|
|



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



|OR
|--



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





|For the transition period from
_____________ to _____________
|-------------------------------------------------------------



|Commission file number 0-7843
|-----------------------------



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



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





|1414 Avenue of the Americas 
      New York, New York 10019 
      (212) 758-7666
      (Address, including zip code, and telephone number,
      including area code,
      of Registrants principal executive offices)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|Indicate by check
mark whether the Registrant is an accelerated filer  (as defined in Rule 12b-2 of the
Exchange Act). Yes |X| No |_|
|-------------------------------------------------------------------------------------------------------------------------------------



|At May 12, 2003,
the number of shares outstanding of the Registrants common  stock, par value $.01 per
share, was 13,135,008.
|------------------------------------------------------------------------------------------------------------------------------

|
|



| |  | 
| |  | 



---







|4Kids Entertainment, Inc. and
Subsidiaries
|------------------------------------------



|Table of Contents
|-----------------

|                              | Page #                                                                                                      
|----------------------------- | ------------------------------------------------------------------------------------------------------------
|Part IFINANCIAL INFORMATION  |                                                                                                             
|                              |                                                                                                             
|Item 1.                       | Financial Statements                                                                                        
|                              |                                                                                                             
|                              | Consolidated Balance Sheets as of March 31, 2003
        (Unaudited) and December 31, 2002                  
|                              |                                                                                                             
|                              | Consolidated Statements of Income for the three months
        ended March 31, 2003 and 2002 (Unaudited)    
|                              |                                                                                                             
|                              | Consolidated Statements of Cash Flows for the three months
        ended March 31, 2003 and 2002 (Unaudited)
|                              |                                                                                                             
|                              | Notes to Consolidated Financial Statements (Unaudited)                                                      
|                              |                                                                                                             
|Item 2.                       | Managements Discussion and Analysis of Financial
        Condition and Results of Operations               
|                              |                                                                                                             
|Item 3.                       | Quantitative and Qualitative Disclosures about Market
        Risk                                          
|                              |                                                                                                             
|Item 4.                       | Controls and Procedures                                                                                     
|                              |                                                                                                             
|Part IIOTHER INFORMATION     |                                                                                                             
|                              |                                                                                                             
|Item 6.                       | Exhibits and Reports on Form 8-K                                                                            
|                              |                                                                                                             
|Signatures and Certifications | 21                                                                                                          



| |  | 
| |  | 



---





|Part I-FINANCIAL INFORMATION
|----------------------------

|Item 1. Financial Statements
|----------------------------

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

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

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

|ASSETS                                                                                                                  | March 31, 
        2003

      
     (Unaudited) | December 31,
        2002
|----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | -------------------------
|
|
|CURRENT ASSETS:                                                                                                         |                                                  |                          
|Cash and cash equivalents                                                                                               | $ 85,579                                         |                          
|Investments                                                                                                             | 14,329                                           |                          
|Accounts receivable - net                                                                                               | 29,402                                           |                          
|Prepaid Fox broadcast fee - net                                                                                         | 8,011                                            |                          
|Prepaid/refundable income taxes                                                                                         | -                                                |                          
|Advances to licensors                                                                                                   | 3,132                                            |                          
|Prepaid expenses and other current assets                                                                               | 3,569                                            |                          
|                                                                                                                        |                                                  |                          
|Total current assets                                                                                                    | 144,022                                          |                          
|                                                                                                                        |                                                  |                          
|PROPERTY AND EQUIPMENT - net                                                                                            | 3,719                                            |                          
|                                                                                                                        |                                                  |                          
|ACCOUNTS RECEIVABLE - Noncurrent, net                                                                                   | 3,971                                            |                          
|                                                                                                                        |                                                  |                          
|INVESTMENT IN EQUITY SECURITIES                                                                                         | 726                                              |                          
|                                                                                                                        |                                                  |                          
|FILM AND TELEVISION COSTS - Noncurrent, net                                                                             | 6,921                                            |                          
|                                                                                                                        |                                                  |                          
|DEFERRED INCOME TAXES - Noncurrent                                                                                      | 1,051                                            |                          
|                                                                                                                        |                                                  |                          
|OTHER ASSETS - net                                                                                                      | 2,375                                            |                          
|                                                                                                                        |                                                  |                          
|TOTAL ASSETS                                                                                                            | $ 162,785                                        |                          
|                                                                                                                        |                                                  |                          
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                    |                                                  |                          
|                                                                                                                        |                                                  |                          
|CURRENT LIABILITIES:                                                                                                    |                                                  |                          
|Due to licensors                                                                                                        | $     8,194                                      |                          
|Media payable                                                                                                           | 935                                              |                          
|Accounts payable and accrued expenses                                                                                   | 11,559                                           |                          
|Income taxes payable                                                                                                    | 531                                              |                          
|Deferred revenue                                                                                                        | 4,495                                            |                          
|Deferred income taxes                                                                                                   | 643                                              |                          
|                                                                                                                        |                                                  |                          
|Total current liabilities                                                                                               | 26,357                                           |                          
|                                                                                                                        |                                                  |                          
|DEFERRED RENT                                                                                                           | 824                                              |                          
|                                                                                                                        |                                                  |                          
|Total liabilities                                                                                                       | 27,181                                           |                          
|                                                                                                                        |                                                  |                          
|COMMITMENTS AND CONTINGENCIES
      STOCKHOLDERS EQUITY                                                                |                                                  |                          
|                                                                                                                        |                                                  |                          
|Preferred stock, $.01 par value - authorized, 3,000,000
        
