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



[X] ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
ACT OF 1934 
For the fiscal year
ended December 31, 2005 OR[   ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
EXCHANGE ACT OF 1934
For the transition
period from _______________ to _______________


Commission File No.
0-7843



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

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

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

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

|Title of Class

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

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

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

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

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

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

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

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

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

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

| | The
aggregate market value of the voting stock held by non-affiliates of the Registrant,
based on the closing price of the Common Stock on June 30, 2005 as reported on the New
York Stock Exchange Market, was approximately $191,791,604. Shares of Common Stock held
by each officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded from this computation in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|Common Stock, $.01 Par Value
      (Title of Class) | 13,076,643
      (No. of Shares Outstanding at March 15, 2006)
|--------------------------------------------------- | --------------------------------------------------------------

| | 
| | 

| | Portions
of the Registrants Proxy Statement for the Annual Meeting of Stockholders to be
held on May 25, 2006 are incorporated by reference into Part III of this Annual Report on Form 10-K.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

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

|                      |  |                                                                                                                     |  |         
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------- |  | --------
|10-K Partand Item No. |  |                                                                                                                     |  | Page No.
|PART I                |  |                                                                                                                     |  |         
|Item 1                |  | Business                                                                                                            |  | 1       
|Item 1A               |  | Risk Factors                                                                                                        |  | 3       
|Item 1B               |  | Unresolved Staff Comments                                                                                           |  | 6       
|Item 2                |  | Properties                                                                                                          |  | 6       
|Item 3                |  | Legal Proceedings                                                                                                   |  | 7       
|Item 4                |  | Submission of Matters to a Vote of Security Holders                                                                 |  | 7       
|                      |  |                                                                                                                    
|PART II               |  |                                                                                                                     |  |         
|Item 5                |  | Market for the Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 8       
|Item 6                |  | Selected Consolidated Financial Data                                                                                |  | 9       
|Item 7                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                               |  | 10      
|Item 7A               |  | Quantitative and Qualitative Disclosures About Market Risk                                                          |  | 19      
|Item 8                |  | Financial Statements and Supplementary Data                                                                         |  | 20      
|Item 9                |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                                |  | 20      
|Item 9A               |  | Controls and Procedures                                                                                             |  | 20      
|Item 9B               |  | Other Information                                                                                                   |  | 21      
|                      |  |                                                                                                                    
|PART III              |  |                                                                                                                     |  |         
|Item 10               |  | Directors and Executive Officers of the Registrant                                                                  |  | 21      
|Item 11               |  | Executive Compensation                                                                                              |  | 21      
|Item 12               |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                      |  | 21      
|Item 13               |  | Certain Relationships and Related Transactions                                                                      |  | 21      
|Item 14               |  | Principal Accountant Fees and Services                                                                              |  | 21      
|                      |  |                                                                                                                    
|PART IV               |  |                                                                                                                     |  |         
|Item 15               |  | Exhibits and Financial Statement Schedules                                                                          |  | 22      

|PART I


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


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


Item 1. Business


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


Licensing 
The Companys wholly-owned subsidiary, 4Kids Entertainment Licensing, Inc.
(4Kids Licensing), is engaged in the business of licensing the merchandising
rights to popular childrens television series, properties and product concepts
(collectively the Properties or individually the Property). 4Kids
Licensing typically acts as exclusive merchandising agent in connection with the grant to
third parties of licenses to manufacture and sell all types of merchandise, including
toys, videogames, trading cards, apparel, housewares, footwear, books and other published
materials, based on such Properties. 4Kids Entertainment International, Ltd. (4Kids
International), the Companys wholly-owned subsidiary based in London, manages
the Properties represented by the Company in the United Kingdom and European marketplaces.
Licensing revenues accounted for approximately 43%, 49% and 54% of consolidated net
revenues for the years ended December 31, 2005, 2004 and 2003, respectively. The
Yu-Gi-Oh! and Teenage Mutant Ninja Turtles Properties continue to
be the two largest contributors in this business segment.


4Kids Technology, Inc., a
wholly-owned subsidiary, develops ideas and concepts for licensing which integrate new and
existing technologies with traditional game and toy play patterns.


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


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


The Advertising Media and Broadcast
segment accounted for 29%, 23% and 22% of consolidated net revenues for the years ended
December 31, 2005, 2004 and 2003, respectively.


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


-1-


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


The
Television and Film Production/Distribution segment accounted for 28%, 28%, and 24% of
consolidated net revenues for the years ended December 31, 2005, 2004 and 2003,
respectively.


Financial Information About
Industry Segments  Financial information regarding industry segments can be
found in Note 14 of the Notes to the Companys consolidated financial statements.


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


Two Properties, Yu-Gi-Oh!
and Teenage Mutant Ninja Turtles represented 42% of consolidated net revenues
for fiscal 2005. One licensee, Konami Corporation, represented 16% of consolidated net
revenues for fiscal 2005. For more information on Revenues/Major Customers, please see
Note 8 of the Notes to the Companys consolidated financial statements.


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


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


Competition  The
Companys principal competitors in the area of merchandise licensing are the large
media companies with theatrical distribution and television broadcast distribution (e.g.,
Disney, Time-Warner, Viacom), toy companies, other licensing companies, and numerous
individuals who act as merchandising agents. There are also many independent product
development firms with which the Company competes. Many of these companies have
substantially greater resources than the Company and represent properties which have been
commercially successful for longer periods than the Properties represented by the Company.
The Company believes it would be relatively easy for a potential competitor to enter its
market in light of the relatively small investment required to commence operations as a
merchandising agent. However, the ultimate success of a new entrant in the field would
depend on its access to toy and other manufacturers, access to distribution of television
based properties, access to properties to be licensed, retail market acceptance of
properties and its know-how in the negotiation and subsequent administration of licenses.


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


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


-2-

The Companys ability to derive
advertising revenue from the sale of commercial time on 4Kids TV depends, in substantial
part, on the popularity of the television shows that the Company broadcasts on 4Kids TV.
The Company also faces significant competition from other television broadcasters and
cable networks, including competition from a successful television program that the
Company produced (i.e. Pokémon), which is broadcast on Saturday
mornings on a competing network.


Employees  As of March
15, 2006, the Company had a total of 238 full-time employees in its domestic and
international operations. Of the total, approximately 98 employees were primarily
rendering services for the Licensing segment, approximately 44 were primarily rendering
services for the Advertising Media and Broadcasting segment and approximately 96 were
primarily rendering services for the Television and Film Production/Distribution segment.
The Company also hires additional employees on a program-by-program basis which are
typically allocated to the capitalized cost of the related programming.


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

|Name               | Age | Employed By
Registrant
Since | Recent Position(s) Held As Of March 15, 2006
|------------------ | --- | ---------------------------- | --------------------------------------------
|Alfred R. Kahn     |     | 59                           |                                             
|                   |     |                              |                                             
|Bruce R. Foster    |     | 46                           |                                             
|                   |     |                              |                                             
|                   |     |                              |                                             
|Steven M. Grossman |     | 45                           |                                             
|                   |     |                              |                                             
|                   |     |                              |                                             
|Norman Grossfeld   |     | 42                           |                                             
|Samuel R. Newborn  |     | 51                           |                                             
|Brian Lacey        |     | 55                           |                                             
|Thomas Kenney      |     | 47                           |                                             
|                   |     |                              |                                             
|                   |     |                              |                                             
|Daniel Barnathan   |     | 51                           |                                             
|                   |     |                              |                                             

|Item 1A. Risk Factors


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


-3-

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


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

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

| | (2) | new  Properties,  product  concepts or  programming  we  represent  or produce  will  achieve and  sustain  popularity  in the
         marketplace;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | a Property's life cycle will be sufficient to permit us to recover revenues in excess of the costs of advance payments,
guarantees, development, marketing, royalties and other costs relating to such Property; or
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | we will successfully anticipate, identify and react to consumer preferences.
| | --- | ----------------------------------------------------------------------------

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


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


We have historically derived a
substantial portion of our licensing revenues from a small number of Properties which
usually generate revenues only for a limited period of time. For the year ended December
31, 2005, the Company derived approximately 42% of its revenues from two Properties. In
addition, our control over the timing of the licensing royalty payments we receive is
limited and some of these payments are based on quarterly royalty payments reported by our
licensees. Our licensing revenues are also subject to the changing trends in the toy, game
and entertainment industries. Consequently, our licensing revenues may be subject to
dramatic increases and decreases from particular sources over time. A significant decrease
in our licensing revenues could have a significant adverse effect on our financial
condition and results of operations.


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


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


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


Historically, the majority of the television-based
Properties we represented were existing episodes of foreign programming that we adapted
for the United States and other markets. As our strategic focus shifts toward Properties
like Teenage Mutant Ninja Turtles, where we are joint copyright owners of the
episodes, the investment required to produce such original animated programming is
substantially in excess of the historical cost of adapting existing animated programming.
Following the commercial release of a Property, its overall market acceptance and
resulting revenues will directly impact our amortization of the costs incurred to develop
such Property. To the extent a Property performs at a level less than our expectations,
the ratio of amortization expense to revenues realized will increase. This increase will
adversely impact our operating margins and results of operations.


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


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

-4-

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


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


We operate in a highly
competitive marketplace.


     Licensing.    
          Our principal competitors in the Licensing segment are large media companies
          with theatrical distribution and television broadcast distribution (e.g.,
          Disney, Time-Warner, Viacom), toy companies, other licensing companies and
          numerous individuals who act as merchandising agents. There are also many
          independent product development firms with which we compete. Many of these
          companies have substantially greater resources than we do and represent
          properties which have been commercially successful for longer periods than our
          Properties. We believe that it would be relatively easy for a potential
          competitor to enter into this market in light of the relatively small investment
          required to commence operations as a merchandising agent. However, the ultimate
          success of a new entrant in the field would depend on its access to toy and
          other manufacturers, access to distribution of television based properties,
          access to properties to be licensed, retail market acceptance of properties and
          its know-how in the negotiation and subsequent administration of licenses.


Advertising Media and
Broadcast. Our Advertising Media and Broadcast segment also operates in a highly
competitive marketplace against companies with substantially greater resources and
distribution networks than we have. Our ability to derive advertising revenue from the
sale of commercial time on 4Kids TV depends, in substantial part, on the popularity of the
television shows that we broadcast on 4Kids TV. We also face significant competition from
other television broadcasters and cable networks, including competition from a successful
television program that we produced (i.e. Pokémon), which is
broadcast on Saturday mornings on a competing network.


