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United States
Securities and Exchange Commission
Washington, D.C. 20549
 FORM 10-Q



|(X) | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2002
 or



|(   ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|----- | ----------------------------------------------------------------------------------------

Commission File Number: 23346
 EQUITY MARKETING, INC.
(Exact name of registrant as specified in its charter.)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 13-3534145                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

|                                         |  |           
|---------------------------------------- |  | ----------
|6330 San Vicente Blvd.
Los Angeles, CA   |  | 90048     
|(Address of principal executive offices) |  | (Zip Code)

(323) 932-4300
(Registrants telephone number, including area code)

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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X]      No [    ]

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practical date:

Common Stock, $.001 Par Value, 5,694,353 shares as of May 9, 2002.





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TABLE OF CONTENTS



|                              |                                                                                                |  |  |  |  |  |  | 
|----------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                  
|                              | ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|PART II. OTHER INFORMATION   
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                      
|SIGNATURES                   



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EQUITY MARKETING, INC.
 Index To Quarterly Report on Form 10-Q
Filed with the Securities and Exchange Commission
Three Months Ended March 31, 2002

|         |  |                       |  |                                                                                       |  |     
|-------- |  | --------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                       |  |                                                                                       |  | Page
|         |  |                       |  |                                                                                       |  |     
|        
|Part I.  |  | Financial Information |  |                                                                                      
|        
|         |  | Item 1.               |  | Financial Statements                                                                  |  | 3   
|        
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations |  | 14  
|        
|Part II. |  | Other Information     |  |                                                                                      
|        
|         |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                      |  | 19  

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PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

EQUITY MARKETING, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
 ASSETS

|                       |                                                                                                                       |                      |        |              |         |           |        |             |        | 
|---------------------- | --------------------------------------------------------------------------------------------------------------------- | -------------------- | ------ | ------------ | ------- | --------- | ------ | ----------- | ------ | 
|                       |                                                                                                                       |                      |        | December 31, |         | March 31,
|                       |                                                                                                                       |                      |        | 2001         |         | 2002     
|                       |                                                                                                                       |                      |        |              |         |          
|                       |                                                                                                                       |                      |        |              |         |           |        | (Unaudited)
|CURRENT ASSETS:        |                                                                                                                       |                      |        |              |         |           |        |            
|                       | Cash and cash equivalents                                                                                             |                      | $      | 21,935       |         |           | $      | 19,974      |       
|                       | Marketable securities                                                                                                 |                      |        | 7,200        |         |           |        | 7,200       |       
|                       | Accounts receivable (net of allowances of $2,336 and
$2,095 as of December 31, 2001 and March 31, 2002, respectively) |                      |        | 22,695       |         |           |        | 23,072      |       
|                       | Note receivable                                                                                                       |                      |        | 2,183        |         |           |        | 1,685       |       
|                       | Inventories                                                                                                           |                      |        | 9,337        |         |           |        | 10,262      |       
|                       | Prepaid expenses and other current assets                                                                             |                      |        | 6,775        |         |           |        | 6,415       |       
|                       |                                                                                                                       |                      |        |              |         |           |        |            
|                       |                                                                                                                       | Total current assets |        |              | 70,125  |           |        |             | 68,608 | 
|Fixed assets, net      |                                                                                                                       |                      | 4,178  |              |         |           | 4,112  |            
|Goodwill, net          |                                                                                                                       |                      | 24,690 |              |         |           | 24,395 |            
|Other intangibles, net |                                                                                                                       |                      | 749    |              |         |           | 709    |            
|Other assets           |                                                                                                                       |                      | 1,620  |              |         |           | 1,629  |            
|                       |                                                                                                                       |                      |        |              |         |           |        |            
|                       |                                                                                                                       | Total assets         |        | $            | 101,362 |           |        | $           | 99,453 | 
|                       |                                                                                                                       |                      |        |              |         |           |        |            

The accompanying notes are an integral part of these
condensed consolidated balance sheets.

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EQUITY MARKETING, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 LIABILITIES AND STOCKHOLDERS EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            |        |              |         |           |        |             |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------------ | ------- | --------- | ------ | ----------- | ------ | 
|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            |        | December 31, |         | March 31,
|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            |        | 2001         |         | 2002     
|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            |        |              |         |          
|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            |        |              |         |           |        | (Unaudited)
|CURRENT LIABILITIES:                                                                                                                                                                                                                        |                                                                                                                                                                            |                                            |        |              |         |           |        |            
|                                                                                                                                                                                                                                            | Accounts payable                                                                                                                                                           |                                            | $      | 22,114       |         |           | $      | 19,276      |       
|                                                                                                                                                                                                                                            | Accrued liabilities                                                                                                                                                        |                                            |        | 11,391       |         |           |        | 12,634      |       
|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            |        |              |         |           |        |            
|                                                                                                                                                                                                                                            |                                                                                                                                                                            | Total current liabilities                  |        |              | 33,505  |           |        |             | 31,910 | 
|LONG-TERM LIABILITIES                                                                                                                                                                                                                       |                                                                                                                                                                            |                                            | 2,335  |              |         |           | 2,156  |            
|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            |        |              |         |           |        |            
|                                                                                                                                                                                                                                            |                                                                                                                                                                            | Total liabilities                          |        |              | 35,840  |           |        |             | 34,066 | 
|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            |        |              |         |           |        |            
|                                                                                                                                                                                                                                           
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                               |                                                                                                                                                                            |                                            |        |              |         |           |        |            
|                                                                                                                                                                                                                                           
|Mandatory redeemable preferred stock, Series A senior cumulative
participating
convertible, $.001 par value per share, 25,000 issued and outstanding,
stated at liquidation
preference of $1,000 per share ($25,000), net of issuance costs |                                                                                                                                                                            |                                            | 23,049 |              |         |           | 23,049 |            
|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            |        |              |         |           |        |            
|                                                                                                                                                                                                                                           
|STOCKHOLDERS EQUITY:                                                                                                                                                                                                                       |                                                                                                                                                                            |                                            |        |              |         |           |        |            
|                                                                                                                                                                                                                                            | Preferred stock, $.001 par value per share, 1,000,000
shares authorized, 25,000 Series A issued and outstanding                                                            |                                            |        |             |         |           |        |            |       
|                                                                                                                                                                                                                                            | Common stock, $.001 par value per share, 20,000,000
shares authorized, 5,715,293 and 5,701,207 shares outstanding
as of December 31, 2001 and March 31, 2002, respectively |                                            |        |             |         |           |        |            |       
|                                                                                                                                                                                                                                            | Additional paid-in capital                                                                                                                                                 |                                            |        | 20,050       |         |           |        | 20,116      |       
|                                                                                                                                                                                                                                            | Retained earnings                                                                                                                                                          |                                            |        | 35,964       |         |           |        | 36,259      |       
|                                                                                                                                                                                                                                            | Accumulated other comprehensive income                                                                                                                                     |                                            |        | 242          |         |           |        | 13          |       
|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            |        |              |         |           |        |            
|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            | 56,256 |              |         |           | 56,388 |            
|Less                                                                                                                                                                                                                                       |                                                                                                                                                                            |                                            |        |              |         |           |        |            
|                                                                                                                                                                                                                                            | Treasury stock, 2,869,793 and 2,890,129 shares, at cost, as of
December 31, 2001 and March 31, 2002, respectively                                                          |                                            |        | (13,773      | )       |           |        | (14,040     | )     
|                                                                                                                                                                                                                                            | Unearned compensation                                                                                                                                                      |                                            |        | (10          | )       |           |        | (10         | )     
|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            |        |              |         |           |        |            
|                                                                                                                                                                                                                                            |                                                                                                                                                                            | Total stockholders equity                 |        |              | 42,473  |           |        |             | 42,338 | 
|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            |        |              |         |           |        |            
|                                                                                                                                                                                                                                            |                                                                                                                                                                            | Total liabilities and stockholders equity |        | $            | 101,362 |           |        | $           | 99,453 | 
|                                                                                                                                                                                                                                            |                                                                                                                                                                            |                                            |        |              |         |           |        |            

The accompanying notes are an integral part of these
condensed consolidated balance sheets.

