         4
Fourth Quarter                        2 1/8                     4 1/4




                  (b)      Number of Holders of Common Stock.  The number of
holders of record of the Company's Common Stock on March 17, 1997


                                     - 8 -

<PAGE>



was 150, which does not include individual participants in security position
listings.

                  (c) Dividends. There were no dividends or other distributions
made by the Company during 1996 or 1995. 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)      Stock Purchases.  The Board of Directors has
authorized the Company to acquire up to 165,000 shares of its Common Stock on
Nasdaq or elsewhere.  Such purchases are to be made out of the Company's
surplus.  No such purchases were made by the Company during 1996.

Item 6.  Selected Financial Data

<TABLE>
<CAPTION>

                                                           Year Ended December 31,

                                 1996                1995                 1994                 1993             1992
                              ---------             -------            ---------           ----------          -------

<S>                          <C>                  <C>                  <C>                 <C>               <C>
Total Net                    $6,977,327           $6,617,279           $9,191,582          $10,909,024       $8,620,860
Revenues

Income (Loss)                 (239,304)            (947,850)              135,250            2,524,688        2,254,410
from Continuing
Operations

Net Income                        (.08)                (.32)                  .04                  .77              .73
(Loss) Per
Common Share
from Continuing
Operations

Net Income                        (.08)                (.32)                  .04                  .76              .72
(Loss) Per
Common Share
from Continuing
Operations
Assuming Full
Dilution

Weighted                      2,964,178            2,990,514            3,070,815            3,273,176        3,099,463
Average Number
of Common
Shares
Outstanding



The Company did not declare or pay any cash dividends during the five-year
period ended December 31, 1996.




                                     - 9 -

<PAGE>






</TABLE>
<TABLE>
<CAPTION>

At Year End                             1996            1995                 1994                 1993                  1992
-----------                          --------       -----------           ----------           ----------             -------
<S>                               <C>               <C>                  <C>                  <C>                   <C>
Total Assets                      $30,432,130       $25,968,575          $29,376,396          $20,933,958           $13,556,781


Working Capital                     5,342,436         6,894,818            8,159,128            8,713,842             8,780,095


Stockholders Equity                11,389,604        11,628,908           12,576,758           12,367,458             9,334,335

</TABLE>


Item 7.           Management's Discussion and Analysis of Financial
                  Condition and Results of Operations


General

                  The Company receives revenues from a number of sources,
principally licensing and media buying. 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 changing fashion
in the toy 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 project 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 revenues have
historically been primarily derived 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 concentrates its activities on
the youth oriented market. As a result, most of its revenue is earned in the
third and fourth quarters when the majority of toy and video game advertising
occurs. In the Company's usual experience, its net income during the second half
of the year will generally be greater than during the first half of the year.
However, the Company has little control over the timing of guarantee and minimum
payments, some of which are made upon the execution and delivery of license
agreements.

Results of Operation

Twelve Months Ended December 31, 1996 compared to Twelve Months Ended December
31, 1995.

         Consolidated net revenue for the year ended December 31, 1996 increased
5% or $360,048 as compared to the year ended December 31, 1995. Increase in
revenue was recognized from the


                                     - 10 -

<PAGE>



Nintendo property based on the strength of the launch of Nintendo's new N64 game
system in September 1996. Increased revenue was also recognized from the "Mr.
Men" property. This classic English property is the subject of a new animated
television program which has been distributed in the U.S. by the Company's
Summit Media Group and will begin airing in the fall of 1997. The Company
negotiated a license with Playmates Toys for the master toy license for Mr. Men.
Offsetting these gains were decreased licensing revenue from some of the
Company's more mature properties including Polly Pocket and Creepy Crawlers and
international licensing revenue received from the Company's network of
independent subagents, which has not yet benefitted from the Company's newer
licensing properties.

         Revenue from the Company's media and television syndication services
increased over 1995 performance. These activities comprised 42% of total net
revenue for 1996 as compared to 33% in 1995. Commissions earned on the media
placed increased from the addition of new clients including Direct Connect,
Erector, Thinkway Toys and Trendmaster. Increased syndication revenue was
recognized from the Monday through Friday television program Mega Men
distributed by the Company. The Company's television and home video activities
comprised approximately 15% of total net revenue for 1996 and 1995. This revenue
related primarily to the 1996 Olympic specials produced for the Atlanta
Committee for the Olympic Games which ran on the NBC television network and the
"WMAC Masters" sayndicated television program which began airing in September
1995.

         Selling, general and administrative expenses decreased 16% or
$1,181,232 compared to 1995 primarily as a result of staff reductions. Overall
selling, general and administrative expenses decreased as a percentage of net
revenue from 114.5 % in 1995 to 91.6% in 1996 due to the decline in SG & A
expenses and an increase in net revenues. The Company will continue to seek
effective cost reductions without adversely impacting the Company's business.

         At December 31, 1996 there were approximately $5,697,439 of capitalized
film production costs, which relate to 26 episodes of "WMAC Masters" and 22
episodes of "Monster Wars". "WMAC Masters" is a weekly syndicated television
program which began airing in September, 1995 produced by the Company's 4Kids
Productions subsidiary. The first thirteen episodes of WMAC Masters were
produced in cooperation with Renaissance Atlantic Films. Monster Wars began
syndication in October 1993.

Amortization of capitalized film costs remained approximately the same for the
year ended December 31, 1995 as compared to the prior year. Included in
amortization expense for 1995 is an additional expense in the fourth quarter of
$280,000 relating to "Monster Wars" weekly television show. The charge occurred
as a result of the Company's periodic evaluation of net realizable value of its
capitalized costs. Amortization rates may change as a result of changes in
estimated future revenue. At December 31,


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1996 the percentage of unamortized film cost expected to be amortized within the
next three years exceeds 70%.