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


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


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


Our future success is
dependent on certain key employees.


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


-5-

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


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


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


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


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


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


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


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


Item 1B. Unresolved
Staff Comments


None.


Item 2. Properties


The following table sets forth, with
respect to properties leased (none are owned) by the Company at December 31, 2005, the
location of the property, the date on which the lease expires and the use which the
Company makes of such facilities:
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|Address                     | Expiration
       of Lease | Use                | Approximate
Square
Feet
|--------------------------- | -------------------------- | ------------------ | -----------------------
|1414 Avenue of the Americas |                            | September 30, 2010 |                        
|New York, New York          |                            |                    |                        
|                            |                           
|53 West 23rd Street         |                            | December 31, 2006  |                        
|New York, New York          |                           
|                            |                           
|1st Floor Mutual House      |                            | June 23, 2009      |                        
|70 Conduit Street           |                            |                    |                        
|London, England             |                           
|                            |                           

|The executive, marketing, sales and
administrative office is utilized by the Licensing and by the Advertising Media and
Broadcast segments. The international sales office is utilized primarily by the Licensing
Segment. The production facility is utilized by the Television and Film
Production/Distribution segment. The Company considers that, in general, its physical
properties are well maintained, in good operating condition and adequate for its purposes.


-6-

Item 3. Legal Proceedings


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


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


During the Companys fiscal
quarterly period ended December 31, 2005, there were no matters submitted to a vote of
security holders.


-7-

PART II


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


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

|2005           | Low | High  
|-------------- | --- | ------
|First Quarter  |     | $17.50
|Second Quarter |     | 18.45 
|Third Quarter  |     | 16.00 
|Fourth Quarter |     | 15.46 

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

|(b)       
          Number of Holders of Common Stock  The number of holders of record
          of the Companys Common Stock on March 15, 2006 was 342, which does not
          include individual participants in security position listings.


     (c)       
          Dividends  There were no dividends or other distributions made by
          the Company during 2005 or 2004. Future dividend policy will be determined by
          the Board of Directors based on the Companys earnings, financial
          condition, capital requirements and other existing conditions. It is anticipated
          that cash dividends will not be paid to the holders of the Companys Common
          Stock in the foreseeable future.


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


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


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

|Period During 2005 | Number of
Shares Purchased | Average Price
Paid Per Share | Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs | Maximum Number
of Shares that May Yet Be
Purchased Under the
Plans or Programs (1)
|------------------ | -------------------------- | ---------------------------- | -------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------
|Jan. 1 - Jan. 31   |                            |                              |                                                                                  | 273,100                                                                           
|                  
|Feb. 1 - Feb. 28   |                            |                              |                                                                                  | 76,900                                                                            
|                  
|Mar. 1 - Mar. 31   |                            |                              |                                                                                  | -                                                                                 
|                  
|Apr. 1 - Apr. 30   |                            |                              |                                                                                  | -                                                                                 
|                  
|May 1 - May 31     |                            |                              |                                                                                  | 104,600                                                                           
|                  
|Jun. 1 - Jun. 30   |                            |                              |                                                                                  | 145,400                                                                           
|                  
|Jul. 1 - Jul. 31   |                            |                              |                                                                                  | -                                                                                 
|                  
|Aug. 1 - Aug. 31   |                            |                              |                                                                                  | 127,000                                                                           
|                  
|Sep. 1 - Sep. 30   |                            |                              |                                                                                  | 196,000                                                                           
|                  
|Oct. 1 - Oct. 31   |                            |                              |                                                                                  | 77,000                                                                            
|                  
|Nov. 1 - Nov. 30   |                            |                              |                                                                                  | -                                                                                 
|                  
|Dec. 1 - Dec. 31   |                            |                              |                                                                                  | -                                                                                 
|                  
|Total              |                            |                              |                                                                                  | 1,000,000                                                                         
|                  

|-8-
|---

| | (1)  During the quarter ended December 31, 2005, the Company completed the purchase
          of 1,000,000 shares of its common stock at an average price of $18.30 per share
          that had previously been authorized by the Board of Directors in November 2004.
          In November 2005, the Board of Directors authorized the Company to purchase up
          to 1,000,000 additional shares of the Companys common stock from time to
          time through December 31, 2006 in the open market or through negotiated prices.
          Such purchases are to be made out of the Companys surplus. Through March
          15, 2006, no purchases relating to the additional 1,000,000 shares were made by
          the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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


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

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

|-9-
|---

|December 31,         | 2005 | 2004     | 2003 | 2002     | 2001
|-------------------- | ---- | -------- | ---- | -------- | ----
|Total Assets         |      | $183,938 |      | $205,015 |     
|Working Capital      |      | 129,576  |      | 139,377  |     
|Stockholders' Equity |      | 153,397  |      | 163,978  |     

|The Company did not declare or pay any cash dividends during the five-year period ended December 31, 2005.

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


The following is a discussion and
analysis of our financial position and results of operations for each of the three years
in the period ended December 31, 2005. This commentary should be read in conjunction with
our consolidated financial statements and the notes thereto which appears beginning on
page F-1 under Item 8. Financial Statements and Supplementary Data.


Overview


The Companys operating results
for the year ended December 31, 2005 reflect an overall decrease in licensing revenues
from 4Kids Properties and revenues from the release of theatrical motion pictures as
compared to the year ended December 31, 2004. The decline in licensing revenues for
Yu-Gi-Oh!", Kirby, Pokemon and Teenage Mutant
Ninja Turtles in 2005 as compared with 2004 was only partially offset by increased
licensing revenues from Cabbage Patch Kids and Winx Club. Revenues
from theatrical motion pictures declined in 2005 as 2004 reflected sales from the release
of the Yu-Gi-Oh! movie with no corresponding theatrical release in 2005. The
2005 results were also negatively impacted by increased amortization of television and
film costs due to a reduction in the estimated ultimate revenues for the Companys
One Piece and Mew Mew Power television series.


General


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


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


-10-

Critical Accounting
Policies


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


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



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


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


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


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


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


4Kids TV Broadcast Agreement
 The Company broadcasts certain of its Properties on 4Kids TV, the Saturday morning
programming block that the Company leases from Fox. The cost of 4Kids TV has been and will
continue to be capitalized and amortized over each broadcast year based on estimated
advertising revenue. In developing future estimated revenues, the Company has made certain
assumptions with regard to the anticipated popularity of the television series the Company
broadcasts on 4Kids TV and the general market demand and pricing of advertising time for
Saturday morning childrens broadcast television. The popularity of such series
impacts audience levels and the level of the network advertising rates that the Company
can charge. These estimates are based on historical trends, as well as the Companys
subjective judgment of future customer demand and acceptance of its television
programming. Differences may result in the amount and timing of revenue for any period if
actual performance varies from the Companys estimates. See Note 12 of the Notes to
the Companys consolidated financial statements for additional information.


-11-

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


Recently Issued Accounting
Pronouncements On October 22, 2004, the President signed the American
Jobs Creation Act of 2004(the Act).  On December 21, 2004, the
Financial Accounting Standards Board (FASB) issued two FASB Staff Positions
(FSP) regarding the accounting implications of the Act related to (1) the
deduction for qualified domestic production activities  FSP Statement of Financial
Accounting Standards (SFAS) No. 109-1 and (2) the one-time tax benefit for the
repatriation of foreign earnings  FSP SFAS No. 109-2.  The guidance in the FSPs
applies to financial statements for periods ending after the date the Act was
enacted.  The Act provides a deduction of up to 9 percent (when fully phased-in) of
the lesser of (a) qualified production activities income, as defined by the Act and (b)
taxable income (after the deduction for the utilization of any net operating loss
carryforwards).  This tax deduction is limited to 50 percent of W-2 wages paid by the
taxpayer.  The Act also creates a temporary incentive for U.S. corporations to
repatriate accumulated income earned abroad by providing an 85 percent dividends received
deduction for certain dividends from controlled foreign corporations.  The Company
believes that the adoption of this new tax provision will not have a material effect on
its consolidated financial position or results of operations.


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


SFAS No. 123-R is effective for
fiscal years beginning after June 15, 2005. The Company adopted SFAS No. 123-R
effective January 1, 2006, using a modified prospective application. This application
requires the Company to record compensation expense for all awards granted after January
1, 2006 and for the unvested portion of previously granted awards that remain outstanding
as of such date. The Companys adoption of SFAS No. 123-R did not result in the
recording of compensation expense in 2006 with respect to options previously granted as
all of the Companys outstanding options were fully vested at December 31, 2005.
However, the impact of the adoption of SFAS No. 123-R with respect to options granted
after the effective date cannot be determined at this time as it will depend on the level
of share-based payments granted in the future.


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


-12-

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


Accounting for Income Taxes
 In July 2005, the FASB issued an exposure draft of an Interpretation of SFAS No.
109, Accounting for Income Taxes. This proposed Interpretation would clarify the
accounting for uncertain tax positions. An enterprise would be required to recognize, in
its financial statements, the best estimate of the impact of a tax position only if that
position is probable of being sustained based solely on the technical merits of the
position. In evaluating whether the probable recognition threshold has been met, this
proposed Interpretation would require the presumption that the tax position will be
evaluated during an audit by taxing authorities. The term probable is used in this
proposed Interpretation consistent with its use in SFAS No. 5, Accounting for
Contingencies, to mean that the future event or events are likely to
occur. Individual tax positions that fail to meet the probable recognition threshold
will generally result in the inability to recognize the benefit of such position in the
financial statements. This proposed Interpretation also provides guidance on disclosure,
accrual of interest and penalties, accounting in interim periods and transition. If
adopted as proposed, this Interpretation would apply to financial statements effective as
of the end of the first fiscal year ending after December 15, 2005. The Company believes
that the Interpretation, if adopted as proposed, will not have a material effect on its
consolidated financial position or results of operations.