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EQUITY MARKETING, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

|                                            |                                          |   |                    |       |      |   |           |       | 
|------------------------------------------- | ---------------------------------------- | - | ------------------ | ----- | ---- | - | --------- | ----- | 
|                                            |                                          |   | Three Months Ended
|                                            |                                          |   | March 31,         
|                                            |                                          |   |                   
|                                            |                                          |   | 2001               |       | 2002
|                                            |                                          |   |                    |       |     
|REVENUES                                    |                                          | $ | 28,027             |       |      | $ | 36,115    |      
|COST OF SALES                               |                                          |   | 19,837             |       |      |   | 26,904    |      
|                                            |                                          |   |                    |       |      |   |           |      
|                                            | Gross profit                             |   |                    | 8,190 |      |   |           | 9,211 | 
|                                            |                                          |   |                    |       |      |   |           |      
|OPERATING EXPENSES:                         |                                          |   |                    |       |      |   |           |      
|Salaries, wages and benefits                |                                          |   | 3,729              |       |      |   | 4,277     |      
|Selling, general and administrative         |                                          |   | 3,715              |       |      |   | 4,077     |      
|                                            |                                          |   |                    |       |      |   |           |      
|                                            | Total operating expenses                 |   |                    | 7,444 |      |   |           | 8,354 | 
|                                            |                                          |   |                    |       |      |   |           |      
|                                            | Income from operations                   |   |                    | 746   |      |   |           | 857   | 
|OTHER INCOME, net                           |                                          |   | 779                |       |      |   | 48        |      
|                                            |                                          |   |                    |       |      |   |           |      
|                                            | Income before provision for income taxes |   |                    | 1,525 |      |   |           | 905   | 
|PROVISION FOR INCOME TAXES                  |                                          |   | 610                |       |      |   | 235       |      
|                                            |                                          |   |                    |       |      |   |           |      
|                                            | Net income                               |   | $                  | 915   |      |   | $         | 670   | 
|                                            |                                          |   |                    |       |      |   |           |      
|NET INCOME                                  |                                          | $ | 915                |       |      | $ | 670       |      
|PREFERRED STOCK DIVIDENDS                   |                                          |   | 375                |       |      |   | 375       |      
|                                            |                                          |   |                    |       |      |   |           |      
|NET INCOME AVAILABLE TO COMMON STOCKHOLDERS |                                          | $ | 540                |       |      | $ | 295       |      
|                                            |                                          |   |                    |       |      |   |           |      
|BASIC NET INCOME PER SHARE                  |                                          | $ | 0.09               |       |      | $ | 0.05      |      
|                                            |                                          |   |                    |       |      |   |           |      
|BASIC WEIGHTED AVERAGE SHARES OUTSTANDING   |                                          |   | 6,106,644          |       |      |   | 5,708,343 |      
|                                            |                                          |   |                    |       |      |   |           |      
|DILUTED NET INCOME PER SHARE                |                                          | $ | 0.09               |       |      | $ | 0.05      |      
|                                            |                                          |   |                    |       |      |   |           |      
|DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING |                                          |   | 6,310,608          |       |      |   | 5,884,044 |      
|                                            |                                          |   |                    |       |      |   |           |      

The accompanying notes are an integral part of these
condensed consolidated statements.

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EQUITY MARKETING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)

|                                   |                                                       |   |                    |   |      |   |     |      |  
|---------------------------------- | ----------------------------------------------------- | - | ------------------ | - | ---- | - | --- | ---- | -
|                                   |                                                       |   | Three Months Ended
|                                   |                                                       |   | March 31,         
|                                   |                                                       |   |                   
|                                   |                                                       |   | 2001               |   | 2002
|                                   |                                                       |   |                    |   |     
|NET INCOME                         |                                                       | $ | 915                |   |      | $ | 670 |     
|OTHER COMPREHENSIVE INCOME (LOSS): |                                                       |   |                    |   |      |   |     |     
|                                   | Foreign currency translation adjustments              |   |                    |  |      |   |     | (234 | )
|                                   | Unrealized gain on foreign currency forward contracts |   |                    |  |      |   |     | 5    |  
|                                   |                                                       |   |                    |   |      |   |     |     
|COMPREHENSIVE INCOME               |                                                       | $ | 915                |   |      | $ | 441 |     
|                                   |                                                       |   |                    |   |      |   |     |     

The accompanying notes are an integral part of these
condensed consolidated statements.

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EQUITY MARKETING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