         As a result of the above, the Company reported a net loss for 1996 of
$239,304, as compared to the reported net loss in 1995 of $947,850.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994.

         Consolidated net revenue for the year ended December 31, 1995 decreased
28% ($2,574,303) as compared to the year ended December 31, 1994. Decrease in
revenue was recognized from the James Bond 007 and "WMAC Masters" properties. In
1994, the Company recognized approximately $1.6 million from the master toy and
video game license agreement for the WMAC to be marketed and distributed by
Bandai. Bandai was expected to begin shipping WMAC toys and related products in
the 2nd quarter of 1996. Additionally, in 1994 the Company recognized $600,000
from a licensing agreement with Nintendo which acquired the video game rights in
connection with James Bond 007. In addition, there were substantial decreases in
the Swan Princess and Shadow properties. Both the Swan Princess and the Shadow
were tied to the success of theatrical motion pictures in 1994 which were not
sufficiently successful to provide sustained interest in associated merchandise.
This decline in licensing revenue was partially offset by licensing revenue from
new licensing agreements related to the properties Polly Pocket, Santo Bugito
and Carlo Collodi's Pinocchio.

         Revenue from the Company's media and television syndication services
decreased over 1994 performance. These activities comprised 33% of total net
revenue for 1995 as compared to 26% in 1994. Commissions earned on the media
placed for the theatrical releases, the Swan Princess and Street Fighter in 1994
were non recurring in 1995. These reduced commissions were partially offset by
increased commissions earned from Happiness Express and Tiger Electronics. The
Company's television and home video production activities comprised 15% of total
net revenue for 1995 as compared to 7% in 1994. This revenue related primarily
to the 1996 Olympic specials produced for the Atlanta Committee for the Olympic
games to run on the NBC television network and the "WMAC Masters" syndicated
television program which began airing in September 1995.

         Selling, general and administrative expenses remained relatively stable
during the two fiscal years, although a higher percentage of such expenses were
attributable to the Company's media and syndication operations which accounted
for a increasing percentage of revenue. Overall selling, general and
administrative expenses increased as a percentage of net revenue from 82.7% in
1994 to 114.5% in 1995 due to the decline in net revenues.


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At December 31, 1995 there were approximately $3,742,641 of capitalized film 
production costs, which relate to "WMAC  Masters," a weekly syndicated 
television program which began airing in September, 1995, and is produced by 
the Company's 4Kids Productions subsidiary in cooperation with Renaissance 
Atlantic Films and "Monster Wars" a syndicated television show which began 
airing in October 1993.

Amortization of capitalized film costs decreased by approximately 34% ($559,000)
for the year ended December 31, 1995 as compared to the prior year. The decrease
is primarily due to amortization charges in 1994 related to "Monster Wars".
Included in amortization expense for 1995 is an additional expense in the fourth
quarter of $280,000 relating to "Monster Wars" weekly television show. The
charge occurred as a result of the Company's periodic evaluation of net
realizable value of its capitalized costs. Amortization rates may change as a
result of changes in estimated future revenue. At December 31, 1995 the
percentage of unamortized film cost expected to be amortized within the next
three years exceeds 70%.

         As a result of the above, the Company reported a net loss for 1995 of
$947,850, as opposed to the reported net income in 1994 of $135,250.


Liquidity and Capital Resources

         At December 31, 1996, the Company had working capital of $5,342,436, as
compared to working capital of $6,894,818 at December 31, 1995. The decrease in
working capital of $1,552,382 is primarily due to the cost of funding 13
episodes for Season 2 of WMAC Masters.

         Cash and cash equivalents decreased by $676,507 from December 31, 1995.
The decrease in cash and cash equivalents is due to cash expenditures associated
with funding the production of "WMAC Masters" which had completed production of
the second thirteen episodes by December 31, 1996. This reduction in cash
produced an increase in film inventory-net. Additionally, cash expenditures were
required to fund the operating losses for the year ended December 31, 1996.

         Accounts receivable, net (current and non-current) increased from
$16,986,468 at December 31, 1995 to $19,889,353 at December 31, 1996. This
decrease is primarily due to the higher revenue in the media businesss. Media
payable primarily represents obligations to television stations for advertising
time purchased on behalf of clients. Media payable increased from $11,428,185 at
December 31, 1995 to $16,038,574 at December 31, 1996. This increase is due to
the timing of receipts and subsequent payments to television stations as well as
higher levels of media buying activities. Amounts due to licensors, which
represent the owners share of royalties collected, decreased by $196,647 to
$1,416,959 from December 31, 1995. The decrease is primarily due to lower
royalties collected during the


                                     - 13 -

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fourth quarter as compared to the prior year which are paid to licensors after
the close of the quarter.

         In the opinion of management, the Company will be able to finance its
business as currently conducted from its current working capital and the
$2,000,000 credit facility with The Chase Manhattan Bank, formerly Chemical
Bank, discussed in Note 8 to the financial statements. As of March 17, 1997
there have been no borrowings under this credit facility. As the Company
explores new and expanded opportunities in the youth oriented entertainment
market, including television production, it will seek additional financing
alternatives.


Item 8.           Financial Statements and Supplementary Data

         Financial Statements and Supplementary Data are attached hereto.

                                    PART III

Item 10.  Directors and Executive Officers of the Company

                  Incorporated by reference to the Company's Definitive Proxy
Statement on Schedule 14A with respect to Annual Meeting of Shareholders to be
held April 30, 1997.