           shares; none issued                         | -                                                |                          
|Common stock, $.01 par value - authorized,
      40,000,000 shares;
         issued, 13,135,008 shares in 2003 and 2002 | 131                                              |                          
|Additional paid-in capital                                                                                              | 40,411                                           |                          
|Accumulated other comprehensive income                                                                                  | 35                                               |                          
|Retained earnings                                                                                                       | 95,027                                           |                          
|                                                                                                                        |                                                  |                          
|Total stockholders equity                                                                                              | 135,604                                          |                          
|                                                                                                                        |                                                  |                          
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                              | $ 162,785                                        |                          
|                                                                                                                        |                                                  |                          



|See notes to consolidated financial statements.
|-----------------------------------------------



| | -2- | 
| | --- | 



---





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

|CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
|---------------------------------------------

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

|                                                               | Three Months Ended       
|-------------------------------------------------------------- | -------------------------
|                                                               | March 31,
        2003   
|NET REVENUES                                                   | $       20,978           
|                                                               |                          
|COSTS AND EXPENSES:                                            |                          
|Selling, general and administrative                            | 7,316                    
|Production service costs                                       | 1,920                    
|Amortization of television and film costs
          and        |                          
|Fox broadcast fee                                              | 7,116                    
|                                                               |                          
|Total
          costs and expenses                             | 16,352                   
|                                                               |                          
|INCOME FROM OPERATIONS                                         | 4,626                    
|                                                               |                          
|INTEREST INCOME                                                | 324                      
|                                                               |                          
|INCOME BEFORE INCOME TAX PROVISION                             | 4,950                    
|                                                               |                          
|INCOME TAX PROVISION                                           | 1,980                    
|                                                               |                          
|NET INCOME                                                     | $        2,970           
|                                                               |                          
|PER SHARE AMOUNTS:                                             |                          
|Basic earnings per common share                                | $         
          0.23
|                                                               |                          
|Diluted earnings per common share                              | $         
          0.21
|                                                               |                          
|Weighted average common shares outstanding
          - basic   | 13,135,008               
|                                                               |                          
|Weighted average common shares outstanding
          - diluted | 13,899,630               
|                                                               |                          



|See notes to consolidated financial statements.
|-----------------------------------------------



| | -3- | 
| | --- | 



---





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

|CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|-------------------------------------------------