|                                                              |                                                                                             |              |                                             |                                                      |       |                    |         |      |    |      |        |  
|------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------ | ------------------------------------------- | ---------------------------------------------------- | ----- | ------------------ | ------- | ---- | -- | ---- | ------ | -
|                                                              |                                                                                             |              |                                             |                                                      |       | Three Months Ended
|                                                              |                                                                                             |              |                                             |                                                      |       | March 31,         
|                                                              |                                                                                             |              |                                             |                                                      |       |                   
|                                                              |                                                                                             |              |                                             |                                                      |       | 2001               |         | 2002
|                                                              |                                                                                             |              |                                             |                                                      |       |                    |         |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                         |                                                                                             |              |                                             |                                                      |       |                    |         |     
|                                                              | Net income                                                                                  |              | $                                           | 915                                                  |       |                    | $       | 670  |   
|                                                              | Adjustments to reconcile net income to net cash
provided by (used in) operating activities: |              |                                             |                                                      |       |                    |         |      |   
|                                                              |                                                                                             |              |                                             | Depreciation and amortization                        |       |                    | 553     |      |    |      | 397    |  
|                                                              |                                                                                             |              |                                             | Provision for doubtful accounts                      |       |                    | 78      |      |    |      | 65     |  
|                                                              |                                                                                             |              |                                             | Tax benefit from exercise of stock options           |       |                    | 169     |      |    |      | 8      |  
|                                                              |                                                                                             |              |                                             | Other                                                |       |                    |        |      |    |      | (6     | )
|                                                              |                                                                                             |              |                                             | Changes in operating assets and liabilities:         |       |                    |         |      |    |      |        |  
|                                                              |                                                                                             |              |                                             | Increase (decrease) in cash and cash equivalents:    |       |                    |         |      |    |      |        |  
|                                                              |                                                                                             |              |                                             | Accounts receivable                                  |       |                    | 20,585  |      |    |      | (500   | )
|                                                              |                                                                                             |              |                                             | Note receivable                                      |       |                    | 2,011   |      |    |      | 498    |  
|                                                              |                                                                                             |              |                                             | Inventories                                          |       |                    | 5,662   |      |    |      | (969   | )
|                                                              |                                                                                             |              |                                             | Prepaid expenses and other current assets            |       |                    | 194     |      |    |      | 366    |  
|                                                              |                                                                                             |              |                                             | Other assets                                         |       |                    | (585    | )    |    |      | (9     | )
|                                                              |                                                                                             |              |                                             | Accounts payable                                     |       |                    | (11,201 | )    |    |      | (2,741 | )
|                                                              |                                                                                             |              |                                             | Accrued liabilities                                  |       |                    | (12,200 | )    |    |      | 1,242  |  
|                                                              |                                                                                             |              |                                             | Long-term liabilities                                |       |                    | (14     | )    |    |      | (58    | )
|                                                              |                                                                                             |              |                                             |                                                      |       |                    |         |     
|                                                              |                                                                                             |              |                                             | Net cash provided by (used in) operating activities  |       |                    | 6,167   |      |    |      | (1,037 | )
|                                                              |                                                                                             |              |                                             |                                                      |       |                    |         |     
|CASH FLOWS FROM INVESTING ACTIVITIES:                         |                                                                                             |              |                                             |                                                      |       |                    |         |     
|                                                              |                                                                                             |              | Purchases of fixed assets                   |                                                      |       | (248               | )       |      |    | (329 | )     
|                                                              |                                                                                             |              | Proceeds from sale of fixed assets          |                                                      |       |                   |         |      |    | 20   |       
|                                                              |                                                                                             |              | Proceeds from sale of marketable securities |                                                      |       | 5,100              |         |      |    |     |       
|                                                              |                                                                                             |              |                                             |                                                      |       |                    |         |     
|                                                              |                                                                                             |              |                                             | Net cash provided by (used in) investing activities  |       |                    | 4,852   |      |    |      | (309   | )
|                                                              |                                                                                             |              |                                             |                                                      |       |                    |         |     
|CASH FLOWS FROM FINANCING ACTIVITIES:                         |                                                                                             |              |                                             |                                                      |       |                    |         |     
|                                                              |                                                                                             |              | Payment of preferred stock dividends        |                                                      |       | (750               | )       |      |    | (375 | )     
|                                                              |                                                                                             |              | Purchase of treasury stock                  |                                                      |       | (1,626             | )       |      |    | (267 | )     
|                                                              |                                                                                             |              | Proceeds from exercise of stock options     |                                                      |       | 689                |         |      |    | 58   |       
|                                                              |                                                                                             |              |                                             |                                                      |       |                    |         |     
|                                                              |                                                                                             |              |                                             | Net cash used in financing activities                |       |                    | (1,687  | )    |    |      | (584   | )
|                                                              |                                                                                             |              |                                             |                                                      |       |                    |         |     
|                                                              |                                                                                             |              |                                             | Net increase (decrease) in cash and cash equivalents |       |                    | 9,332   |      |    |      | (1,930 | )
|Effects of exchange rate changes on cash and cash equivalents |                                                                                             |              |                                            |                                                      |       |                    | (31     | )   
|CASH AND CASH EQUIVALENTS, beginning of period                |                                                                                             |              | 32,405                                      |                                                      |       |                    | 21,935  |     
|                                                              |                                                                                             |              |                                             |                                                      |       |                    |         |     
|CASH AND CASH EQUIVALENTS, end of period                      |                                                                                             | $            | 41,737                                      |                                                      |       | $                  | 19,974  |     
|                                                              |                                                                                             |              |                                             |                                                      |       |                    |         |     
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:             |                                                                                             |              |                                             |                                                      |       |                    |         |     
|                                                              | CASH PAID FOR:                                                                              |              |                                             |                                                      |       |                    |         |      |   
|                                                              |                                                                                             | Interest     |                                             | $                                                    | 38    |                    |         | $    | 82 |     
|                                                              |                                                                                             |              |                                             |                                                      |       |                    |         |     
|                                                              |                                                                                             | Income taxes |                                             | $                                                    | 1,255 |                    |         | $    |   |     
|                                                              |                                                                                             |              |                                             |                                                      |       |                    |         |     

The accompanying notes are an integral part of these
condensed consolidated statements.

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EQUITY MARKETING, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

NOTE 1    ORGANIZATION AND BUSINESS

Equity Marketing, Inc., a Delaware corporation and subsidiaries (the
Company), is a leading global marketing services company based in Los
Angeles, with offices in London, Paris, New York, and Hong Kong. The Company
designs and produces custom promotional programs that build sales and brand
value for retailers, restaurant chains and consumer goods companies such as
Burger King Corporation, Cadbury, The Coca-Cola Company, CVS/pharmacy,
Kelloggs, Procter & Gamble and others. The Company complements its core
promotions business by developing and marketing distinctive consumer products,
based on trademarks it owns or classic licensed properties, which are sold
through specialty and mass-market retailers. The Company primarily sells to
customers in the United States and Europe.

Equity Marketing Hong Kong, Ltd., a Delaware corporation (EMHK), is a 100%
owned subsidiary of the Company. EMHK manages production of the Companys
products by third parties in the Far East and currently is responsible for
performing and/or procuring product sourcing, product engineering, quality
control inspections, independent safety testing and export/import
documentation.

On July 31, 2001, the Company acquired 100% of the common stock of Logistix
Limited, a United Kingdom corporation, (Logistix) (see Note 7  Acquisition).
Logistix is a marketing services agency which focuses primarily on assisting
consumer packaged goods companies in their efforts to market to children
between the ages of seven and fourteen by developing and executing
premium-based promotions and by providing marketing consulting services.
Logistix also derives a portion of its revenues from a consumer products
business which holds the licenses for Robot Wars® and UBOS (Ultimate Book of
Spells) entertainment properties, among others.

NOTE 2    BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In the opinion of management and subject to year-end audit, the accompanying
unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included. The results of
operations for the interim periods are not necessarily indicative of the
results for a full year. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in the Companys Annual Report on Form 10-K for the
year ended December 31, 2001.

NET INCOME PER SHARE

Basic net income per share (EPS) is computed by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding during each period. Net income available to common stockholders
represents reported net income (loss) less preferred stock dividend
requirements.

Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock. Diluted EPS includes in-the-money options and warrants using the
treasury stock method and also includes the dilutive effect of the assumed
conversion of preferred stock using the if-converted method. Options and
warrants to purchase 1,436,667 and 1,529,166 shares of common stock, $.001 par
value per share (the Common Stock), as of March 31, 2001 and 2002,
respectively, were excluded from the computation of diluted EPS as they would
have been anti-dilutive. For the three months ended March 31, 2001 and 2002,
preferred stock convertible into 1,694,915 shares of common stock was excluded
from the computation of diluted EPS as it would have been anti-dilutive.

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The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computation for income available to common shareholders
and other disclosures required by Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings per Share:

|                                        |                                                                |                      |     |                                      |   |               |           |           |         |             |      |               |  |           |     |     |   |      |           |           |         |   |      |      |  | 
|--------------------------------------- | -------------------------------------------------------------- | -------------------- | --- | ------------------------------------ | - | ------------- | --------- | --------- | ------- | ----------- | ---- | ------------- |  | --------- | --- | --- | - | ---- | --------- | --------- | ------- | - | ---- | ---- |  | 
|                                        |                                                                |                      |     | For the Three Months Ended March 31,
|                                        |                                                                |                      |     |                                     
|                                        |                                                                |                      |     |                                      |   |               |           | 2001      |         |             |      |               |  |           |     |     |   | 2002 |           |           |         |  
|                                        |                                                                |                      |     | Income                               |   | Shares        |           | Per Share |         | Income      |      | Share         |  | Per Share
|                                        |                                                                |                      |     | (Numerator)                          |   | (Denominator) |           | Amount    |         | (Numerator) |      | (Denominator) |  | Amount   
|                                        |                                                                |                      |     |                                      |   |               |           |           |         |             |      |               |  |          
|Basic EPS:                              |                                                                |                      |     |                                      |   |               |           |           |         |             |      |               |  |           |     |     |   |      |           |           |         |   |      |     
|Income available to common stockholders |                                                                | $                    | 540 |                                      |   |               | 6,106,644 |           |         | $           | 0.09 |               |  | $         | 295 |     |   |      | 5,708,343 |           |         | $ | 0.05 |     
|                                        |                                                                |                      |     |                                      |   |               |           |           |         |             |      |               |  |           |     |     |   |      |           |           |         |   |      |     
|Effect of Dilutive Securities:          |                                                                |                      |     |                                      |   |               |           |           |         |             |      |               |  |           |     |     |   |      |           |           |         |   |      |     
|                                        |                                                                | Options and warrants |     |                                      |  |               |           |           | 203,964 |             |      |               |  |           |     |     |  |      |           |           | 175,701 |   |      |      |  | 
|                                        |                                                                |                      |     |                                      |   |               |           |           |         |             |      |               |  |           |     |     |   |      |           |           |         |   |      |     
|Dilutive EPS:                           |                                                                |                      |     |                                      |   |               |           |           |         |             |      |               |  |           |     |     |   |      |           |           |         |   |      |     
|                                        | Income available to common
stockholders and assumed conversion |                      | $   | 540                                  |   |               |           | 6,310,608 |         |             | $    | 0.09          |  |           | $   | 295 |   |      |           | 5,884,044 |         |   | $    | 0.05 | 
|                                        |                                                                |                      |     |                                      |   |               |           |           |         |             |      |               |  |           |     |     |   |      |           |           |         |   |      |     