Item 11.          Executive Compensation

                  Incorporated by reference to the Company's Definitive Proxy
Statement on Schedule 14A with respect to Annual Meeting of Shareholders to be
held April 30, 1997.


Item 12.          Security Ownership of Certain Beneficial Owners
                  and Management

         Incorporated by reference to the Company's Definitive Proxy Statement
on Schedule 14A with respect to Annual Meeting of Shareholders to be held April
30, 1997.

Item 13.  Certain Relationships and Related Transactions

         Incorporated by reference to the Company's Definitive Proxy Statement
on Schedule 14A with respect to Annual Meeting of Shareholders to be held April
30, 1997.





                                     - 14 -

<PAGE>



                                    PART IV


Item 14.          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 -                    F-2
                  December 31, 1996 and 1995

                  Consolidated Statements of                       F-3
                  Income - Years Ended
                  December 31, 1996, 1995
                  and 1994

                  Consolidated Statements of                       F-4
                  Stockholders' Equity - Years
                  Ended December 31, 1996, 1995
                  and 1994

                  Consolidated Statements of                       F-5
                  Cash Flows - Years Ended
                  December 31, 1996, 1995
                  and 1994


                  Notes to Consolidated                             F-6 to F-14
                  Financial Statements

     (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

                  The Company did not file any Current Reports on Form 8-K
during the quarterly period ended December 31, 1996.





                                     - 15 -

<PAGE>

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 as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. 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 generally accepted auditing
standards. 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.



March 18, 1997

                                      F-1


<PAGE>

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>

ASSETS                                                               1996              1995

<S>                                                              <C>               <C>
CURRENT ASSETS:
  Cash and cash equivalents                                      $     2,830,270   $     3,505,777
  Accounts receivable - net (Notes 2 and 6)                           17,625,331        14,668,829
  Film inventory - net (Note 3)                                        1,852,439         1,210,918
  Prepaid refundable income taxes (Note 5)                               522,763           448,442
  Prepaid expenses and other current assets                            1,008,300           704,215
  Current deferred tax asset (Note 5)                                         -             34,445

           Total current assets                                       23,839,103        20,572,626

FURNITURE, FIXTURES AND COMPUTER EQUIPMENT -
  Net of accumulated depreciation of $1,174,260 and $1,060,065           237,226           347,772

ACCOUNTS RECEIVABLE - Noncurrent, net
  (Notes 2 and 6)                                                      2,264,022         2,317,639

FILM INVENTORY - Noncurrent (Note 3)                                   3,845,000         2,531,703

SECURITY DEPOSITS AND OTHER ASSETS                                       246,779           198,835

TOTAL ASSETS                                                      $   30,432,130    $   25,968,575

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Due to licensors (Note 2)                                      $     1,416,959   $     1,613,606
  Media payable (Note 2)                                              16,038,574        11,428,185
  Accounts payable and accrued expenses                                  787,579           636,017
  Current deferred tax liability (Note 5)                                253,555                 -

           Total current liabilities                                  18,496,667        13,677,808

NONCURRENT DEFERRED TAX LIABILITY (Note 5)                               545,859           661,859

           Total liabilities                                          19,042,526        14,339,667

COMMITMENTS AND CONTINGENCIES (Note 8)

STOCKHOLDERS' EQUITY (Notes 7, 8 and 9):
  Preferred stock, $.01 par value - authorized, 3,000,000 shares;
    none issued                                                                -                -
  Common stock, $.01 par value - authorized, 10,000,000 shares;
    issued 2,944,831 shares                                               29,448           29,448
  Additional paid-in capital                                           4,429,906        4,429,906
  Retained earnings                                                    6,930,250        7,169,554

           Total stockholders' equity                                 11,389,604       11,628,908

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $   30,432,130   $   25,968,575

See notes to consolidated financial statements.





                                     F - 2





<PAGE>

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-------------------------------------------------------------------------------



</TABLE>
<TABLE>
<CAPTION>
                                                                                     1996              1995              1994

<S>                                                                             <C>               <C>
REVENUES:
  Net revenues (Notes 4 and 6)                                                  $  6,977,327      $  6,617,279      $  9,191,582

COSTS AND EXPENSES:
  Selling, general and administrative (Note 8)                                     6,392,411         7,573,643         7,602,063
  Amortization of capitalized film cost (Note 3)                                   1,070,477         1,080,889         1,640,234

           Total costs and expenses                                                7,462,888         8,654,532         9,242,297

                                                                                    (485,561)       (2,037,253)          (50,715)

INTEREST INCOME                                                                      122,257           334,403           334,965  

INCOME (LOSS) BEFORE INCOME TAX
  PROVISION (BENEFIT)                                                               (363,304)       (1,702,850)          284,250

INCOME TAX PROVISION (BENEFIT) (Note 5)                                             (124,000)         (755,000)          149,000  

NET INCOME (LOSS)                                                               $   (239,304)     $   (947,850)    $     135,250  

PER SHARE AMOUNTS:
  Earnings (loss) per common and dilutive common
    equivalent share                                                            $      (0.08)     $      (0.32)    $        0.04

WEIGHTED AVERAGE NUMBER OF COMMON
  AND COMMON EQUIVALENT SHARES
  OUTSTANDING                                                                      2,964,178         2,990,514         3,070,815

</TABLE>

See notes to consolidated financial statements.