Results of Operations


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

|                                          | 2005 | 2004 | 2003
|----------------------------------------- | ---- | ---- | ----
|Net Revenues                              |      | 100  | %   
|                                          |      |      |     
|Selling, general & administrative         |      | 42   | %   
|Production service costs                  |      | 10   | %   
|Amortization of television and film costs |      | 11   | %   
|Amortization of Kids TV broadcast fee     |      | 31   | %   
|                                          |      |      |     
|Total Costs and Expenses                  |      | 94   | %   
|                                          |      |      |     
|Income from Operations                    |      | 6    | %   
|                                          |     
|Interest Income                           |      | 3    | %   
|Gain on sale of investment                |     
|in equity securities                      |      | 1    | %   
|                                          |      |      |     
|Income Before Income Taxes                |      | 10   | %   
|                                          |     
|Income Taxes                              |      | 4    | %   
|                                          |      |      |     
|Net Income                                |      | 6    | %   
|                                          |      |      |     

|-13-

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


Revenues


Revenues for the years ended December
31, 2005 and 2004, by reportable segment and for the Company as a whole, were as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            | 2005 | 2004    | $ Change | % Change 
|------------------------------------------- | ---- | ------- | -------- | ---------
|Licensing                                   |      | $37,616 |          | $  49,903
|                                            |      |         |          |          
|Advertising Media & Broadcast               |      | 24,715  |          | 24,113   
|                                            |      |         |          |          
|Television and Film Production/Distribution |      | 24,331  |          | 29,290   
|                                            |      |         |          |          
|                                            |      |         |          |          
|Total                                       |      | $86,662 |          | $103,306 
|                                            |      |         |          |          

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

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

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

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

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


In the Advertising Media and
Broadcast segment, the increase in revenues for 2005, as compared to 2004 was due to an
increase in media buying commissions from Summit Media reflecting growth in its client
base, partially offset by reduced revenues from the sale of network advertising time on
4Kids TV.


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

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

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

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

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

|Selling, General and
Administrative Expenses


Selling, general and administrative
expenses increased 1%, or $510 to $36,436 for the year ended December 31, 2005, when
compared to 2004. The increase was primarily due to the following:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|-14-

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

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

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


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


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


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

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

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


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

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

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

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


Interest Income


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


Gain on Sale of
Investment in Equity Securities


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


-15-

Income Tax Expense


Income tax expense decreased 63%, or
$5,416 to $3,176 for the year ended December 31, 2005, as compared to 2004, due to
decreased income before income taxes. The Companys effective tax rate remained
relatively consistent at approximately 39% and 40% for 2005 and 2004, respectively.


Net Income


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


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


Revenues


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

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

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

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

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

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

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

| | (i) | higher advertising rates; and
| | --- | -----------------------------

| | (ii) | increased advertising sales on the Companys 4Kids TV websites and on home
          videos distributed by 4Kids Home Video.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------

In the Television and Film
Production/Distribution segment, the revenue increase for 2004 primarily resulted from:

| | (i) | the theatrical release of the Yu-Gi-Oh! movie in August 2004;
| | --- | ---------------------------------------------------------------

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

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

|-16-

Selling, General and
Administrative Expenses


Selling, general and administrative
expenses increased 8%, or $2,789 to $35,926 for the year ended December 31, 2004, when
compared to 2003. The increase was primarily due to the following:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | increased accounting and consulting fees of $1,175 incurred by the Company to
               comply with Section 404 of the Sarbanes-Oxley Act of 2002;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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


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

|                                          | 2004 | 2003    | $ Change | % Change
|----------------------------------------- | ---- | ------- | -------- | --------
|Production Service Costs                  |      | $10,029 |          | $  7,819
|                                          |      |         |          |         
|Amortization of Television and Film Costs |      | 9,639   |          | 10,549  
|                                          |      |         |          |         

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


As of December 31, 2004, there was
$10,518 of capitalized film production costs in the accompanying consolidated balance
sheets relating primarily to various stages of production on 340 episodes of animated
programming. The decrease in amortization of capitalized film costs during 2004 was
primarily due to decreased amortization of television series broadcast on 4Kids TV and the
Yu-Gi-Oh! television series. Based on managements ultimate revenue
estimates as of December 31, 2004, approximately 69% of the total completed and
unamortized film and television costs are expected to be amortized during 2005, and over
90% of the total completed and unamortized film and television costs are expected to be
amortized during the next three years.


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

|                                       | 2004 | 2003    | $ Change | % Change
|-------------------------------------- | ---- | ------- | -------- | --------
|Amortization of 4Kids TV Broadcast Fee |      | $27,859 |          | $27,003 

|As a result of the broadcast year
(ending each year in September) being different than the Companys fiscal year
(ending each year in December), the amount of the amortization recognized from period to
period will vary based upon (i) the amount of advertising revenue recognized during the
period; and (ii) the amount of advertising revenue already recognized for the broadcast
year as a percentage of the total amount expected to be recognized for the full broadcast
year. Based on the increased advertising revenue recognized by the Company during the
fourth quarter of 2004 as compared to 2003 and the greater percentage of the total
advertising revenues already recognized, the Companys amortization of the 4Kids TV
broadcast fee increased $1,421 to $12,238 for the fourth quarter of 2004 and increased
$856 to $27,859 for the year ended December 31, 2004. Through December 31, 2004 and 2003,
the Company had amortized 47% and 41%, respectively, of the 4Kids TV broadcast fee for the
third and second broadcast year, an increase of 6%.


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

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

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

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


-17-

Interest Income


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


Income Tax Expense


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


Net Income


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


Liquidity and Capital
Resources


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

|                          | 2005 | 2004      | $ Change
|------------------------- | ---- | --------- | --------
|Cash and cash equivalents |      | $  35,142 |         
|Investments               |      | 78,383    |         
|                          |      |           |         
|                          |      |           |         
|                          |      | $113,525  |         
|                          |      |           |         

|During 2005, the Companys cash
and cash equivalents and short-term investment balances decreased by $14,301 to $113,525,
primarily as a result of payments made to Fox for the 4Kids TV programming block, payments
to licensors and repurchases of common stock made under the Companys repurchase
program partially offset by net income and tax benefits derived from option exercises.


Sources and Uses of Cash


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

|                     |  |           |   | $ Changes
|-------------------- |  | --------- | - | ---------
|
|Operating Activities |  | $   3,242 |   | $ 21,639 
|Investing Activities |  | (62,207   | ) | 7,198    
|                     |  |           |   |          
|Financing Activities |  | (16,956   | ) | (12,645  
|                     |  |           |   |          

|Working capital, consisting of
current assets less current liabilities, was $129,576 as of December 31, 2005 and $139,377
as of December 31, 2004. The 2005-2004 reduction in cash flows from operating activities
is principally due to lower net income, reduction in the Companys obligations to
licensors and payments made for media obligations and accounts payable and accrued
expenses, partially offset by lower accounts receivable and participation advances.


As of December 31, 2005, the Company
had $78,383 invested in auction-rate securities and short-term government obligations. The
2005-2004 reduction in cash flows from investing activities is primarily due to the
Companys purchase of auction-rate securities as an investment strategy for its
excess cash balances. During 2005, the Company purchased property and equipment of $857,
which was comprised primarily of computer and television production equipment, software
and leasehold improvements, as compared to purchases of property and equipment of $1,178
in 2004. Funds required for the purchase of property and equipment in 2006 are expected to
be similar to that of 2005.


Cash flows used in financing
activities were the result of the Companys purchase of shares of its common stock of
$18,305, partially offset by proceeds from the exercise of stock options by the
Companys employees of $1,329.


During 2005, the Companys cash
flow from operations was impacted by consumer demand for a limited number of its licensed
Properties.  While the Company strives to further diversify its revenue streams,
management remains cognizant of changing trends in the toy, game and entertainment
business and the difficulty in predicting the length of time a property will be
commercially successful.  As a result, the Companys revenues, operating results
and cash flow from operations may fluctuate significantly from year to year and present
operating results are not necessarily indicative of future performance.


-18-

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


4Kids TV Broadcast
Agreement


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


In March 2006, the multi-year
agreement was extended for two broadcast years through the 2007-2008 broadcast season. As
of December 31, 2005, two equal payments of $3,163 remain to be paid for the 2005-2006
broadcast season under the original agreement. The time-buy fee for each of the 2006-2007
and 2007-2008 broadcast seasons will be $20,000 as compared to the $25,312 paid for each
broadcast year during the initial term of the multi-year agreement. The fee is payable in
quarterly installments of $5,000 each year beginning in October 2006. The extension also
provides Fox with the option to extend the agreement through the 2008-2009 broadcast
season on the same terms and conditions by providing notice to the Company no later than
August 31, 2007.


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


Contractual Commitments


The Company has commitments under
certain firm contractual arrangements (firm commitments) to make future
payments for goods and services. These firm commitments secure the future rights to
various assets and services to be used in the normal course of operations. The following
table summarizes the Companys material firm commitments as of December 31, 2005 and
the impact that such obligations are expected to have on the Companys liquidity and
cash flows in future periods. The Company expects to fund these commitments primarily with
operating cash flows generated in the normal course of business.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Contractual Obligations and Commitments | As of December 31, 2005
Payments Due In:
|--------------------------------------- | ----------------------------------------
|
|4Kids TV Broadcast Agreement            |                                         
|Operating Leases                        |                                         
|                                        |                                         
|                                        |                                         
|                                        |                                         
|                                        |                                         
|                                        |                                         

|Item 7A. Quantitative
and Qualitative Disclosures About Market Risk


Foreign Currency Exchange
Rate Fluctuations


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


-19-

Item 8.    Financial Statements and Supplementary Data




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







Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.


Item 9A.    Controls and Procedures









Evaluation of Disclosure
Controls and Procedures


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


Changes in Internal
Control over Financial Reporting


During the fourth quarter of 2005,
there were no significant changes in our internal control over financial reporting or in
other factors that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.


Managements Report
on Internal Control over Financial Reporting


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

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

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

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

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


-20-

Our management assessed the
effectiveness of our internal control over financial reporting as of December 31,
2005. In making this assessment, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment, management believes that, as
of December 31, 2005, our internal control over financial reporting was effective
based on those criteria.


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


Item
9B.  Other Information


On March 14, 2006, the Company
entered into an amendment to its agreement with Fox which
extended the term of the agreement for two broadcast years through the 2007-2008 broadcast
season. For each of the 2006-2007 and 2007-2008 broadcast seasons, 4Kids will pay a
time-buy fee of $20,000. The fee is payable in quarterly installments of $5,000 each year
beginning in October 2006. The extension also provides Fox with the option to extend the
agreement through the 2008-2009 broadcast season under the same terms and conditions by
providing notice to the Company no later than August 31, 2007.