INVENTORIES

Inventories consists of (a) production-in-process which primarily represents
tooling costs which are deferred and amortized over the life of the products
and (b) purchased finished goods held for sale to customers and purchased
finished goods in transit to customers distribution centers. Inventories are
stated at the lower of average cost or market. As of December 31, 2001 and
March 31, 2002, inventories consisted of the following:

|                      |  |              |       |           |  |   |        | 
|--------------------- |  | ------------ | ----- | --------- |  | - | ------ | 
|                      |  | December 31, |       | March 31,
|                      |  | 2001         |       | 2002     
|                      |  |              |       |          
|Production-in-process |  | $            | 3,991 |           |  | $ | 1,555  | 
|Finished goods        |  |              | 5,346 |           |  |   | 8,707  | 
|                      |  |              |       |           |  |   |        | 
|                      |  | $            | 9,337 |           |  | $ | 10,262 | 
|                      |  |              |       |           |  |   |        | 

FOREIGN CURRENCY TRANSLATION

Net foreign exchange gains or losses resulting from the translation of foreign
subsidiaries accounts whose functional currency is not the United States
dollar are recognized as a component of accumulated other comprehensive income
in stockholders equity. For such subsidiaries their accounts are translated
into United States dollars at the following rates of exchange: assets and
liabilities at period-end exchange rates, equity accounts at historical rates,
and income and expense accounts at average exchange rates during the period.

For subsidiaries with transactions denominated in currencies other than their
functional currency, net foreign exchange transaction gains or losses are
included in determining net income. Transaction gains or losses included in net
income for the quarter ended March 31, 2002 were not significant.

DERIVATIVE INSTRUMENTS

The Company adopted SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS No.
133 requires that an entity recognize derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative depends
on the intended use of the derivative and the resulting designation.

The Company designates its derivatives based upon criteria established by
SFAS No. 133. For a derivative designated as a fair value hedge, the gain
or loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributed to the risk being
hedged. For a derivative designated as a cash flow hedge, the effective
portion of the derivatives gain or loss is initially reported as a
component of accumulated other comprehensive income and subsequently
reclassified into earnings when the hedged exposure affects earnings. The
ineffective portion of the gain or loss is reported in earnings
immediately.

The Company uses derivatives to manage exposures to foreign currency. The
Companys objective for holding derivatives is to decrease the volatility
of earnings and cash flows associated with changes in foreign currency.
The Company enters into foreign exchange forward contracts to minimize the
short-term impact of foreign currency fluctuations on foreign currency
receivables,

9



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investments, and payables. The gains and losses on the foreign
exchange forward contracts offset the transaction gains and losses on the
foreign currency receivables, investments, and payables recognized in
earnings. The Company does not enter into foreign exchange forward
contracts for trading purposes. Gains and losses on the contracts are
included in other income (expense) in the consolidated statement of
operations and offset foreign exchange gains or losses from the revaluation
of intercompany balances or other current assets, investments, and
liabilities denominated in currencies other than the functional currency of
the reporting entity. The Companys foreign exchange forward contracts
related to current assets and liabilities generally range from one to three
months in original maturity.

In September 2001, February 2002 and March 2002, the Companys Logistix
subsidiary entered into three foreign currency forward contracts to sell
Euros in exchange for pound sterling aggregating GBP 2,337 at an average
rate of 1.610. These contracts expire on various dates between May and
August 2002. At March 31, 2002, these foreign currency forward contracts
had a balance of GBP 2,043 and an estimated fair value of $34. The fair
value of the foreign currency forward contracts is recorded in prepaid
expenses and other current assets in the accompanying condensed
consolidated balance sheet as of March 31, 2002. The unrealized gain on
these contracts is reflected in accumulated other comprehensive income.

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 141 Business Combinations and SFAS No. 142 Goodwill and Other
Intangible Assets were approved by the Financial Accounting Standards Board
(FASB) effective June 30, 2001 for business combinations which are
consummated after June 30, 2001. SFAS No. 141 eliminates the
pooling-of-interests method for business combinations and requires use of the
purchase method. SFAS No. 142 changes the accounting for goodwill and certain
other intangible assets from an amortization approach to a non-amortization
(impairment) approach. The statement requires amortization of goodwill
recorded in connection with previous business combinations to cease upon
adoption of the statement by calendar year companies on January 1, 2002. The
statement also requires the Company to perform a transitional goodwill
impairment test, using values as of the beginning of the fiscal year that SFAS
142 is adopted. This analysis should be completed within six months after the
beginning of the adoption year. The Company is currently analyzing the
transitional requirements and has not yet completed the transitional goodwill impairment test, the financial statement impact of which has not yet
been determined. In the event that the goodwill is impaired, the financial statements for the quarter ended March 31, 2002 will be restated. The Company has adopted the provisions of these statements
for the acquisition of Logistix (see Note 7) effective July 31,
2001 and for all other acquisitions effective January 1, 2002. Accordingly, beginning on
January 1, 2002, the Company has foregone all related amortization expense,
which totaled $110, net of tax effect, for the quarter ended March 31, 2001.

For the quarter ended March 31, 2001, the reconciliation of reported net income
and diluted net income per share to adjusted net income and adjusted diluted net income
per share reflecting the elimination of goodwill amortization is as follows
(unaudited):

|                                                         |  |            |     |                  |  |   |      | 
|-------------------------------------------------------- |  | ---------- | --- | ---------------- |  | - | ---- | 
|                                                         |  | Net Income |     | Income per share
|                                                         |  |            |     |                 
|Net Income Available to Common Stockholders, as reported |  | $          | 540 |                  |  | $ | 0.09 | 
|Elimination of goodwill amortization (net of tax effect) |  |            | 110 |                  |  |   | 0.02 | 
|                                                         |  |            |     |                  |  |   |      | 
|Net Income Available to Common Stockholders, as adjusted |  | $          | 650 |                  |  | $ | 0.11 | 
|                                                         |  |            |     |                  |  |   |      | 

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which the
obligation is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related
long-lived asset. Over time, the liability is accreted to its present value
each period, and the capitalized cost is depreciated over the useful life of
the related asset. SFAS 143 is effective for 2003. The impact of such adoption
is not anticipated to have a material effect on Companys financial position
and results of operations.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 requires that long-lived assets
be measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations. SFAS
144 is effective for 2002 and generally is to be applied prospectively. The
Company adopted SFAS No. 144 beginning January 1, 2002. The impact of such
adoption did not have a material effect on the Companys financial statements.

RECLASSIFICATIONS

Certain reclassifications have been made to the 2001 condensed consolidated
financial statements to conform with the 2002 presentation.