                                     F - 3


<PAGE>


4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                      ADDITIONAL
                                                               COMMON STOCK            PAID-IN          RETAINED
                                                         SHARES         AMOUNT         CAPITAL          EARNINGS         TOTAL
<S>                                                    <C>          <C>            <C>              <C>             <C>
BALANCE, DECEMBER 31, 1993                             2,924,831    $  29,248      $  4,356,056    $  7,982,154    $  12,367,458

  Proceeds from exercise of stock options                 20,000          200            62,300               -           62,500
  Tax benefit from exercise of stock options                -            -               11,550               -           11,550
  Net income                                                -            -                  -           135,250          135,250
                                                     ----------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1994                             2,944,831       29,448         4,429,906       8,117,404       12,576,758

  Net loss                                                  -           -                  -           (947,850)        (947,850)
                                                     ----------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1995                             2,944,831       29,448         4,429,906       7,169,554       11,628,908

  Net loss                                                  -           -                  -           (239,304)        (239,304)
                                                     -----------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1996                             2,944,831    $  29,448      $  4,429,906    $  6,930,250    $  11,389,604
                                                     =============================================================================

</TABLE>

See notes to consolidated financial statements.
                                     F - 4

<PAGE>

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                  1996              1995              1994
<S>                                                                              <C>              <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                              $   (239,304)     $   (947,850)     $   135,250
  Adjustments to reconcile net income to net cash
    (used in) provided by operating activities:
    Depreciation and amortization                                                     143,135           216,514           207,803
    Amortization of capitalized film cost                                           1,070,477         1,080,889         1,640,234
    Provision for losses on accounts receivable                                       100,000           183,420          (106,398)
    Deferred income taxes                                                             137,555          (632,252)          596,949
    Changes in operating assets and liabilities (using) providing cash:
      Accounts receivable                                                          (3,002,885)          793,392        (8,128,754)
      Film inventory                                                               (3,025,295)       (2,610,944)       (1,487,859)
      Prepaid refundable income taxes                                                 (39,876)          117,051         1,223,899
      Prepaid expenses and other current assets                                      (304,085)         (288,073)         (281,628)
      Security deposits and other assets                                              (47,944)          194,750          (221,102)
      Due to licensors                                                               (196,647)         (186,429)       (1,515,298)
      Media payable                                                                 4,610,389        (1,679,000)        8,930,715
      Accounts payable and accrued expenses                                           151,562             3,266           220,773

           Net cash (used in) provided by operating activities                       (642,918)       (3,755,266)        1,214,584

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of furniture, fixtures and computer equipment                              (32,589)         (110,268)         (192,469)

           Net cash used in investing activities                                      (32,589)         (110,268)         (192,469)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from exercise of stock options and
    related tax benefit                                                                  -                 -               74,050

           Net cash provided by financing activities                                     -                 -               74,050

NET (DECREASE) INCREASE IN CASH AND
   CASH EQUIVALENTS                                                                  (675,507)       (3,865,534)        1,096,165

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                        3,505,777         7,371,311         6,275,146

CASH AND CASH EQUIVALENTS, END OF YEAR                                           $  2,830,270      $  3,505,777      $  7,371,311

</TABLE>

See notes to consolidated financial statements.


                                     F - 5

<PAGE>


4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-------------------------------------------------------------------------------


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
      include the accounts of all wholly-owned subsidiaries. All related
      significant intercompany balances and transactions have been eliminated in
      consolidation.

      DESCRIPTION AND ACCOUNTING BASIS FOR REVENUES - 4Kids Entertainment, Inc.
      and subsidiaries (the "Company") is an integrated entertainment and media
      company specializing in the youth oriented market.

      LICENSING BUSINESS - The Company's licensing subsidiary is engaged
      primarily in the business of licensing the commercial rights to
      properties, personalities, and product concepts. The Company 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
      properties, personalities and concepts. The licensing of these rights has
      been primarily in the area of toys, games and other juvenile merchandise.
      Grants have also been made in other fields, including the food,
      toiletries, apparel and footwear industries. Additionally, these rights
      are licensed in connection with the production of television shows, motion
      pictures and publications such as magazines, juvenile books and comic
      strips.

      These license agreements often include nonrefundable minimum guaranteed
      royalties which are payable by the licensee. The Company records as
      revenue its proportionate share of the minimum guarantee when all material
      terms of the contracts have been agreed to by the parties and a cash
      payment or reasonable assurance of collectability is received. It is at
      this point that the Company has substantially performed all of its
      obligations under the contract.

      For contracts not providing minimum guaranteed royalties and for royalty
      amounts in excess of the minimum guarantee, the Company records revenue
      based upon its share of earned royalties from the sales of the related
      property.

      TELEVISION AND VIDEO PRODUCTIONS - The Company accounts for its activities
      associated with the production of entertainment programming in accordance
      with Statement of Financial Accounting Standards No. 53 ("SFAS No. 53"),
      Financial Reporting by Producers and Distributors of Motion Picture Films.
      Under SFAS No. 53, the Company capitalizes costs associated with each
      individual production. The capitalized costs are classified into current
      and noncurrent assets depending on an estimate of when revenues associated
      with those costs are anticipated to be recognized. Such costs are
      amortized against the related revenue as such revenue is recognized.
      Amortization rates may change as a result of changes in estimated future
      revenue. Periodically, the Company evaluates the anticipated future
      revenue against the net realizable value of the capitalized costs and,
      where appropriate, reduces the carrying value of such costs to their
      estimated net realizable amount which would result in a corresponding
      charge to earnings.