PART III


Item 10. Directors and
Executive Officers of the Registrant


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


On June 29, 2005, the Company filed
with the New York Stock Exchange the Annual CEO Certification regarding the Companys
compliance with the NYSEs Corporate Governance listing standards as required by
Section 303A.12(a) of the New York Stock Exchange Listed Company Manual  which
disclosed to the NYSE that (as disclosed by the Company in its Current Report on Form 8-K
filed on October 17, 2005) the Company had unintentionally failed to comply with an NYSE
requirement that a reference to the existence and availability of its corporate governance
guidelines be included in its 2005 proxy statement.


Item 11. Executive
Compensation


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


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


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


Item 13. Certain
Relationships and Related Transactions


Information concerning certain
relationships and related transactions is incorporated by reference to the Companys
Definitive Proxy Statement on Schedule 14A to be filed with the Securities and Exchange
Commission within 120 days after the end of the Companys fiscal year and Note 13 of
the Notes to the Companys consolidated financial statements.


Item 14. Principal
Accountant Fees and Services


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


-21-

PART IV


Item 15. Exhibits and
Financial Statement Schedules


     (1)    
          Financial Statements:


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

|                                                                                               | Page
Number
|---------------------------------------------------------------------------------------------- | -----------
|Reports of Independent Registered Public Accounting Firms on Consolidated Financial Statements | F-1 to F-3 
|                                                                                              
|Consolidated Balance Sheets - December 31, 2005 and 2004                                       | F-4        
|                                                                                              
|Consolidated Statements of Income - Years Ended                                               
|December 31, 2005, 2004 and 2003                                                               | F-5        
|                                                                                              
|Consolidated Statements of Stockholders' Equity and Comprehensive                             
|Income - Years Ended December 31, 2005, 2004 and 2003                                          | F-6        
|                                                                                              
|Consolidated Statements of Cash Flows - Years Ended                                           
|December 31, 2005, 2004 and 2003                                                               | F-7        
|                                                                                              
|Notes to Consolidated Financial Statements                                                     | F-8 to F-23

|(a)(2)  Financial Statement Schedules


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




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







-22-

SIGNATURES


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

| | 4KIDS
ENTERTAINMENT, INC. Date: March 16, 2006
| | ----------------------------------------------

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

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

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

| | Date: March 16, 2006
| | --------------------

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

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

| | Date: March 16, 2006
| | --------------------

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

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

| | Date: March 16, 2006
| | --------------------

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

| | Steven M. Grossman Executive Vice President,Chief Operating Officer and Director
| | --------------------------------------------------------------------------------

| | Date: March 16, 2006
| | --------------------

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

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

| | Date: March 16, 2006
| | --------------------

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

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

| | Date: March 16, 2006
| | --------------------

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

| | Richard BlockDirector
| | ---------------------

| | Date: March 16, 2006
| | --------------------

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

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

|-23-
|----

| | 
| | 

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

|Exhibit
Number | Description                                                                                                                                                                                                                                                                                                                                                                                                      
|-------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            | Certificate of Incorporation of the Registrant filed on April 28, 1970, as amended on
October 12, 1971, as further amended on April 21, 1972, as further amended on July 17,
1979, as further amended on May 22, 1985, as further amended on July 30, 1986, as further
amended on July 19, 1989, as further amended on November 16, 1995 (changing the name of
the Corporation to 4Kids Entertainment, Inc.). (1)
|              
|3.2            | Certificate of Amendment to the Certificate of Incorporation of the Registrant, dated April 29,
              1999.(2)                                                                                                                                                                                                                                                                                           
|              
|3.3            | Certificate of Amendment to the Certificate of Incorporation of the Registrant, dated May 18,
              2000.(3)                                                                                                                                                                                                                                                                                             
|              
|3.4            | By-Laws of the Registrant adopted by the Board of Directors on March 28, 1991. (4)                                                                                                                                                                                                                                                                                                                               
|              
|4.1            | Form of Common Stock Certificate. (5)                                                                                                                                                                                                                                                                                                                                                                            
|              
|10.1           | 1992 Stock Option Plan (*) (7)                                                                                                                                                                                                                                                                                                                                                                                   
|              
|10.2           | 1997 Stock Option Plan (*) (9)                                                                                                                                                                                                                                                                                                                                                                                   
|              
|10.3           | 1998 Stock Option Plan (*) (10)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.4           | 1999 Stock Option Plan (*) (2)                                                                                                                                                                                                                                                                                                                                                                                   
|              
|10.5           | 2000 Stock Option Plan (*) (3)                                                                                                                                                                                                                                                                                                                                                                                   
|              
|10.6           | 2001 Stock Option Plan (*) (10)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.7           | 2002 Stock Option Plan (*) (11)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.8           | 2003 Stock Option Plan (*) (12)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.9           | 2004 Stock Option Plan (*) (13)                                                                                                                                                                                                                                                                                                                                                                                  
|              
|10.10          | 2005 Long-Term Incentive Compensation Plan (*) (14)                                                                                                                                                                                                                                                                                                                                                              
|              
|10.11          | Agreement between Nintendo of America, Inc. and the Registrant dated December 17, 1987. (6)                                                                                                                                                                                                                                                                                                                      
|              
|10.12          | Agreement of Lease, dated March 28, 1988, between the Registrant and 1414 Avenue of the Americas Company ("1414 Lease"). (4)                                                                                                                                                                                                                                                                                     
|              
|10.13          | Amendment, dated July 8, 1994, to the 1414 Lease. (4)                                                                                                                                                                                                                                                                                                                                                            
|              
|10.14          | Amended and Restated Employment Agreement, dated January 1, 2002, between 4Kids Entertainment
              Licensing, Inc. and Alfred R. Kahn.  (*)(15)                                                                                                                                                                                                                                                         
|              
|10.15          | Employment Agreement, dated January 1, 2002, between 4Kids Entertainment Licensing, Inc. and Joseph P.
              Garrity. (*)(15)                                                                                                                                                                                                                                                                            
|              
|10.16          | Amendment, dated as of June 19, 2003, to the Employment Agreement between 4Kids Entertainment
              Licensing, Inc. and Joseph P. Garrity.  (*)(15)                                                                                                                                                                                                                                                      
|              
|10.17          | Employment Agreement, dated January 1, 2002, between 4Kids Productions, Inc. and Norman Grossfeld.
              (*)(15)                                                                                                                                                                                                                                                                                         
|              
|10.18          | Amendment, dated as of June 16, 2003, to the Employment Agreement between 4Kids Productions, Inc. and
              Norman Grossfeld.  (*)(15)                                                                                                                                                                                                                                                                   
|              
|10.19          | Letter Agreement, dated as of March 2, 2006,  between 4Kids Productions, Inc. and
              Norman Grossfeld.  (*)(20)                                                                                                                                                                                                                                                                                       
|              
|10.20          | Employment Agreement, dated January 1, 2002, between 4Kids Entertainment Licensing, Inc. and Samuel R.
              Newborn.  (*)(15)                                                                                                                                                                                                                                                                           

|-24-
|----

|Exhibit
Number | Description                                                                                                                                                 | Page
Number
|-------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------
|              
|
|10.21          | Amendment, dated as of June 16, 2003, to the Employment Agreement between 4Kids Entertainment
              Licensing, Inc. and Samuel R. Newborn.  (*)(16)
|              
|10.22          | Letter Agreement, dated as of March 2, 2006,  between 4Kids Licensing, Inc. and
              Samuel R. Newborn.  (*)(20)                                  
|              
|10.23          | Employment Agreement, dated January 1, 1995 between The Summit Media Group, Inc. and Sheldon Hirsch.
              (*)(1)                                  
|              
|10.24          | Amendment, dated as of January 1, 1997, to the Employment Agreement between The Summit Media Group,
              Inc. and Sheldon Hirsch.  (*)(16)        
|              
|10.25          | Employment Agreement, dated January 1, 1995 between The Summit Media Group, Inc. and Thomas J.
              Kenney.  (*) (1)                              
|              
|10.26          | Amendment, dated as of January 1, 1997, to the Employment Agreement between The Summit Media Group,
              Inc. and Thomas Kenney.  (*)(16)         
|              
|10.27          | Employment Agreement, dated as of June 30, 2005, between 4Kids Entertainment, Inc.
and Steven M. Grossman  (*)(18)                                         
|              
|10.28          | Employment Agreement, dated as of January 9, 2006, between
4Kids Entertainment Licensing, Inc.
and Bruce R. Foster (*)(19)                                 
|              
|10.29          | Employment Agreement, dated as of July 1, 2003, between
4Kids Entertainment Licensing, Inc.
and Brian Lacey. (included herein)                             
|              
|10.30          | Amendment Agreement dated March 14, 2006 between 4Kids Entertainment, Inc. and Fox Broadcasting Company. (included herein)                                 
|              
|21.1           | List of Subsidiaries of the Registrant.                                                                                                                    
|              
|23.1           | Consent of Eisner LLP, Independent Registered Public Accounting Firm.                                                                                      
|              
|23.2           | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.                                                                           
|              
|31.1           | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,                                                                               
|               | as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                      
|              
|31.2           | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,                                                                               
|               | as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                      
|              
|32.1           | Joint Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18                                                                  
|               | U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                 

---

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

|-25-
|----

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

| | (16) | Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended
               June 30, 2003 (File No. 001-16117).
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------

| | (17) | Incorporated by reference to Annual Report on Form 10-K for the year ended
               December 31, 1996 (File No. 000-07843).
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------

| | (18) | Incorporated by reference to Current Report on Form 8-K dated July 7, 2005 (File No. 001-16117).
| | ---- | ------------------------------------------------------------------------------------------------

| | (19) | Incorporated by reference to Current Report on Form 8-K dated January 13, 2006 (File No. 001-16117).
| | ---- | ----------------------------------------------------------------------------------------------------

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

|-26-

REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors
and Stockholders4Kids Entertainment, Inc.