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NOTE 3    SHORT-TERM DEBT

On April 24, 2001, the Company signed a credit facility (the Facility) with
Bank of America. The credit facility is secured by substantially all of the
Companys assets and provides for a line of credit of up to $35,000 for three
years from the date of closing with borrowing availability determined by a
formula based on qualified assets. Interest on outstanding borrowings will be
based on either a fixed rate equivalent to LIBOR plus an applicable spread of
between 1.50 and 2.25 percent or a variable rate equivalent to the lead banks
reference rate plus an applicable spread of between zero and 0.50 percent. The
Company is also required to pay an unused line fee of between zero and 0.60
percent per annum and certain letter of credit fees. The applicable spread is
based on the achievement of certain financial ratios. The Facility also
requires the Company to comply with certain restrictions and covenants as
amended from time to time. On November 14, 2001 and February 8, 2002 certain
covenants under the facility were amended. The Company was in compliance with
the amended restrictions and covenants. The Facility may be used for working
capital and acquisition financing purposes. As of March 31, 2002, there were
no amounts outstanding under the Facility.

Letters of credit outstanding as of December 31, 2001 and March 31, 2002
totaled $551 and $692, respectively.

NOTE 4  STOCK REPURCHASE

The Companys Board of Directors has authorized up to $10,000 for the
repurchase of the Companys common stock over a twelve month period. The
repurchase program commenced on July 21, 2000 and expired July 21, 2001.
During this period, the Company spent $6,448 to purchase an aggregate of
525,094 shares at an average price of $12.28 per share including commissions.
On July 24, 2001, the Companys Board of Directors authorized up to an
additional $10,000 for the repurchase of the Companys common stock over a
twelve month period. In the period from August 2, 2001 through March 31, 2002,
the Company spent $5,462 to purchase 443,736 shares at an average price of
$12.31 per share including commissions. Since initiating the overall buyback
program on July 20, 2000, the Company has spent $11,910 to purchase a total of
968,830 shares at an average price of $12.29 per share including commissions.
Purchases are conducted in the open market at prevailing prices, based on
market conditions when the Company is not in a quiet period. The Company may
also transact purchases effected as block trades, as well as certain
negotiated, off-exchange purchases not in the open market. This repurchase
program is being funded through working capital.

NOTE 5    SEGMENTS

Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. The
Company has identified two reportable segments through which it conducts its
continuing operations: promotions and consumer products. The factors for
determining the reportable segments were based on the distinct nature of their
operations. They are managed as separate business units because each requires
and is responsible for executing a unique business strategy. The promotions
segment provides various services and produces promotional products used as
free premiums or sold in conjunction with the purchase of other items.
Promotional programs are used for marketing purposes by both the companies
sponsoring the promotions and the licensors of the entertainment properties on
which the promotional programs are based. The consumer products segment
designs and contracts for the manufacture of toys and other consumer products
for sale to major mass market and specialty retailers, who in turn sell the
products to consumers.

Earnings of industry segments and geographic areas exclude interest income,
interest expense, depreciation expense, restructuring, and other unallocated
corporate expenses. Income taxes are allocated to segments on the basis of
operating results. Identified assets are those assets used in the operations
of the segments and include inventories, receivables, goodwill and other
intangibles. Corporate assets consist of cash, certain corporate receivables,
fixed assets, and certain trademarks.

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Industry Segments

|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 
|--------------------------------------------------------- |  | --------------------------------------------------- | ------ | -------- |  | --------- | ----- | ----- |  | - | ------ | - |  | - | ------ | 
|                                                          |  | As of and For the Three Months Ended March 31, 2001
|                                                          |  |                                                    
|                                                          |  |                                                     |        |          |  | Consumer  |       |       |  |   |        |   |  |  
|                                                          |  | Promotions                                          |        | Products |  | Corporate |       | Total
|                                                          |  |                                                     |        |          |  |           |       |      
|Total revenues                                            |  | $                                                   | 23,149 |          |  | $         | 4,878 |       |  | $ |       |   |  | $ | 28,027 | 
|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 
|Income (loss) before provision (benefit)
for income taxes |  | $                                                   | 4,123  |          |  | $         | 452   |       |  | $ | (3,050 | ) |  | $ | 1,525  | 
|Provision (benefit) for income taxes                      |  |                                                     | 1,649  |          |  |           | 181   |       |  |   | (1,220 | ) |  |   | 610    | 
|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 
|Net income (loss)                                         |  | $                                                   | 2,474  |          |  | $         | 271   |       |  | $ | (1,830 | ) |  | $ | 915    | 
|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 
|Fixed asset additions                                     |  | $                                                   |       |          |  | $         |      |       |  | $ | 248    |   |  | $ | 248    | 
|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 
|Depreciation and amortization                             |  | $                                                   | 183    |          |  | $         |      |       |  | $ | 370    |   |  | $ | 553    | 
|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 
|Total assets                                              |  | $                                                   | 29,889 |          |  | $         | 4,214 |       |  | $ | 52,421 |   |  | $ | 86,524 | 
|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 

|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 
|--------------------------------------------------------- |  | --------------------------------------------------- | ------ | -------- |  | --------- | ----- | ----- |  | - | ------ | - |  | - | ------ | 
|                                                          |  | As of and For the Three Months Ended March 31, 2002
|                                                          |  |                                                    
|                                                          |  |                                                     |        |          |  | Consumer  |       |       |  |   |        |   |  |  
|                                                          |  | Promotions                                          |        | Products |  | Corporate |       | Total
|                                                          |  |                                                     |        |          |  |           |       |      
|Total revenues                                            |  | $                                                   | 29,926 |          |  | $         | 6,189 |       |  | $ |       |   |  | $ | 36,115 | 
|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 
|Income (loss) before provision (benefit)
for income taxes |  | $                                                   | 3,721  |          |  | $         | 716   |       |  | $ | (3,532 | ) |  | $ | 905    | 
|Provision (benefit) for income taxes                      |  |                                                     | 967    |          |  |           | 186   |       |  |   | (918   | ) |  |   | 235    | 
|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 
|Net income (loss)                                         |  | $                                                   | 2,754  |          |  | $         | 530   |       |  | $ | (2,614 | ) |  | $ | 670    | 
|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 
|Fixed asset additions                                     |  | $                                                   |       |          |  | $         |      |       |  | $ | 329    |   |  | $ | 329    | 
|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 
|Depreciation and amortization                             |  | $                                                   | 59     |          |  | $         | 16    |       |  | $ | 322    |   |  | $ | 397    | 
|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 
|Total assets                                              |  | $                                                   | 54,003 |          |  | $         | 6,120 |       |  | $ | 39,330 |   |  | $ | 99,453 | 
|                                                          |  |                                                     |        |          |  |           |       |       |  |   |        |   |  |   |        | 

NOTE 6  AMERISERVE BANKRUPTCY

The Company regularly extends credit to several distribution companies in
connection with its business with Burger King. One of these distribution
companies, AmeriServe, accounted for more than 50 percent of the products
purchased from the Company by the Burger King system in 1999. AmeriServe
filed a voluntary petition under Chapter 11 of the United States Bankruptcy
Code on January 31, 2000. As of January 31, 2000, AmeriServe owed the
Company $28,774 in trade receivables.