      MEDIA BUYING, PLANNING AND SYNDICATION SERVICES - Through the Company's
      wholly-owned subsidiary, The Summit Media Group, Inc. ("Summit Media"),
      the Company provides media planning and buying services for both print and
      broadcast. Summit Media is compensated based on a percentage of the media

                                      F-6
<PAGE>

      it places. Such revenue is recognized at the time the related media runs.
      Summit Media also provides television syndication services for which it
      receives a fee based on a percentage of the advertising sales generated by
      the related program. Such revenue is recognized at the time the
      syndication services are completed and the advertising sales of the
      related program are reasonably known. Summit Media will reflect a
      liability for media payable and a corresponding receivable from its
      clients in circumstances where Summit Media assumes the payment obligation
      for media commitments.

      FURNITURE, FIXTURES AND COMPUTER EQUIPMENT - Furniture, fixtures and
      computer equipment are recorded at cost. Depreciation is computed using
      various methods over the estimated lives of the assets.

      IMPUTED INTEREST - The Company imputes interest on the noncurrent portion
      of accounts receivable at an average rate of 7%.

      PER SHARE AMOUNTS - Earnings per common and dilutive common equivalent
      share are based on the weighted average number of shares and common
      equivalent shares outstanding during the period. Common shares issuable
      upon the exercise of options are included as common equivalent shares when
      their inclusion is dilutive using the treasury stock method.

      CASH AND CASH EQUIVALENTS - At December 31, 1996 and 1995, the Company had
      cash equivalents consisting primarily of funds invested in Treasury bills
      of approximately $2,472,446 and $2,386,998, respectively, with original
      maturities of 90 days or less.

      LONG-TERM ASSETS - In fiscal 1996, the Company adopted SFAS No. 121,
      "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
      Assets to Be Disposed Of." The statement requires the recognition of an
      impairment loss for an asset held for use when the estimate of
      undiscounted future cash flows expected to be generated by the asset is
      less than its carrying amount. Measurement of the impairment loss is based
      on fair value of the asset. Generally, fair value will be determined using
      valuation techniques such as the present value of expected future cash
      flows. This statement does not apply to the Company's long term film
      inventory whose accounting is prescribed by SFAS No. 53.

      USE OF ESTIMATES - The preparation of financial statements in conformity
      with generally accepted accounting principles 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 from
      those estimates.

2.    ACCOUNTS RECEIVABLE - MEDIA PAYABLE/DUE TO LICENSORS

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

      Due to licensors represents amounts collected by the Company on behalf of
      licensors, which are generally payable to such licensors after the close
      of the quarter.

      Additionally, accounts receivable include amounts due from clients for
      earned commissions and the cost of related media placed on their behalf in
      circumstances where the Company has assumed the payment

                                      F-7

      obligation for such media. In such circumstances, the Company will record
      a corresponding liability for media payable. Accounts receivable consist
      of the following:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                             1996               1995
<S>                                                     <C>                <C>
Gross accounts receivable                               $  20,426,510       $  17,423,625
Allowance for doubtful accounts                              (537,157)           (437,157)
                                                   ------------------       -------------

                                                           19,889,353          16,986,468

Less long-term portion                                      2,264,022           2,317,639
                                                   ------------------       -------------

                                                        $  17,625,331       $  14,668,829
                                                   ==================       =============

</TABLE>

3.    FILM INVENTORY

      At December 31, 1996, there were $5,697,439 of capitalized film costs,
      which relate to two completed works in release and one in progress.
      Amortization of capitalized film cost was $1,070,477, $1,080,889 and
      $1,640,234 in 1996, 1995 and 1994, respectively. During 1995 and 1994, the
      Company recorded charges of approximately $280,000 and $910,000,
      respectively, to reduce the carrying value of film inventory primarily
      related to producing the "Monster Wars" television program. This reduction
      of the carrying value was based on the Company's periodic evaluation of
      anticipated future revenue against the net realizable value of capitalized
      cost. Film inventory consists of the following components:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                           1996               1995
<S>                                                    <C>                 <C>
Opening balance                                         $    3,742,621      $    2,212,566

Additions                                                    3,025,295           2,610,944
                                                       ---------------      --------------

                                                             6,767,916           4,823,510

Amortization                                                (1,070,477)         (1,080,889)
                                                      -----------------     --------------

                                                             5,697,439           3,742,621

Less noncurrent portion                                     (3,845,000)         (2,531,703)
                                                     -----------------      --------------

                                                        $    1,852,439      $    1,210,918
                                                     =================      ==============

</TABLE>




4.    REVENUES/MAJOR CUSTOMERS

      Licensing revenue included on the Statements of Operations are net of
      licensor participations of approximately $3,610,934 in 1996, $6,068,880 in
      1995 and $11,114,000 in 1994.

                                      F-8
<PAGE>

      The percentages of revenue from major properties and customers/licensees
are as follows:

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                                 1996        1995       1994

<S>                                                                              <C>         <C>        <C>
Percentage of revenue derived from major properties (revenue in
    excess of 10 percent of total revenue)                                        25%         -         18%

  Number of major properties                                                       2          -          1

  Percentage of revenue derived from major customers/licensees
    (revenue in excess of 10 percent of total revenue)                            31%        32%        35%

  Number of major customers/licensees                                              1          1          2

</TABLE>

      Additionally, through the Company's London office and network of
      international subagents, which allow it to license its properties through
      the world, the Company recognized approximately $554,000, $972,000 and
      $982,000 in net revenue from international sources, primarily in Europe,
      for 1996, 1995 and 1994, respectively.