We have audited the accompanying
consolidated balance sheet of 4Kids Entertainment, Inc. and Subsidiaries (the
Company) as of December 31, 2005 and the related consolidated statements of
income, stockholders equity and comprehensive income, and cash flows for the year
then ended. 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 audit.


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


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


We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over financial reporting as of
December 31, 2005, based on criteria established in the Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission,
and our report dated March 13, 2006 expressed an unqualified opinion on managements
assessment of, and the effective operation of, internal control over financial reporting.


/s/ Eisner LLP


New York, New YorkMarch
13, 2006






F-1


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




We have audited managements
assessment, included in the accompanying Managements Report on Internal Control Over
Financial Reporting, that 4Kids Entertainment, Inc. maintained effective internal control
over financial reporting as of December 31, 2005, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). 4Kids Entertainment, Inc.s management
is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements assessment and an opinion on
the effectiveness of the Companys internal control over financial reporting based on
our audit.


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


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


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


In our opinion, managements
assessment that 4Kids Entertainment, Inc. maintained effective internal control over
financial reporting as of December 31, 2005, is fairly stated, in all material respects,
based on the COSO criteria. Also, in our opinion, 4Kids Entertainment, Inc. maintained, in
all material respects, effective internal control over financial reporting as of December
31, 2005, based on the COSO criteria.


We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of 4Kids Entertainment, Inc. and subsidiaries as of December
31, 2005, and the related consolidated statements of income, stockholders equity and
comprehensive income, and cash flows for year then ended, and our report dated March 13,
2006 expressed an unqualified opinion on those financial statements.



/s/ Eisner LLP


New York, New YorkMarch
13, 2006


F-2



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM


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


We have audited the accompanying consolidated balance sheet of 4Kids Entertainment, Inc. and subsidiaries (the Company) as of
December 31, 2004, and the related consolidated statements of income, stockholders' equity and comprehensive income and cash flows for each of the two years
in the period ended December 31, 2004.  These financial statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on our audits.


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


In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of 4Kids
Entertainment, Inc. and Subsidiaries as of December 31, 2004, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of
America.


/s/ Deloitte &
Touche LLP


New York, NYMarch
16, 2005


F-3



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

CONSOLIDATED BALANCE SHEETS
                                                 DECEMBER 31, 2005 and 2004
                                             (In thousands of dollars, except share data)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2005                                                                        | 2004
|--------------------------------------------------------------------------- | ----
|CURRENT ASSETS:                                                            
|Cash and cash equivalents                                                   |     
|Investments                                                                 |     
|                                                                            |     
|Total cash and investments                                                  |     
|                                                                           
|Accounts receivable - net                                                   |     
|Prepaid 4Kids TV broadcast fee, net of accumulated amortization             |     
|of $90,714 and $64,306 in 2005 and 2004, respectively                       |     
|Prepaid income taxes                                                        |     
|Prepaid expenses and other current assets                                   |     
|Deferred income taxes                                                       |     
|                                                                            |     
|Total current assets                                                        |     
|                                                                           
|PROPERTY AND EQUIPMENT - NET                                                |     
|                                                                           
|OTHER ASSETS:                                                               |     
|Accounts receivable - noncurrent, net                                       |     
|Investment in equity securities                                             |     
|Film and television costs - net                                             |     
|Deferred income taxes - noncurrent                                          |     
|Other assets - net                                                          |     
|                                                                            |     
|TOTAL ASSETS                                                                |     
|                                                                            |     
|LIABILITIES AND STOCKHOLDERS' EQUITY                                        |     
|                                                                           
|CURRENT LIABILITIES:                                                        |     
|Due to licensors                                                            |     
|Media payable                                                               |     
|Accounts payable and accrued expenses                                       |     
|Deferred revenue                                                            |     
|                                                                            |     
|Total current liabilities                                                   |     
|DEFERRED RENT                                                               |     
|                                                                            |     
|Total liabilities                                                           |     
|                                                                            |     
|COMMITMENTS AND CONTINGENCIES                                              
|                                                                           
|STOCKHOLDERS' EQUITY                                                        |     
|Preferred stock, $.01 par value - authorized, 3,000,000 shares; none issued |     
|Common stock, $.01 par value - authorized, 40,000,000 shares;               |     
|issued, 14,826,643 and 14,411,768 shares; outstanding 13,076,643 and        |     
|13,661,768 shares in 2005 and 2004, respectively                            |     
|Additional paid-in capital                                                  |     
|Accumulated other comprehensive income                                      |     
|Retained earnings                                                           |     
|                                                                            |     
|                                                                            |     
|Less- cost of  1,750,000 and  750,000 treasury                              |     
|shares in 2005 and 2004, respectively                                       |     
|                                                                            |     
|                                                                            |     
|                                                                            |     
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  |     
|                                                                            |     

|See notes to consolidated financial
statements.


F-4


4KIDS ENTERTAINMENT,
INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMEYEARS ENDED DECEMBER 31,
2005, 2004 AND 2003(In thousands of dollars, except share data)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                | 2005 | 2004             | 2003
|----------------------------------------------- | ---- | ---------------- | ----
|NET REVENUES                                    |      | $       86,662   |     
|                                                |      |                  |     
|                                                |      |                  |     
|COSTS AND EXPENSES:                             |     
|Selling, general and administrative             |      | 36,436           |     
|Production service costs                        |      | 8,851            |     
|Amortization of television and film costs       |      | 9,790            |     
|Amortization of 4Kids TV broadcast fee          |      | 26,408           |     
|                                                |      |                  |     
|Total costs and expenses                        |      | 81,485           |     
|                                                |      |                  |     
|INCOME FROM OPERATIONS                          |      | 5,177            |     
|                                                |     
|OTHER INCOME                                    |     
|Interest income                                 |      | 2,834            |     
|Gain on sale of investment in equity securities |      | 234              |     
|                                                |      |                  |     
|Total other income                              |      | 3,068            |     
|                                                |      |                  |     
|INCOME BEFORE INCOME TAXES                      |      | 8,245            |     
|                                                |     
|INCOME TAXES                                    |      | 3,176            |     
|                                                |      |                  |     
|NET INCOME                                      |      | $         5,069  |     
|                                                |      |                  |     
|                                                |      |                  |     
|PER SHARE AMOUNTS:                              |     
|Basic earnings per common share                 |      | $           0.39 |     
|                                                |      |                  |     
|                                                |      |                  |     
|Diluted earnings per common share               |      | $           0.37 |     
|                                                |      |                  |     
|Weighted average common shares                  |     
|outstanding - basic                             |      | 13,115,687       |     
|                                                |      |                  |     
|                                                |      |                  |     
|Weighted average common shares                  |     
|outstanding - diluted                           |      | 13,536,830       |     
|                                                |      |                  |     
|                                                |      |                  |     

|See notes to consolidated financial
statements.


F-5



4KIDS ENTERTAINMENT,
INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS
OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003 (In thousands of dollars and shares)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        |  |        |  |      |  |        
|--------------------------------------- |  | ------ |  | ---- |  | -------
|
|                                        |  |        |  |      |  |        
|BALANCE, DECEMBER 31, 2002              |  | 13,135 |  | $131 |  | $40,411
|                                        |  |        |  |      |  |        
|Proceeds from exercise of stock options |  | 830    |  | 9    |  | 6,399  
|Tax benefit from exercise of stock      | 
|options                                 |  | --     |  | --   |  | 5,988  
|Comprehensive income:                   | 
|Net income                              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|Translation adjustment                  |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|                                        |  |        |  |      |  |        
|Total comprehensive income              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|BALANCE, DECEMBER 31, 2003              |  | 13,965 |  | $140 |  | $52,798
|Proceeds from exercise of stock options |  | 446    |  | 4    |  | 2,295  
|Tax benefit from exercise of stock      | 
|options                                 |  | --     |  | --   |  | 2,975  
|                                        |  |        |  |      |  |        
|Acquisition of treasury stock, at cost  |  | --     |  | --   |  | --     
|Comprehensive income:                   | 
|                                        |  |        |  |      |  |        
|Net income                              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|Translation adjustment                  |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|Total comprehensive income              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|BALANCE, DECEMBER 31, 2004              |  | 14,411 |  | $144 |  | $58,068
|Proceeds from exercise of stock options |  | 415    |  | 4    |  | 1,345  
|Tax benefit from exercise of stock      | 
|options                                 |  | --     |  | --   |  | 2,002  
|                                        |  |        |  |      |  |        
|Acquisition of treasury stock, at cost  |  | --     |  | --   |  | --     
|Comprehensive income:                   | 
|                                        |  |        |  |      |  |        
|Net income                              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|Translation adjustment                  |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|Total comprehensive income              |  | --     |  | --   |  | --     
|                                        |  |        |  |      |  |        
|BALANCE, DECEMBER 31, 2005              |  | 14,826 |  | $148 |  | $61,415
|                                        |  |        |  |      |  |        

|See notes to consolidated financial
statements.