Restaurant Services, Inc. (RSI), a not-for-profit purchasing cooperative
that has as its members Burger King franchisees and Burger King, is the
exclusive purchasing agent for the Burger King system of franchisee-owned
and company-owned restaurants located in the United States. Subsequent to
January 31, 2000, the Company reached an agreement with RSI in which RSI
purchased all pre-petition trade receivables owed to the Company by
AmeriServe in exchange for a two-year non-interest-bearing note valued at
$15,970 and satisfaction of certain contractual obligations owed by the
Company to RSI. This agreement resulted in a net pre-tax charge of $1,014
for the quarter ended December 31, 1999. A note receivable of $10,515 was
recorded on the consolidated balance sheet as of December 31, 1999. $6,642
of the $28,774 pre-petition trade receivables related to sales made in
January 2000. Accordingly, the remaining $5,455 portion of the note
receivable was recorded in January 2000, and resulted in a net pre-tax
charge of $482 for the year ended December 31, 2000. This charge was offset
by $1,084 of imputed interest income, at 9% per annum, recorded on the note
receivable for 2000. In December 2001, the due date for the final payment
on the note was extended from December 1, 2001 to March 29, 2002 due to
ongoing discussions between the Company and RSI which could result in an
expansion of the contractual and business relationship between the two
companies. As a result of these ongoing discussions, the Company agreed to
further extend the due date for the remaining balance of the note from
March 29, 2002 to September 30, 2002. RSI paid $498 on March 29, 2002.
The balance of the note receivable as of March 31, 2002 was $1,685.

As of July 2000, the Burger King system completed a transition to
alternative distributors. The largest distribution company accounted for
approximately 21% of the products purchased from the Company by the Burger
King system for the quarter ended March 31, 2002.

NOTE 7  ACQUISITION

On July 31, 2001, the Company acquired 100% of the common stock of Logistix
in exchange for 8,500 British pounds ($12,144 as of July 31, 2001) in cash
plus related transaction costs of $1,011. Potential additional cash
consideration may be paid based

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upon the results of operations of Logistix
during each fiscal year through July 31, 2004. The acquisition was financed
through the Companys existing cash reserves.

The Logistix acquisition has been accounted under the purchase method of
accounting. The financial statements reflect the preliminary allocation of
the purchase price to the acquired net assets based on their estimated fair
values as of the acquisition date. The Company is in the process of
finalizing valuations of the individual assets and liabilities, which
potentially could result in adjustments to goodwill of 10% or less. The
allocation of the purchase price may change based upon these valuations.
During the quarter ended March 31, 2002, the preliminary allocation of the
purchase price was adjusted to revise the estimated value of the deferred
tax liabilities and certain accrued liabilities. These adjustments
resulted in a net reduction to Goodwill of $72. The Companys preliminary
allocation of purchase price for the acquisition, based upon estimated fair
values is as follows:

|                                          |  |   |        |  
|----------------------------------------- |  | - | ------ | -
|Net Current assets                        |  | $ | 6,280  |  
|Property, plant and equipment             |  |   | 430    |  
|Other non-current assets                  |  |   | 11     |  
|Net current liabilities                   |  |   | (6,268 | )
|Non-current liabilities                   |  |   | (285   | )
|                                          |  |   |        |  
|Estimated fair value, net assets acquired |  |   | 168    |  
|Goodwill                                  |  |   | 12,105 |  
|Other Intangible assets                   |  |   | 882    |  
|                                          |  |   |        |  
|Total Purchase Price                      |  | $ | 13,155 |  
|                                          |  |   |        |  

The above amounts are reported using the exchange rate in effect as of July
31, 2001. $522 of the $882 of acquired intangible assets was assigned to
the Logistix trademark, which is not subject to amortization. The
remaining $360 of intangible assets is being amortized over estimated
useful lives ranging from 0.4 to 3 years. Intangible assets associated with
the Logistix acquisition are accounted for in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets. Goodwill has an indefinite life
and is not amortized.

The following selected unaudited pro forma consolidated results of
operations are presented as if the acquisition had occurred as of the
beginning of the period immediately preceding the period of acquisition
after giving effect to certain adjustments for the amortization of
intangibles, additional interest expense and related income tax effects.
The pro forma data is for informational purposes only and does not
necessarily reflect the results of operations had the companies operated as
one during the period. No effect has been given for synergies, if any, that
may have been realized through the acquisitions.

|                                   |  |                    |        | 
|---------------------------------- |  | ------------------ | ------ | 
|                                   |  | Three Months Ended
|                                   |  | March 31, 2001    
|                                   |  |                   
|Pro forma revenues                 |  | $                  | 32,080 | 
|Pro forma net income               |  | $                  | 620    | 
|Pro forma basic income per share   |  | $                  | 0.04   | 
|Pro forma diluted income per share |  | $                  | 0.04   | 

Refer to Note 2 for further discussion of the method of computation of earnings
per share.

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##### Table of Contents






ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT

Certain expectations and projections regarding the future performance of Equity
Marketing, Inc. (the Company) discussed in this quarterly report are
forward-looking and are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These expectations and projections
are based on currently available competitive, financial and economic data along
with the Companys operating plans and are subject to future events and
uncertainties. Forward-looking statements can be identified by the use of
forward looking terminology, such as may, will, should, expect, anticipate,
estimate, continue, plans, intends or other similar terminology. Management
cautions you that the following factors, among others, could cause the
Companys actual consolidated results of operations and financial position in
2002 and thereafter to differ significantly from those expressed in
forward-looking statements:

Marketplace Risks



| |  | Dependence on a single customer, Burger King, which may adversely affect the Companys financial condition and results
of operations                                                  
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Dependence on nonrenewable product orders by Burger King, which promotions are in effect for a limited period of time.                                                                
| 
| |  | Dependence on the popularity of licensed entertainment properties, which may adversely affect the Companys financial
condition and results of operations                             
| 
| |  | Concentration risk associated with accounts receivable. The Company regularly extends credit to several distribution
companies in connection with its business with Burger King.      
| 
| |  | Significant quarter-to-quarter variability in the Companys revenues and net income, which may result in operating
results below the expectations of securities analysts and investors
| 
| |  | Increased competitive pressure, which may affect the sales of the Companys products                                                                                                  
| 
| |  | Dependence on foreign manufacturers, which may increase the costs of the Companys products and affect the demand for
such products                                                   

Financing Risks



| |  | Currency fluctuations, which may affect the Companys suppliers and the Companys reportable income
|- |  | ---------------------------------------------------------------------------------------------------

Other Risks



| |  | Exposure from products that we develop or sell may expose us to liability from claims by users of such products for
damages including, but not limited to, bodily injury or property damage. We currently maintain product liability
insurance coverage in amounts that we believe are adequate. There can be no assurance that we will be able to maintain
such coverage or obtain additional coverage on acceptable terms in the future, or that such insurance will provide
adequate coverage against all potential claims
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Exposure to liability for the costs related to product recalls. These costs can include legal expenses, advertising,
collection and destruction of product, and free goods. The Companys product liability insurance coverage generally
excludes such costs and damages resulting from product recall.                                                                                                                                                                                                                      
| 
| |  | Potential negative impact of past or future acquisitions, which may disrupt the Companys ongoing business, distract
senior management and increase expenses                                                                                                                                                                                                                                                                                                                                                                 
| 
| |  | Adverse results of litigation, governmental proceedings or environmental matters, which may lead to increased costs or
interruption in normal business operations of the Company                                                                                                                                                                                                                                                                                                                                             
| 
| |  | Changes in laws or regulations, both domestically and internationally, including those affecting consumer products or
environmental activities or trade restrictions, which may lead to increased costs                                                                                                                                                                                                                                                                                                                      

The Company undertakes no obligation to publicly release the results of any
revisions to forward-looking statements, which may be made to reflect events or
circumstance after the date hereof or to reflect the occurrence of
unanticipated events. The risks highlighted herein should not be assumed to be
the only items that could affect future performance of the Company. In
addition to the information contained in this document, readers are advised to
review the Companys Form 10-K for the year ended December 31, 2001, under the
heading Managements Discussion and Analysis of Financial Condition and
Results of Operations  Cautionary Statements and Risk Factors.