5.    INCOME TAXES

      The Company has provided for deferred income taxes in accordance with
      Statement of Financial Accounting Standards ("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 (benefit) provision includes the following:

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                          1996              1995             1994
<S>                                                                      <C>               <C>               <C>
Current:
Federal                                                                   $  (326,000)     $  (295,000)     $  (324,000)
State and local                                                                30,000           31,000         (124,000)
                                                                          ----------------------------------------------

                                                                             (296,000)        (264,000)        (448,000)
                                                                          ----------------------------------------------
Deferred:
Federal                                                                       248,000         (195,000)         546,000
State and local                                                               (76,000)        (296,000)          51,000
                                                                          ----------------------------------------------

                                                                              172,000         (491,000)         597,000
                                                                          ----------------------------------------------

                                                                          $  (124,000)     $  (755,000)    $    149,000
                                                                          =============================================
</TABLE>


                                      F-9
<PAGE>

      The provision for taxes as reported is different than the tax provision
      computed by applying the statutory Federal rate of 34 percent.  The
      differences are as follows:

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                      1996              1995             1994
<S>                                                                  <C>              <C>                <C>
Income (loss) before income tax provision                            $  (363,304)     $  (1,702,850)     $  284,250
                                                                     ==============   ================   ==========

Provision (benefit) at the statutory Federal rate                    $  (124,000)    $     (579,000)     $   97,000

Provision for state and local income taxes net of
  Federal income tax benefit                                             (30,000)          (175,000)         29,000

Other                                                                     30,000             (1,000)         23,000
                                                                     --------------------------------------- ------

                                                                     $  (124,000)    $     (755,000)     $  149,000
                                                                     ==============  =================   ==========

</TABLE>


      The Company's deferred tax liabilities are net of deferred tax assets of
      approximately $1,272,000 and $1,109,000 at December 31, 1996 and 1995,
      respectively. The components of the deferred tax balances at December 31,
      1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                                1996                1995
<S>                                                                           <C>                 <C>
Commissions on guarantees not currently recognized for
  tax reporting purposes                                                       $  (1,779,000)     $  (1,475,000)

Tax benefit of state and local tax loss carryforwards                                428,000            445,000

Provision for doubtful accounts not currently deductible
  for tax reporting purposes                                                         231,000            188,000

Film inventory valuation adjustment not currently
  deductible for tax reporting purposes                                              471,000            476,000

Depreciation, amortization and other charges deducted
  for tax reporting purposes                                                        (150,000)          (261,000)
                                                                                -------------------- ---------

                                                                              $     (799,000)    $     (627,000)
                                                                              =================  ===============
</TABLE>

6.    RELATED PARTY TRANSACTIONS

      The Company provided certain services to Tiger Electronics, Inc.,
      ("Tiger") a corporation controlled by an individual who is a director and
      major beneficial shareholder of the Company. These transactions totaled
      approximately $2,141,000, $2,112,000 and $1,659,000 of net revenue in
      1996, 1995 and 1994, respectively.

      The Company had receivables from Tiger of approximately $13,156,682 and
      $11,712,304 at December 31, 1996 and 1995, respectively.

                                      F-10

<PAGE>


7.    STOCK OPTIONS

      The Company applies Accounting Principles Board Opinion No. 25, Accounting
      for Stock Issued to Employees, and related interpretations in accounting
      for its plans. Accordingly, no compensation expense has been recognized
      for its stock-based compensation plans. Had compensation cost for the
      Company's stock option plans been determined based upon the fair value at
      the grant date for awards under these plans consistent with the
      methodology prescribed under Statement of Financial Accounting Standards
      No. 123, Accounting for Stock-Based Compensation, the Company's net loss
      and loss per share would have been increased by approximately $438,000 and
      $246,000, or $.15 and $.08 per share for 1996 and 1995 respectively. The
      fair value of the options granted during 1996 and 1995 are estimated on
      the date of grant using the Black-Scholes option-pricing model with the
      following assumptions: dividend yield 0%, volatility of 49%, risk-free
      interest rate of 7% and an expected life based on the life of the 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 Stock Option Committee, each
      option will be immediately exercisable with respect to 50 percent of the
      shares subject to the option and will become 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.

      Under the 1994 and 1992 Plans, in each of the two years following the
      adoption of the plan, the Company's chairman was granted options to
      purchase 100,000 shares and each outside director was granted options to
      purchase 50,000 shares.

      The Company has outstanding employee stock options as follows:

<TABLE>
<CAPTION>

                                                                                          EXERCISE PRICE           WEIGHTED AVERAGE
                                                                OPTIONS                      PER SHARE               EXERCISE PRICE
<S>                                                             <C>                  <C>               <C>          <C>
  Outstanding at December 31, 1993                                  694,000          $   2.620        $    9.75       $  5.47

  Options exercised                                                 (20,000)             3.1250                          3.125
  Options granted                                                   207,500              9.750            10.25         10.23
  Options expired                                                   (65,000)             6.120             9.75          8.50
                                                                    --------------       --------------    ----      ----------

  Outstanding at December 31, 1994                                  816,500              2.620            10.25          6.32
                                                                    ==============       ============     =====       =========

  Options granted                                                   349,500              2.6250            3.81          3.39
  Options expired                                                   (10,000)             3.120             9.75          8.09
                                                                    --------------       --------------    ----       --------

  Outstanding at December 31, 1995                                1,156,000              2.620            10.25          5.43
                                                                  ================       ============     =====       ========

  Options granted                                                   265,000              2.3125            2.375         2.33
  Options expired                                                   172,000              2.3750            9.75          3.24
                                                                    --------------       --------------    ----        -------

  Outstanding at December 31, 1996                                1,249,000              2.315            10.25          5.13
                                                                  ================       ============     =====        =======

  Exercisable at December 31, 1996                                1,216,500          $   2.3125       $   10.25          5.24
                                                                  ============       ============     =========        =======
</TABLE>

                                      F-11

<PAGE>

      Under the Company's various stock option plans, 232,000 shares of the
      Company's common stock were available at December 31, 1996 for future
      issuance.