F-6



4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                                             (In thousands of dollars)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                        | 2005 | 2004         | 2003
|------------------------------------------------------- | ---- | ------------ | ----
|CASH FLOWS FROM OPERATING ACTIVITIES:                   |      |              |     
|Net income                                              |      | $     5,069  |     
|Adjustments to reconcile net income to net cash         |     
|provided by (used in) operating activities:             |     
|Depreciation and amortization                           |      | 1,141        |     
|Amortization of television and film costs               |      | 9,790        |     
|Amortization of 4Kids TV broadcast fee                  |      | 26,408       |     
|Provision for (recovery of) doubtful accounts           |      | 195          |     
|Deferred income taxes                                   |      | (38          | )   
|Gain on sale of investment in equity securities         |      | (234         | )   
|Tax benefit on exercise of stock options                |      | 2,002        |     
|Changes in operating assets and liabilities:            |     
|Accounts receivable                                     |      | 5,224        |     
|Film and television costs                               |      | (11,480      | )   
|Prepaid income taxes                                    |      | 762          |     
|Prepaid 4Kids TV broadcast fee                          |      | (26,023      | )   
|Prepaid expenses and other current assets               |      | (247         | )   
|Other assets - net                                      |      | 1,169        |     
|Due to licensors                                        |      | (3,356       | )   
|Media payable                                           |      | (2,273       | )   
|Accounts payable and accrued expenses                   |      | (3,314       | )   
|Deferred revenue                                        |      | (1,558       | )   
|Deferred rent                                           |      | 5            |     
|                                                        |      |              |     
|Net cash provided by operating activities               |      | 3,242        |     
|                                                        |      |              |     
|CASH FLOWS FROM INVESTING ACTIVITIES:                   |     
|Proceeds from maturities of investments                 |      | 53,938       |     
|Purchase of investments                                 |      | (116,254     | )   
|Purchase of property and equipment                      |      | (857         | )   
|Proceeds from disposal of property, plant and equipment |      | 6            |     
|Proceeds from sale of investment in equity securities   |      | 960          |     
|                                                        |      |              |     
|Net cash (used in)  provided by investing activities    |      | (62,207      | )   
|                                                        |      |              |     
|CASH FLOWS FROM FINANCING ACTIVITIES:                   |     
|Proceeds from exercise of stock options                 |      | 1,349        |     
|Purchase of treasury shares                             |      | (18,305      | )   
|                                                        |      |              |     
|Net cash (used in) provided by financing activities     |      | (16,956      | )   
|                                                        |      |              |     
|EFFECTS OF EXCHANGE RATE CHANGES ON CASH                |     
|AND CASH EQUIVALENTS                                    |      | (696         | )   
|                                                        |      |              |     
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS    |      | (76,617      | )   
|                                                        |     
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR            |      | 111,759      |     
|                                                        |      |              |     
|CASH AND CASH EQUIVALENTS, END OF YEAR                  |      | $   35,142   |     
|                                                        |      |              |     
|                                                        |      |              |     
|                                                        |      |              |     
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:       |     
|                                                        |     
|CASH PAID DURING THE YEAR FOR:                          |     
|Income Taxes                                            |      | $        437 |     
|                                                        |      |              |     

|See notes to consolidated financial
statements.


F-7



4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                 YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                                             (In thousands of dollars, except share and per share data)
1. DESCRIPTION OF
BUSINESS


General Development and
Narrative Description of Business  4Kids Entertainment, Inc., together with the subsidiaries through which the Companys
businesses are conducted (the Company), is a diversified entertainment and
media company specializing in the youth oriented market with operations in the following
business segments: Licensing, Advertising Media and Broadcast, and Television and Film
Production/Distribution.


Licensing 
The Companys wholly-owned subsidiary, 4Kids Entertainment Licensing, Inc.
(4Kids Licensing), is engaged in the business of licensing the merchandising
rights to popular childrens television series, properties and product concepts
(collectively the Properties or individually the Property). 4Kids
Licensing typically acts as exclusive merchandising agent in connection with the grant to
third parties of licenses to manufacture and sell all types of merchandise, including
toys, videogames, trading cards, apparel, housewares, footwear, books and other published
materials, based on such Properties. 4Kids Entertainment International, Ltd. (4Kids
International), the Companys wholly-owned subsidiary based in London, manages
the Properties represented by the Company in the United Kingdom and European marketplaces.


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


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


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


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


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


2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES


Principles of
Consolidation  The accompanying consolidated financial statements
include the accounts of 4Kids Entertainment, Inc. and its wholly-owned subsidiaries after
elimination of significant intercompany transactions and balances. These consolidated
financial statements reflect the use of significant accounting policies, as described
below and elsewhere in the notes to the consolidated financial statements. These financial
statements are prepared in accordance with accounting principles generally accepted in the
United States of America.


F-8

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


Broadcast advertising
revenues: Advertising revenues are recognized when the related commercials
are aired and are recorded net of agency commissions and an appropriate reserve when
advertising is sold together with a guaranteed audience delivery. Internet advertising
revenues are recognized on the basis of impression views in the period the advertising is
displayed. Fee-based commissions for media planning and buying services, for clients in
both print and broadcast media, are recognized at the time the related media runs.


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


Production and adaptation costs
charged to the licensor are included in net revenues and the corresponding costs are
included in production service costs in the accompanying consolidated statements of
income. Production service costs included in net revenues amounted to $8,288, $9,629, and
$7,005 in 2005, 2004 and 2003, respectively.


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


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


Advertising
Expense  Advertising costs are expensed as incurred, except for costs
related to the development of a Property and/or animated or live-action television program
commercial or media campaign which are expensed in the period in which the commercial or
campaign is first presented. Advertising expense included in selling, general and
administrative expenses on the accompanying consolidated statements of income was
$1,927, $1,773 and $2,908 in 2005, 2004 and 2003, respectively.


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


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


Cash and Cash
Equivalents  All highly liquid investments with original maturities
of three months or less are classified as cash and cash equivalents. The fair value of
cash and cash equivalents approximates the amounts shown on the financial statements. Cash
and cash equivalents consist of unrestricted cash accounts in various banks which maintain balances in excess
of the Federal Deposit Insurance Corporation (FDIC) insured limit of $100 per bank
account. At December 31, 2005 and 2004, the cash in excess of the insured limit aggregated
$27,421 and $58,913, respectively.


F-9

Prepaid 4Kids TV Broadcast
Fee  The Company has capitalized the broadcast fee paid to Fox and
amortized the amount over the broadcast season based on estimated advertising revenue.
During 2005, the Company paid Fox and certain affiliates $6,768 and $19,255, respectively,
attributable to the third and fourth years broadcast fees, respectively, and during
2004, the Company paid Fox and certain affiliates $6,934 and $19,228, respectively,
attributable to the second and third years broadcast fees, respectively. The
unamortized portion of these fees of $6,606 and $6,991, respectively, are included in
Prepaid 4Kids TV broadcast fee on the accompanying consolidated balance sheets
as of December 31, 2005 and 2004, respectively.


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

Debt  securities  for which the Company has both the intent and ability to hold to maturity are classified as  held-to-maturity  and are
recorded at amortized cost.  At December 31, 2005 and 2004, the Company's investments in debt securities were classified as current assets.


Investment in Equity
Securities  In September 2001, the Company purchased a 3% equity
interest in the Pokémon Company, a closely held Japanese company, which was
organized in 1998 by Nintendo Co. Ltd, Creatures, Inc. and Game Freak, Inc. (the
Investment Group), to manage and control all rights to
Pokémon throughout the world. The Company accounted for this investment
on a cost basis. In October 2005, the Company sold its interest in equal shares to the
members of the Investment Group for aggregate proceeds of $960, resulting in a gain of
$234 as reflected on the accompanying consolidated statements of income.


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


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


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


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


Reclassifications
 Certain reclassifications have been made to prior year amounts to conform with the 2005 presentation. These
reclassifications included $322 of property and equipment that had been previously classified as prepaid and
other current assets in 2004 as well as $829 and $606 of amortization of television and film costs in 2004 and
2003, respectively, that had previously been included as selling, general and administrative expenses.


F-10

Translation of Foreign Currency
In accordance with SFAS No. 130, Reporting Comprehensive
Income (SFAS No. 130), the Company classifies items of other comprehensive
income by their nature in the financial statements and displays the accumulated balance of
other comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the consolidated balance sheet. The assets and
liabilities of the Companys foreign subsidiary, 4Kids International have been
recorded in their local currency and translated to U.S. dollars using period-end exchange
rates. Income and expense items have been translated at the average rate of exchange
prevailing during the period. Any adjustment resulting from translating the financial
statements of the foreign subsidiary is reflected as other comprehensive
income, net of related tax. Comprehensive income for the years ended December 31,
2005, 2004 and 2003 was $4,373, $13,161 and $15,420, respectively, which included
translation adjustments of ($696), $431 and $621 for the respective periods.


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


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


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




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

|                                              | 2005 | 2004     | 2003
|--------------------------------------------- | ---- | -------- | ----
|Net income as reported                        |      | $5,069   |     
|Deduct stock-based employee                   |     
|compensation expense determined               |     
|under fair value based method                 |     
|for all applicable awards granted, net of tax |      | 3,619    |     
|                                              |      |          |     
|                                              |      |          |     
|Pro forma net income                          |      | $1,450   |     
|                                              |      |          |     
|                                              |      |          |     
|Net income per share:                         |     
|Reported                                      |     
|Basic                                         |      | $   0.39 |     
|                                              |      |          |     
|Diluted                                       |      | $   0.37 |     
|                                              |      |          |     
|Pro forma                                     |     
|Basic                                         |      | $   0.11 |     
|                                              |      |          |     
|Diluted                                       |      | $   0.11 |     
|                                              |      |          |     

|F-11

The Company issued stock option
grants for underlying shares of 776, 596, and 624, at weighted average exercise prices of
$19.99, $22.37 and $11.80, in 2005, 2004 and 2003, respectively. Each of the stock option
grants has a (i) five year life; (ii) is immediately exercisable with respect to 50
percent of the underlying shares; and (iii) becomes exercisable with respect to the
remaining 50 percent on the first anniversary date of the grant, except for the 2005
grants which became exercisable with respect to the remaining 50 percent by December 31,
2005.


The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model. The
weighted average assumptions used for options granted in 2005, 2004 and 2003 included no
dividend yield for the periods, expected volatility of approximately 38%, 58% and 60% for
2005, 2004 and 2003 respectively, a risk-free interest rate of approximately 3.76%, 2.06%
and 1.92% for 2005, 2004 and 2003, respectively, and an option duration of 3.6, 3.7 and
3.5 years for 2005, 2004 and 2003, respectively. The weighted average fair value of
options granted is $6.55 in fiscal 2005, $10.27 in fiscal 2004 and $5.07 in fiscal 2003.


Recently Issued Accounting
Pronouncements  On October 22, 2004, the President signed the American Jobs
Creation Act of 2004(the Act).  On December 21, 2004, the Financial
Accounting Standards Board (FASB) issued two FASB Staff Positions
(FSP) regarding the accounting implications of the Act related to (1) the
deduction for qualified domestic production activities  FSP Statement of Financial
Accounting Standards (SFAS) No. 109-1 and (2) the one-time tax benefit for the
repatriation of foreign earnings  FSP SFAS No. 109-2.  The guidance in the FSPs
applies to financial statements for periods ending after the date the Act was
enacted.  The Act provides a deduction of up to 9 percent (when fully phased-in) of
the lesser of (a) qualified production activities income, as defined by the Act and (b)
taxable income (after the deduction for the utilization of any net operating loss
carryforwards).  This tax deduction is limited to 50 percent of W-2 wages paid by the
taxpayer.  The Act also creates a temporary incentive for U.S. corporations to
repatriate accumulated income earned abroad by providing an 85 percent dividends received
deduction for certain dividends from controlled foreign corporations.  The Company
believes that the adoption of this new tax provision will not have a material effect on
its consolidated financial position or results of operations.