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ORGANIZATION AND BUSINESS

Equity Marketing, Inc., a Delaware corporation and subsidiaries (the
Company), is a leading global marketing services company based in Los
Angeles, with offices in London, Paris, New York, and Hong Kong. The Company
designs and produces custom promotional programs that build sales and brand
value for retailers, restaurant chains and consumer goods companies such as
Burger King Corporation, Cadbury, The Coca-Cola Company, CVS/pharmacy,
Kelloggs, Procter & Gamble and others. The Company complements its core
promotions business by developing and marketing distinctive consumer products,
based on trademarks it owns or classic licensed properties, which are sold
through specialty and mass-market retailers. The Company primarily sells to
customers in the United States and Europe.

Equity Marketing Hong Kong, Ltd., a Delaware corporation (EMHK), is a 100%
owned subsidiary of the Company. EMHK manages production of the Companys
products by third parties in the Far East and currently is responsible for
performing and/or procuring product sourcing, product engineering, quality
control inspections, independent safety testing and export/import
documentation.

On July 31, 2001, the Company acquired 100% of the common stock of Logistix
Limited, a United Kingdom corporation (Logistix). Logistix is a
marketing services agency which focuses primarily on assisting consumer
packaged goods companies in their efforts to market to children between the
ages of seven and fourteen by developing and executing premium-based promotions
and by providing marketing consulting services. Logistix also derives a
portion of its revenues from a consumer products business which holds the
licenses for Robot Wars® and UBOS (Ultimate Book of Spells) entertainment
properties, among others.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the Companys
operating results as a percentage of total revenues:

|                                    |                                          |  |                 |      |      |  |       |      |  
|----------------------------------- | ---------------------------------------- |  | --------------- | ---- | ---- |  | ----- | ---- | -
|                                    |                                          |  | Three Months   
|                                    |                                          |  | Ended March 31,
|                                    |                                          |  |                
|                                    |                                          |  | 2001            |      | 2002
|                                    |                                          |  |                 |      |     
|Revenues                            |                                          |  | 100.0           | %    |      |  | 100.0 | %   
|Cost of sales                       |                                          |  | 70.8            |      |      |  | 74.5  |     
|                                    |                                          |  |                 |      |      |  |       |     
|                                    | Gross profit                             |  |                 | 29.2 |      |  |       | 25.5 |  
|                                    |                                          |  |                 |      |      |  |       |     
|Operating Expenses:                 |                                          |  |                 |      |      |  |       |     
|Salaries, wages and benefits        |                                          |  | 13.3            |      |      |  | 11.8  |     
|Selling, general and administrative |                                          |  | 13.3            |      |      |  | 11.3  |     
|                                    |                                          |  |                 |      |      |  |       |     
|                                    | Total operating expenses                 |  |                 | 26.6 |      |  |       | 23.1 |  
|                                    |                                          |  |                 |      |      |  |       |     
|                                    | Income from operations                   |  |                 | 2.6  |      |  |       | 2.4  |  
|Other income, net                   |                                          |  | 2.8             |      |      |  | 0.1   |     
|                                    |                                          |  |                 |      |      |  |       |     
|                                    | Income before provision for income taxes |  |                 | 5.4  |      |  |       | 2.5  |  
|Provision for income taxes          |                                          |  | 2.2             |      |      |  | 0.7   |     
|                                    |                                          |  |                 |      |      |  |       |     
|                                    | Net income                               |  |                 | 3.2  | %    |  |       | 1.8  | %
|                                    |                                          |  |                 |      |      |  |       |     

EBITDA

While many in the financial community consider earnings before interest, taxes,
depreciation and amortization (EBITDA) to be an important measure of
comparative operating performance, it should be considered in addition to, but
not as a substitute for or superior to, operating income, net earnings, cash
flow and other measures of financial performance prepared in accordance with
accounting principles generally accepted in the United States. EBITDA does not
reflect cash available to fund cash requirements, and the items excluded from
EBITDA, such as depreciation and amortization, are significant components in
assessing the Companys financial performance. Other significant uses of cash
flows are required before cash will be available to the Company, including debt
service, taxes and cash expenditures for various long-term assets. The
Companys calculation of EBITDA may be different from the calculation used by
other companies and, therefore, comparability may be limited. The following
table sets forth EBITDA for the periods indicated:

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|           |                                    |   |                                  |      |      |   |       |     |  
|---------- | ---------------------------------- | - | -------------------------------- | ---- | ---- | - | ----- | --- | -
|           |                                    |   | For Three Months Ended March 31,
|           |                                    |   |                                 
|           |                                    |   | 2001                             |      | 2002
|           |                                    |   |                                  |      |     
|Net income |                                    | $ | 915                              |      |      | $ | 670   |    
|           | Add: Depreciation and amortization |   |                                  | 553  |      |   |       | 397 |  
|           | Other income, net                  |   |                                  | (779 | )    |   |       | (48 | )
|           | Provision for income taxes         |   |                                  | 610  |      |   |       | 235 |  
|           |                                    |   |                                  |      |      |   |       |    
|EBITDA     |                                    | $ | 1,299                            |      |      | $ | 1,254 |    
|           |                                    |   |                                  |      |      |   |       |    

THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
(000s omitted):

Revenues for the three months ended March 31, 2002 increased $8,088, or 28.9%,
to $36,115 from $28,027 in the comparable period in 2001. Promotions revenues
increased $6,777, or 29.3%, to $29,926 primarily as a result of additional
promotions revenues generated by Logistix following its acquisition by the
Company in July 2001. Consumer Product revenues increased $1,311, or 26.9%, to
$6,189 primarily due to increased revenues generated by Robot Wars subsequent
to the Logistix acquisition and due to increased sales of Scooby Doo product
associated with the upcoming release of the Scooby-Doo movie.

Cost of sales increased $7,067 to $26,904 (74.5% of revenues) for the three
months ended March 31, 2002 from $19,837 (70.8% of revenues) in the comparable
period in 2001 due to increased sales volume. The gross margin percentage
decreased to 25.5% for the three months ended March 31, 2002 from 29.2% in the
comparable period for 2001. This decrease was due to margin pressure in the
promotions business as a result of shorter program lead times which resulted in
increased tooling and freight costs.

Salaries, wages and benefits increased $548, or 14.7%, to $4,277, (11.8% of
revenues) from $3,729, (13.3% of revenue). This increase was primarily
attributable to the addition of employees from the acquisition of Logistix,
partially offset by reductions achieved as part of the Companys continued
efforts to streamline costs.

Selling, general and administrative expenses increased $362, or 9.7%, to $4,077
(11.3% of revenues). This increase is due primarily to increased freight out,
warehousing, and commission costs resulting from the increase in sales volume.
This increase is also attributable to an increase in outside services,
insurance, and marketing expense as a result of the acquisition of Logistix,
partially offset by a decrease in amortization expense and partially offset by
reductions achieved as part of the Companys continued efforts to streamline
costs. Selling, general and administrative expenses decreased as a percentage
of revenues from 13.3% to 11.3% as a result of revenues which increased at a
greater rate.

Net other income was $48 for the three months ended March 31, 2002 compared to
net other income of $779 for the three months ended March 31, 2001. This
decrease was attributable to a decline in interest rates as well as to the
reduced level of cash and cash equivalents as compared to the first quarter of
2001. The decrease was also attributable to a reduction in imputed interest
income on a note receivable (see AmeriServe Bankruptcy).

The effective tax rate for the three months ended March 31, 2002 was 26.0%
compared to the effective rate of 40.0% for the same period in 2001. The
reduction in the effective tax rate is the result of a lower tax rate resulting
from an increased percentage of the Companys earnings being generated
internationally, in territories which have more favorable tax rates and as a
result of non-taxable interest income from municipal securities.