      In addition, in June 1992, the Board of Directors granted to its outside
      directors, who receive no cash compensation, options to purchase a total
      of 100,000 shares of the Company's common stock at $5.75, the market price
      of the Company's common stock on the date of grant. Such options, which
      were immediately exercisable, expire five years from the date of grant.

      At December 31, 1996, there were 1,581,000 shares of the Company's common
      stock reserved for stock options.

      The following table summarizes information about fixed-price stock 
      options outstanding at December 31, 1996:

<TABLE>
<CAPTION>

                                     Options Outstanding                 Options Exercisable
                         ----------------------------------------     ------------------------
                                          Weighted     Weighted                       Weighted
                           Number          Average      Average          Number        Average
         Range of        outstanding      Remaining     Exercise       exercisable    Exercise
      Exercise Prices    at 12/31/96  Contractual Life    Price        at 12/31/96     Price
<S>                      <C>           <C>              <C>            <C>            <C>   
      $2.3125-3.8125       612,500         7 years        $ 2.91         580,000       $ 2.94
      $  5.00- 6.125       516,500       2.5 years        $ 5.59         516,500       $ 5.59
      $  9.75-10.25        220,000       6.5 years        $10.20         220,000       $10.20
                         ----------                                    ----------
                         1,349,000                                     1,316,500
                         ==========                                    ==========
</TABLE>
 
8.    COMMITMENTS AND CONTINGENCIES

      a.    BONUS PLAN - Bonuses are based upon an amount up to 14 percent of
            pretax profits. Key officers and employees, as designated by the
            Board of Directors, can be included in the Bonus Plan. For 1994, the
            Board of Directors, under the Bonus Plan, awarded the Chairman and
            Chief Executive Officer of the Company approximately $40,000. An
            additional $9,000 under the Bonus Plan was granted to several
            employees, including one officer in 1994. Due to the losses in 1995
            and 1996, no bonuses were granted under the Bonus Plan.

      b.    LEASES - The Company is obligated for future leases for office
            space.  Certain leases provide for escalation clauses and renewal
            options.

            At December 31, 1996, future minimum lease payments were as follows:

YEAR ENDING                                        AMOUNT

1997                                           $     400,100
1998                                                 376,518
1999                                                 367,172
2000                                                 364,056
2001                                                 364,056
Thereafter                                           897,127
                                                ------------
                                                $  2,769,029
                                                ============


            Rent expense approximated $460,183, $487,544 and $497,000 in 1996,
            1995 and 1994, respectively.

      c.    LITIGATION - In November, 1996, the Company commenced an action in
            New York Supreme Court against Toymax, H.K. Ltd., and its wholly
            owned subsidiary, Toymax, Inc. in connection with the Company's
            licensing of the "Creepy Crawlers" property to the Farley Candy
            Company. In response, the defendants brought counterclaims alleging
            misrepresentation against the Company. The Company believes that it
            has meritorious defenses to the counterclaims and that they have
            been brought in retaliation for the primary suit.

            Except for this lawsuit, as of March 21, 1997, there were no legal
            proceedings pending against the Company other than routine
            litigation incidental to its business. Some matters involve claims
            for large amounts as well as other relief. Although the consequences
            are not presently known, in the opinion of management, they will not
            materially affect the Company's liquidity, financial position or
            results of operations.

                                      F-12
<PAGE>


      d.    CREDIT FACILITY -The Company's line of credit (the "Credit
            Facility") from Chemical Bank which expired on June 30, 1996 has
            been renegotiated and renewed through June 30, 1997. Under the new
            terms the Company may borrow from time to time for general working
            capital purposes up to $2 million. Any borrowings under the credit
            facility would be secured by the Company's receivables. The Credit
            Facility provides for an interest rate of 1% over the bank's prime
            rate and an annual commitment fee of 3/4%. As of December 31, 1996
            the Company had no borrowings under the Credit Facility.

9.    SUBSEQUENT EVENTS

      In January, 1997, the Chairman and the Company entered into an agreement
      canceling an aggregate of 200,000 stock options previously granted to the
      Chairman which were due to expire by the end of July, 1997. On January 22,
      1997, the Company granted options to purchase 100,000 shares to the
      Chairman and 50,000 shares to each of the outside directors at $1.375 per
      share, the market price of the Company's stock at that time. In addition,
      the company granted options to purchase 197,500 shares of the Company's
      common stock at $1.375, the market price of the company's common stock on
      that date to seven employees, four of which are executive officers.

                                     ******

                                      F-13
<PAGE>


                                   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.


Date:  March 31, 1997                                4KIDS ENTERTAINMENT, INC.



                                                     By
                                                              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.