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


SFAS No. 123-R is effective for
fiscal years beginning after June 15, 2005. The Company adopted SFAS No. 123-R
effective January 1, 2006, using a modified prospective application. This application
requires the Company to record compensation expense for all awards granted after January
1, 2006 and for the unvested portion of previously granted awards that remain outstanding
as of such date. The Companys adoption of SFAS No. 123-R did not result in the
recording of compensation expense in 2006 with respect to options previously granted as
all of the Companys outstanding options were fully vested at December 31, 2005.
However, the impact of the adoption of SFAS No. 123-R with respect to options granted
after the effective date cannot be determined at this time as it will depend on the level
of share-based payments granted in the future.


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


F-12

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


Accounting for Income Taxes
 In July 2005, the FASB issued an exposure draft of an Interpretation of SFAS No.
109, Accounting for Income Taxes. This proposed Interpretation would clarify the
accounting for uncertain tax positions. An enterprise would be required to recognize, in
its financial statements, the best estimate of the impact of a tax position only if that
position is probable of being sustained based solely on the technical merits of the
position. In evaluating whether the probable recognition threshold has been met, this
proposed Interpretation would require the presumption that the tax position will be
evaluated during an audit by taxing authorities. The term probable is used in this
proposed Interpretation consistent with its use in SFAS No. 5, Accounting for
Contingencies, to mean that the future event or events are likely to
occur. Individual tax positions that fail to meet the probable recognition threshold
will generally result in the inability to recognize the benefit of such position in the
financial statements. This proposed Interpretation also provides guidance on disclosure,
accrual of interest and penalties, accounting in interim periods and transition. If
adopted as proposed, this Interpretation would apply to financial statements effective as
of the end of the first fiscal year ending after December 15, 2005. The Company believes
that the Interpretation, if adopted as proposed, will not have a material effect on its
consolidated financial position or results of operations.


3. INVESTMENTS



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

|4. ACCOUNTS RECEIVABLE
AND MEDIA PAYABLE/DUE TO LICENSORS


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


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


Additionally, accounts receivable
include amounts due from customers for advertising revenue earned from airing commercial
spots on 4Kids TV, as well as amounts due from clients for earned commissions and the
cost of related media placed on their behalf in circumstances where the Company is
assuming the liability for the client for such media. In such circumstances, the Company
will record a corresponding liability for media payable.


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

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

|F-13



5. FILM AND TELEVISION COSTS

Film and television costs consisted of the following as of:
|-------------------------------------------------------------------------------------------------

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

|Amortization of capitalized film and television costs were $9,790,  $9,639 and $10,549 in 2005, 2004 and 2003,  respectively.  Based on
management's  ultimate  revenue  estimates as of December 31, 2005,  approximately  56% of the total completed and unamortized film and
television  costs are expected to be amortized  during 2005, and over 90% of the total  completed and  unamortized  film and television
costs are expected to be amortized during the next three years.



6. PROPERTY AND EQUIPMENT



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

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

|7. STOCKHOLDERS
EQUITY


Equity Incentive Plan


The Company has a Long-term Incentive
Compensation Plan (the 2005 Plan) that was approved by the Companys
stockholders in 2005. The 2005 Plan permits the grant of the following types of incentive
awards: (1) stock options, (2) stock appreciation rights, (3) restricted stock, (4)
restricted share units, (5) stock awards, and (6) performance shares. The 2005 Plan is
intended to attract, motivate and retain (1) employees of 4Kids and its subsidiaries and
(2) both employee and non-employee directors of 4Kids.


The 2005 Plan authorizes the issuance
of up to 600,000 shares of common stock, of which no more than 100,000 shares may be
issued pursuant to incentive stock options. As of December 31, 2005, the Company had
600,000 shares reserved and available for issuance as no incentive awards had been granted
under the 2005 Plan.


F-14

Stock Options


The Company has various stock option
plans (the Plans). Options may be exercised for a period of not more than ten
years after the date of grant. Unless otherwise determined by the Companys
Compensation Committee or by contract with the recipient of the stock option grant, each
option is immediately exercisable with respect to 50 percent of the shares subject to the
option and becomes exercisable with respect to the remaining 50 percent on the first
anniversary of the date of grant. Options granted during 2005 became immediately
exercisable with respect to 50 percent of the shares subject to the option and became
exercisable with respect to the remaining 50 percent by December 31, 2005. Certain of the
Plans permit the Committee to grant nonqualified options, with an exercise price of not
less than 85 percent of the fair market value of the common stock; all other options must
be at 100 percent of the fair market value. The Companys options have all been
granted at an exercise price per share equal to the fair market value of the common stock
as of the grant date.


Changes in the Companys stock
options for the three year period ended December 31, 2005 were as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | 2005 | 2004  | 2003
|-------------------------------------- | ---- | ----- | ----
|
|Options outstanding, beginning of year |      | 2,396 |     
|Granted                                |      | 776   |     
|Exercised                              |      | (415  | )   
|Cancelled                              |      | (75   | )   
|                                       |      |       |     
|Options outstanding, end of year       |      | 2,682 |     
|                                       |      |       |     
|Options exercisable, end of year       |      | 2,682 |     
|                                       |      |       |     

|Under the Company's stock option plans, options to purchase 34 shares of the Company's common stock were available at December 31,
2005 for future issuance.
|------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       | Options Outstanding | Options Exercisable
|---------------------- | ------------------- | -------------------
|
|$ 0.92    -    $1.38   |                     | 120                
|$ 3.10    -    $ 4.66  |                     | 75                 
|$ 8.94    -    $ 13.41 |                     | 572                
|$ 13.42   -   $ 20.11  |                     | 572                
|$ 20.12   -   $ 30.16  |                     | 1,243              
|$ 30.17   -   $ 33.28  |                     | 100                
|                       |                     |                    
|                       |                     |                    
|                       |                     | 2,682              
|                       |                     |                    
|                       |                     |                    

|F-15
8. REVENUES/MAJOR
CUSTOMERS


Net revenues included in the
accompanying consolidated statements of income are net of licensor participations of
$54,492, $72,531 and $54,237 in 2005, 2004 and 2003, respectively. The percentages of
revenue from major Properties and customers/licensees are as follows:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|As of December 31, 2005 and 2004,
accounts receivable due from major customers/licensees listed above represented 11% and
14% of the Companys gross accounts receivable, respectively.


9. INCOME TAXES


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


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

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

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

|                              | 2005 | % of
Pretax | 2004 | % of
Pretax | 2003 | % of
Pretax
|----------------------------- | ---- | ----------- | ---- | ----------- | ---- | -----------
|Tax at Federal statutory rate |      | $ 2,803     |      | 34          | .0%  | $ 7,463    
|Increase (decrease) in:       |     
|State and local taxes - net   |      | 596         |      | 7           | .2   | 1,546      
|Other - net                   |      | (223        | )    | (2          | .7)  | (417       
|                              |      |             |      |             |      |            
|Income taxes                  |      | $ 3,176     |      | 38          | .5%  | $ 8,592    
|                              |      |             |      |             |      |            

|F-16
The income tax effects of temporary
differences that give rise to deferred tax assets and liabilities are as follows:
|--------------------------------------------------------------------------------------------------------------------------

|                               | 2005 | 2004     
|------------------------------ | ---- | ---------
|Deferred Tax Assets:           |      |          
|Film and television costs      |      | $1,057   
|                               |      |          
|Accounts receivable allowances |      | 440      
|Deferred rent                  |      | 406      
|Property and Equipment         |      | 534      
|                               |      |          
|Total deferred tax assets      |      | $2,437   
|                               |      |          
|Deferred Tax Liability:        |     
|Accrued minimum guarantees     |      | $      --
|                               |      |          
|Total deferred tax liability   |      | --       
|                               |      |          
|Net deferred tax asset         |      | $2,437   
|                               |      |          

|                                               | 2005 | 2004   
|---------------------------------------------- | ---- | -------
|Amounts recognized in the Consolidated Balance |      |        
|Sheets consist of:                             |     
|Deferred tax asset - current                   |      | $   466
|Deferred tax asset - long-term                 |      | 1,971  
|                                               |      |        
|Net deferred tax asset                         |      | $2,437 
|                                               |      |        

|Income tax benefits related to the
exercise of stock options reduced current taxes payable and increased additional paid-in
capital by $2,002, $2,975 and $5,988 in 2005, 2004 and 2003, respectively.


In accordance with SFAS No. 109, we
have performed an evaluation of the recoverability of our deferred tax assets. It is our
opinion that it is more likely than not that the deferred tax assets will be realized and
should not be reduced by a valuation allowance.


The Company has determined that
earnings through 2005 of approximately $6,363 from its foreign subsidiary will remain
invested overseas for the indefinite future and, accordingly, no deferred tax liability
has been recognized. If such earnings were to be repatriated, the income tax liability is
estimated to be approximately $320.


10. EARNINGS PER SHARE


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

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

|F-17
|----

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

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

|For the years ended December 31,
2005, 2004 and 2003, approximately 1,915, 1,168 and 248 shares, respectively, attributable
to the exercise of outstanding options, were excluded from the calculation of diluted EPS
because the effect was antidilutive.


11. DEFINED CONTRIBUTION
PLAN


The Company participates in a 401(k)
plan covering substantially all employees. Benefits vest based on number of years of
service. The Companys policy is to match 25% of the first 6% of the covered
employees annual salary, as defined by the plan. Contributions to the plan by the
Company amounted to $201, $213 and $124 for the years ended December 31, 2005, 2004 and
2003, respectively.