Net income decreased $245, or 26.8%, to $670 (1.8% of revenues) from $915 (3.2%
of revenues) in 2001 primarily due to the increase in salaries, wages and
benefits, selling, general and administrative expenses, as well as decreased
net other income. This is partially offset by the increase in gross profit
earned on higher revenues and a lower effective tax rate in 2002.

For the three months ended March 31, 2002, EBITDA decreased $45, or 3.5 %, to
$1,254 from $1,299 in 2001 primarily due to the increase in gross profit offset
by the increase in salaries, wages and benefits and selling, general and
administrative expenses in 2002.

FINANCIAL CONDITION AND LIQUIDITY

The Companys financial position remained strong in the first quarter of 2002.
At March 31, 2002, the Company had no debt and its cash and cash equivalents
and marketable securities were $27,174, compared to $29,135 as of December 31,
2001.

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As of March 31, 2002, the Companys net accounts receivable increased $377 to
$23,072 from $22,695 at December 31, 2001. This increase was attributable to
increased Promotions and Consumer Product revenues in March 2002. As of March
31, 2002, inventories increased $925 to $10,262 from $9,337 from December 31,
2001. This increase in inventories is primarily the result of increased
promotional programs expected to be delivered in the second quarter.

As of March 31, 2002, accounts payable decreased $2,838 to $19,276 from $22,114
at December 31, 2001. This decrease is associated with the paydown of
liabilities related to fourth quarter 2001 promotional programs.

As of March 31, 2002, accrued liabilities increased $1,243 to $12,634 from
$11,391 at December 31, 2001. This increase is primarily attributable to
administrative fees collected from distribution companies during the first
quarter of 2002 on behalf of promotional customers.

As of March 31, 2002, working capital was $36,698 compared to $36,620 at
December 31, 2001. The Company did not have any significant investing
activities in the quarter. The Company believes that its cash from operations,
cash on hand at March 31, 2002 and its credit facility will be sufficient to
fund its working capital needs for at least the next twelve months. The
statements set forth herein are forward-looking and actual results may differ
materially.

CREDIT FACILITIES

On April 24, 2001, the Company signed a credit facility (the Facility) with
Bank of America. The credit facility is secured by substantially all of the
Companys assets and provides for a line of credit of up to $35,000 for three
years from the date of closing with borrowing availability determined by a
formula based on qualified assets. Interest on outstanding borrowings will be
based on either a fixed rate equivalent to LIBOR plus an applicable spread of
between 1.50 and 2.25 percent or a variable rate equivalent to the lead banks
reference rate plus an applicable spread of between zero and 0.50 percent. The
Company is also required to pay an unused line fee of between zero and 0.60
percent per annum and certain letter of credit fees. The applicable spread is
based on the achievement of certain financial ratios. The Facility also
requires the Company to comply with certain restrictions and covenants as
amended from time to time. On November 14, 2001 and February 8, 2002 certain
covenants under the facility were amended. The Company was in compliance with
the amended restrictions and covenants. The Facility may be used for working
capital and acquisition financing purposes. As of March 31, 2002, there were
no amounts outstanding under the Facility.

STOCK REPURCHASE

The Companys Board of Directors has authorized up to $10,000 for the
repurchase of the Companys common stock over a twelve month period. The
repurchase program commenced on July 21, 2000 and expired July 21, 2001.
During this period, the Company spent $6,448 to purchase an aggregate of
525,094 shares at an average price of $12.28 per share including commissions.
On July 24, 2001, the Companys Board of Directors authorized up to an
additional $10,000 for the repurchase of the Companys common stock over a
twelve month period. In the period from August 2, 2001 through March 31, 2002,
the Company spent $5,462 to purchase 443,736 shares at an average price of
$12.31 per share including commissions. Since initiating the overall buyback
program on July 20, 2000, the Company has spent $11,910 to purchase a total of
968,830 shares at an average price of $12.29 per share including commissions.
Purchases are conducted in the open market at prevailing prices, based on
market conditions when the Company is not in a quiet period. The Company may
also transact purchases effected as block trades, as well as certain
negotiated, off-exchange purchases not in the open market. This repurchase
program is being funded through working capital.

AMERISERVE BANKRUPTCY

The Company regularly extends credit to several distribution companies in
connection with its business with Burger King. One of these distribution
companies, AmeriServe, accounted for more than 50 percent of the products
purchased from the Company by the Burger King system in 1999. AmeriServe
filed a voluntary petition under Chapter 11 of the United States Bankruptcy
Code on January 31, 2000. As of January 31, 2000, AmeriServe owed the
Company $28,774 in trade receivables.

Restaurant Services, Inc. (RSI), a not-for-profit purchasing cooperative
that has as its members Burger King franchisees and Burger King, is the
exclusive purchasing agent for the Burger King system of franchisee-owned
and company-owned restaurants located in the United States. Subsequent to
January 31, 2000, the Company reached an agreement with RSI in which RSI
purchased all pre-petition trade receivables owed to the Company by
AmeriServe in exchange for a two-year non-interest-bearing note valued at
$15,970 and satisfaction of certain contractual obligations owed by the
Company to RSI. This agreement resulted in a net pre-tax charge of $1,014
for the quarter ended December 31, 1999. A note receivable of $10,515 was
recorded on the consolidated balance sheet as of December 31, 1999. $6,642
of the $28,774 pre-petition trade receivables
related to sales made in January 2000. Accordingly, the remaining
$5,455

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portion of the note receivable was recorded in January 2000, and resulted
in a net pre-tax charge of $482 for the year ended December 31, 2000. This
charge was offset by $1,084 of imputed interest income, at 9% per annum,
recorded on the note receivable for 2000. In December 2001, the due date
for the final payment on the note was extended from December 1, 2001 to
March 29, 2002 due to ongoing discussions between the Company and RSI which
could result in an expansion of the contractual and business relationship
between the two companies. As a result of these ongoing discussions, the
Company agreed to further extend the due date for the remaining balance of
the note from March 29, 2002 to September 30, 2002. RSI paid $498 on March
29, 2002. The balance of the note receivable as of March 31, 2002 was
$1,685.

As of July 2000, the Burger King system completed a transition to
alternative distributors. The largest distribution company accounted for
approximately 21% of the products purchased from the Company by the Burger
King system for the quarter ended March 31, 2002.

On December 27, 1999, Burger King announced that in cooperation with the
Consumer Product Safety Commission it would conduct a voluntary recall of
Pokémon balls included with Burger King kids meals. The Company designed
and manufactured 151 trading cards and 57 gift-with-purchase products based
on Pokémon for Burger King. Burger King, its franchisees and RSI incurred
substantial costs in the conduct of the Pokémon ball recall, including
costs for legal expenses, advertising, collection and destruction of
Pokémon balls, and free goods. RSI has communicated to the Company that
its costs incurred in connection with the Pokémon ball recall totaled
approximately $1.94 million (which includes certain costs incurred by
Burger King and its affiliates, including its franchisees). Although the
Company strongly believes it met all of its contractual obligations with
respect to the Pokémon ball, the Company may be requested to reimburse
Burger King and its affiliates, including its franchisees and RSI, for some
or all of these costs. As of the date hereof, Burger King has not
requested reimbursement of such costs, and the Company is engaged in
ongoing discussions with RSI which could result in taking these costs into
account as part of an expansion of the contractual and business
relationship between the two companies.

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PART II. OTHER INFORMATION




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(b)  Reports on Form 8-K:

Report on Form 8-K filed with the Securities and Exchange Commission on
March 01, 2002 (Items 5 and 7).

Report on Form 8-K filed with the Securities and Exchange Commission on
March 18, 2002 (Item 7).

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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, in the City of Los
Angeles and State of California on the 13 day of May, 2002



| | EQUITY MARKETING, INC.
/s/ LAWRENCE J. MADDEN

Lawrence J. Madden
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

20