<TABLE>

<S>                                                  <C>
Date:  March 31, 1997
                                                            Alfred R. Kahn
                                                        Chairman of the Board,
                                                       Chief Executive Officer and
                                                                Director


Date:  March 31, 1997
                                                            Randy O. Rissman,
                                                                Director


Date:  March 31, 1997
                                                             Gerald Rissman,
                                                                Director


Date:  March 31, 1997
                                                           Joseph P. Garrity,
                                                     Executive Vice President,
                                                     Treasurer, Principal Financial
                                                     Officer and Principal Accounting
                                                                Officer

</TABLE>



<PAGE>



                               INDEX OF EXHIBITS
<TABLE>
<CAPTION>

Exhibit                                                                   Page
Number                         Description                                Number


<S>             <C>                                                        <C>
(3)  (a)        Certificate of Incorporation of the Registrant,
                as amended (13)
     (b)        By-Laws of the Registrant adopted by the Board
                of Directors on March 28, 1991 (2)
     (c)        Resolution of the Board of Directors of the
                Registrant adopted March 12, 1991 reducing the
                size of the Board from six directors to three
                directors (2)
(4) (a)         Form of Common Stock Certificate (3)
(10)(a)         Bonus Plan of the Registrant (*)(4)
    (b)         1985 Non-Qualified Stock Option Plan, as
                amended (*)(4)
    (c)         1986 Stock Option Plan, as amended (*)(4)
    (d)         1992 Stock Option Plan (*)(5)
    (e)         1993 Stock Option Plan (*)(6)
    (f)         1994 Stock Option Plan (*)(10)
    (g)         1995 Stock Option Plan (*)(11)
    (h)         1996 Stock Option Plan (*)(15)
    (i)         Stock Option Agreement, dated June 10, 1992,
                between the Registrant and Randy O. Rissman (*)(7)
    (j)         Stock Option Agreement, dated June 10, 1992,
                between the Registrant and Gerald Rissman (*)(7)
    (k)         Agreement between Nintendo of America, Inc. and
                the Registrant dated December 17, 1987 (4)
    (l)         Agreement of Lease, dated March 28, 1988,
                between the Registrant and 1414 Americas
                Company (2)
    (m)         Amendment, dated July 8, 1994, to Agreement of
                Lease between the Registrant and 1414 Americas
                Company. (12)
    (n)         Agreement of Lease, dated June 30, 1991,
                between the Registrant and Olympic Purdue
                Associates (the "Olympic Lease") (7)
    (o)         First Amendment, dated January 3, 1994, to the
                Olympic Lease (7)
    (p)         Agreement of Lease, dated March 23, 1993, between
                Leisure Concepts International, Inc. and Svenska
                Handelsbanken (7)
    (q)         Employment Agreement, dated March 12, 1991
                between the Registrant and Alfred R. Kahn(*)(8)
    (r)         Employment Agreement, dated June 3, 1991,
                between the Registrant and Joseph Garrity
                (*)(9)


<PAGE>



Exhibit                                                                   Page
Number                         Description                                Number


    (s)         Amendment, dated as of October 17, 1994, to the
                Employment Agreement between the Registrant and
                Joseph Garrity (*)(12)
    (t)         Employment Agreement, dated January 1, 1995 between The
                Summit Media Group, Inc. and Sheldon Hirsch.(*)(13)
    (u)         Employment Agreement, dated January 1, 1995 between The
                Summit Media Group, Inc. and Thomas J. Kenney. (*)(13)
    (v)         Employment Agreement, dated January 9, 1996 between
                4 Kids Productions, Inc. and Norman Grossfeld. (*)(13)
    (w)         Note, dated May 29, 1997, between the Registrant
                and Chemical Bank.
    (x)         Security Agreement, dated May 29, 1996, by and between
                Leisure Concepts, Inc. and Chemical Bank
    (y)         Security Agreement, dated May 29, 1996, by and between
                4Kids Productions, Inc. and Chemical Bank
    (z)         Security Agreement, dated May 29, 1996, by and between The
                Summit Media Group, Inc. and Chemical Bank
    (aa)        Amendment, dated as of January 1, 1997, to the Employment
                Agreement between the Registrant and Joseph P. Garrity
    (bb)        Amendment, dated as of January 1, 1997, to the Employment
                Agreement between The Summit Media Group, Inc. and Sheldon
                Hirsch
    (cc)        Amendment, dated as of January 1, 1997, to the Employment
                Agreement between The Summit Media Group, Inc. and Thomas
                Kenney
    (dd)        Amendment, dated as of February, 1997, to the Employment
                Agreement between the Registrant and Alfred R. Kahn.
    (21)        List of Subsidiaries of the Registrant
    (24)        Consent of Deloitte & Touche, Certified Public
                Accountants
</TABLE>

-----------------------------------------------------------------
         (*)      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, 1989.

         (2)      Incorporated by reference to Annual Report on Form 10-K
for the year ended December 31, 1990.

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

         (4)      Incorporated by reference to Annual Report on Form 10-K
for the year ended December 31, 1987.

         (5)      Incorporated by reference to 1992 Proxy Statement.

         (6)      Incorporated by reference to 1993 Proxy Statement.



<PAGE>


         (7)      Incorporated by reference to Annual Report on Form 10-K
for the year ended December 31, 1992.

         (8)      Incorporated by reference to Amendment No. 1 to
Schedule 13D of Alfred Kahn, Tiger Electronics Inc. and Owen
Randall Rissman dated February 22, 1991.

         (9)      Incorporated by reference to Annual Report on Form 10-K
for the year ended December 31, 1991.

         (10)     Incorporated by reference to 1994 Proxy Statement.

         (11)     Incorporated by reference to 1995 Proxy Statement.

         (12)     Incorporated by reference to Annual Report on Form 10-K
for the year ended December 31, 1994.

         (13)     Incorporated by reference to Annual Report on Form 10-K
for the year ended December 31, 1995.

         (14)     Incorporated by reference to Current Report on Form 8-K
dated May 29, 1997.

         (15)     Incorporated by reference to 1997 Proxy Statement.



<PAGE>