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

| | a. | Bonus Plan  Bonuses under the Companys Bonus Plan are based
               upon an amount of up to 10 percent of pretax profits. Key officers and
               employees, as designated by the Board of Directors, can be included in the Bonus
               Plan. For 2005, 2004 and 2003, the Board of Directors awarded the Chairman and
               CEO of the Company approximately $0, $890 and $1,275, respectively. An
               additional amount of approximately $925, $1,469 and $1,466 was granted to
               employees in 2005, 2004 and 2003, respectively.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-18

---

| | b. | Leases  The Company leases certain office, administration and
               production facilities. Commitments for minimum rentals, not including common
               charges, under non-cancellable leases at the end of 2005 are as follows:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year ending
December 31, | Amount
|------------------------ | ------
|2006                     | $2,072
|2007                     | 1,344 
|2008                     | 1,298 
|2009                     | 1,190 
|2010                     | 277   
|                         |       
|                         |       
|Total                    | $6,181
|                         |       
|                         |       

| |  | Rent
expense for all operating leases charged against earnings amounted to $1,908, $1,945, and
$1,714 in 2005, 2004 and 2003, respectively.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------

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

| | d. | Employment Contracts  The Company has employment agreements
          and arrangements with its executive officers and certain management personnel.
          The agreements generally continue until terminated by the executive or the
          Company, and provide for severance payments under certain circumstances. The
          majority of the agreements and arrangements provide the employees with certain
          additional rights after a Change of Control (as defined) of the Company occurs.
          The agreements include a covenant against competition with the Company which
          extends for a period of time after termination for any reason. As of December
          31, 2005, if all of the employees under contract were terminated by the Company
          without good cause or following a Change of Control, (as defined) under these
          contracts, the Companys liability would be approximately $11,997 or
          $9,472, respectively. These employment agreements provide for an aggregate
          minimum annual base compensation of $3,985 expiring on various dates through
          2009.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | The
Company has deferred all amounts received under the contract, and recognizes revenue as
the Current Music Assets and Future Music Assets generate revenue over the contract term.
Notwithstanding the foregoing, as of the date the Company has delivered all of the
Future Music Assets required under the contract, any portion of the $5,000 that remains
deferred and not recognized, will be recognized as revenue. Pursuant to the above,
the Company recognized revenues of $544 and $632 for the years ended December 31, 2005 and
2004, respectively. The Company has included $3,120 and $3,164 as deferred revenue on the
accompanying consolidated balance sheets as of December 31, 2005 and 2004,
respectively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Home
Video  At various dates since May 2002, 4Kids Home Video, entered into various
agreements with an unaffiliated third party home video distributor (the Video
Distributor), pursuant to which 4Kids Home Video provides ongoing advertising,
marketing and promotional services with respect to certain home video titles, that are
owned or controlled by the Company and which are distributed by the Video Distributor. The
Video Distributor has paid the Company advances of $3,845 ($175 during the year ended
December 31, 2005) against 4Kids Home Videos share of the distribution and service
fee proceeds to be realized by 4Kids Home Video from such titles. Pursuant to the above,
the Company recognized revenue of $147 and $337 for the years ended December 31, 2005 and
2004, respectively. The Company has included $461 and $433 as deferred revenue on the
accompanying consolidated balance sheets as of December 31, 2005 and 2004, respectively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-19
|----

| |  | Other
Agreements  In addition, the Company entered into other agreements for various
Properties and advertising time on the 4Kids TV in which the Company has received certain
advances and/or minimum guarantees. Accordingly, as of December 31, 2005 and 2004 the
unearned portion of these advances and guaranteed payments were $1,716 and $3,258,
respectively, and are included in deferred revenue on the accompanying consolidated
balance sheets.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | In
March 2006, the multi-year agreement was extended for two broadcast years through the
2007-2008 broadcast season. As of December 31, 2005, two equal payments of $3,163 remain
to be paid for the 2005-2006 broadcast season under the original agreement. The time-buy
fee for each of the 2006-2007 and 2007-2008 broadcast seasons will be $20,000 as compared
to the $25,312 paid for each broadcast year during the initial term of the multi-year
agreement. The fee is payable in quarterly installments of $5,000 each year beginning in
October 2006. The extension also provides Fox with the option to extend the agreement
through the 2008-2009 broadcast season under the same terms and conditions by providing
notice to the Company no later than August 31, 2007.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
costs of 4Kids TV is capitalized and amortized over each broadcast year based on estimated
advertising revenue for the related broadcast year. The Company recorded amortization
expense of $26,408, $27,859 and $27,003 for the years ended December 31, 2005, 2004 and
2003, respectively. During 2005, the Company paid Fox and certain Fox affiliates $6,768
and $19,255 attributable to the third and fourth years broadcast fees, respectively,
and during 2004, the Company paid Fox and certain Fox affiliates $6,934 and $19,228
attributable to the second and third years broadcast fees, respectively. The
unamortized portion of these fees of $6,606 and $6,991 are included in Prepaid 4Kids
TV broadcast fee on the accompanying consolidated balance sheets as of December 31,
2005 and 2004, respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | As
of December 31, 2005, the minimum guaranteed payment obligations under the 4Kids TV
Broadcast Agreement are as follows:
| |  | --------------------------------------------------------------------------------------------------------------------------

|Year ending
December 31, | Amount 
|------------------------ | -------
|2006                     | $11,326
|2007                     | 20,000 
|2008                     | 15,000 
|                         |        
|                         |        
|Total                    | $46,326
|                         |        
|                         |        

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

|F-20
|----

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

| | h. | Stock Purchases  In the fourth quarter of 2005, the Company
               completed the purchase of 1,000,000 shares of the Companys stock at an
               average price of $18.30 per share that had previously been authorized by the
               Board of Directors in November 2004. In November 2005, the Board of Directors
               authorized the Company to purchase up to 1,000,000 additional shares of the
               Companys common stock from time to time through December 31, 2006 in the
               open market or through negotiated prices. Such purchases are to be made out of
               the Companys surplus. Through March 15, 2006, no purchases relating to the
               additional 1,000,000 shares were made by the Company.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | i. | Subsequent Event In March 2006, the Company extended its
               multi-year agreement with Fox to broadcast 4Kids TV on the Fox Network for the
               2006-2007 and 2007-2008 broadcast seasons. The time buy fee payable to
               Fox for each of the 2006-2007 and 2007-2008 broadcast seasons will be $20,000 as
               compared to the $25,312 paid for each broadcast year during the initial term of
               the multi-year agreement. See section f. of this footnote for the Companys
               revised minimum guaranteed payment obligations under the 4Kids TV Broadcast
               Agreement.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. RELATED PARTY
TRANSACTIONS


The Companys Chairman and Chief
Executive Officer is the founder and President of The National Law Enforcement and
Firefighters Childrens Foundation (the Foundation). The Foundation is a
not-for-profit organization dedicated to helping the children of law enforcement and
firefighting personnel and working with law enforcement and firefighting organizations to
provide all children with valuable social and life skill programs. During the years ended
December 31, 2005, 2004 and 2003, the Company contributed approximately $125, $93, and
$37, respectively to the Foundation.


Brian Laceyhas been Executive
Vice President of International for 4Kids since July 2003. Prior to joining 4Kids, Mr.
Lacey was the President and founder of Lacey Entertainment, a New York-based worldwide
television marketing, production and distribution company (Lacey). Until July
2003, (when the agreement was terminated), Lacey provided consulting services to the
Company under a fee-based agreement pursuant to which the Company agreed to pay Lacey a
percentage of all programming sales placed by Lacey in the international marketplace as
the cash payments for such programming sales were received. During the year ended December
31, 2005, Lacey was paid approximately $1,291 with respect to this agreement. As of
December 31, 2005 and 2004, the Company has included $233 and $1,146, respectively, in
accounts payable and accrued expenses on its accompanying consolidated balance sheets for
remaining obligations due to Lacey under the former agreement.


F-21
14. SEGMENT AND RELATED
INFORMATION


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


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

|                                      | Licensing | Advertising
Media and
Broadcast | TV and Film
Production/
Distribution | Total   
|------------------------------------- | --------- | ------------------------------- | ------------------------------------ | --------
|2005:                                 |           |                                 |                                      |         
|Net revenues  from external customers |           | $  37,616                       |                                      | $ 24,715
|Amortization of televsion             |          
|and film costs                        |           | --                              |                                      | --      
|Amortization of 4Kids TV              |          
|broadcast fee                         |           | --                              |                                      | 26,408  
|Segment profit (loss)                 |           | 20,912                          |                                      | (12,587 
|Segment assets                        |           | 137,384                         |                                      | 22,266  
|Interest income                       |           | 2,724                           |                                      | 108     
|                                      |          
|2004:                                 |          
|Net revenues  from external customers |           | $  49,903                       |                                      | $ 24,113
|Amortization of televsion             |          
|and film costs                        |           | --                              |                                      | --      
|Amortization of 4Kids TV              |          
|broadcast fee                         |           | --                              |                                      | 27,859  
|Segment profit (loss)                 |           | 31,268                          |                                      | (13,235 
|Segment assets                        |           | 160,114                         |                                      | 21,089  
|Interest income                       |           | 1,444                           |                                      | 25      
|                                      |          
|2003:                                 |          
|Net revenues  from external customers |           | $  54,842                       |                                      | $ 22,544
|Amortization of television            |          
|and film costs                        |           | --                              |                                      | --      
|Amortization of 4Kids TV              |          
|broadcast fee                         |           | --                              |                                      | 27,003  
|Segment profit (loss)                 |           | 37,085                          |                                      | (14,583 
|Segment assets                        |           | 152,117                         |                                      | 20,366  
|Interest income                       |           | 1,094                           |                                      | 18      

|Additionally, through the
Companys London office and network of international subagents, which allow it to
license its Properties throughout the world, the Company recognized net revenues from
international sources primarily in Europe, of $10,943, $8,949 and $10,315 for the years
ended 2005, 2004 and 2003, respectively. At December 31, 2005 and 2004, net assets of the
Companys London office were $6,828 and $6,628, respectively.


F-22
15. SUMMARIZED QUARTERLY
DATA (UNAUDITED):


Following is a summary of the
quarterly results of operations for the years ended December 31, 2005 and 2004:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | Fiscal Quarter
|----------------------------- | --------------
|
|2005:                         |               
|Net revenues                  |               
|Income (loss) from operations |               
|Net income                    |               
|Basic earnings per share      |               
|Diluted earnings per share    |               
|                              |               
|2004:                         |               
|Net revenues                  |               
|Income from operations        |               
|Net income                    |               
|Basic earnings per share      |               
|Diluted earnings per share    |               

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


     _________________


F-23
|------------------------------------------------------------------------------------------------------------------------