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

|                                                                                                                   |  |                      
|------------------------------------------------------------------------------------------------------------------ |  | ---------------------
|                                                                                                                   |  | Three Months Ended   
|                                                                                                                   |  | March 31, 
      2003
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                              |  |                      
|Net income                                                                                                         |  | $   2,970            
|Adjustments to reconcile
      net income to net cash 
          provided by (used in) operating
      activities: | 
|Depreciation and amortization                                                                                      |  | 317                  
|Amortization of television
      and film costs and Fox broadcast fee                                              |  | 7,116                
|Provision for doubtful
      accounts                                                                              |  | 50                   
|Deferred income taxes                                                                                              |  | (474                 
|Tax benefit on exercise
      of stock options                                                                     |  |                     
|Changes in operating
      assets and liabilities:                                                                 | 
|Accounts
      receivable                                                                                          |  | 11,157               
|Film and
      television costs                                                                                    |  | (3,374               
|Prepaid/refundable
      income taxes                                                                              |  | 1,635                
|Prepaid
      Fox broadcast fee                                                                                    |  | (3,164               
|Advances
      to licensors                                                                                        |  | (1,515               
|Prepaid
      expenses and other current assets                                                                    |  | (1,315               
|Other
      assets - net                                                                                           |  | (127                 
|Due to
      licensors                                                                                             |  | (869                 
|Media
      payable                                                                                                |  | (4,678               
|Accounts
      payable and accrued expenses                                                                        |  | 1,783                
|Income
      taxes payable                                                                                         |  | 531                  
|Deferred
      revenue                                                                                             |  | 519                  
|Deferred
      rent                                                                                                |  | 67                   
|                                                                                                                   |  |                      
|Net cash provided by (used in)
      operating activities                                                          |  | 10,629               
|                                                                                                                   |  |                      
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                              | 
|Proceeds from maturities
      of investments                                                                      |  | 21,569               
|Purchase of investments                                                                                            |  | (25,111              
|Purchase of property
      and equipment                                                                           |  | (183                 
|                                                                                                                   |  |                      
|Net cash
      used in investing activities                                                                        |  | (3,725               
|                                                                                                                   |  |                      
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                              | 
|Proceeds from exercise
      of stock options                                                                      |  |                     
|                                                                                                                   |  |                      
|Net cash
      provided by financing activities                                                                    |  |                     
|                                                                                                                   |  |                      
|EFFECTS OF EXCHANGE RATE CHANGES
      
         ON CASH AND CASH EQUIVALENTS                                      |  | (37                  
|                                                                                                                   |  |                      
|NET INCREASE (DECREASE) IN CASH
      AND CASH EQUIVALENTS                                                         |  | 6,867                
|                                                                                                                   |  |                      
|CASH AND CASH EQUIVALENTS, BEGINNING
      OF PERIOD                                                               |  | 78,712               
|                                                                                                                   |  |                      
|CASH AND CASH EQUIVALENTS, END
      OF PERIOD                                                                     |  | $ 85,579             
|                                                                                                                   |  |                      
|SUPPLEMENTAL DISCLOSURE OF CASH
      FLOW INFORMATION:                                                            | 
|                                                                                                                   | 
|CASH PAID DURING THE PERIOD FOR:                                                                                   | 
|Income Taxes                                                                                                       |  | $                   
|                                                                                                                   |  |                      



|See notes to consolidated financial statements.
|-----------------------------------------------



| | -4- | 
| | --- | 



---





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

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|------------------------------------------------------

|THREE MONTHS ENDED MARCH 31, 2003
|---------------------------------

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



|1. DESCRIPTION OF BUSINESS
|--------------------------



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



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



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



| | Advertising Media and Broadcast
      - The Company, through a multi-year agreement with the Fox Broadcasting
      Company (Fox), leases Foxs Saturday morning programming
      block (the Fox Box). The Company provides all programming content
      to be broadcast on the Fox Box, which airs on Saturday mornings from 8am
      to 12pm eastern/pacific time (7am to 11am central time), and retains all
      of the revenue from network advertising sales for the four-hour time period.
      4Kids Ad Sales, Inc., a wholly-owned subsidiary, manages and accounts for
      the revenue and costs associated with the Fox Box.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| | -5- | 
| | --- | 



---





| | Productions produce original music compositions
      for use with its television and film production activities.
| | -----------------------------------------------------------------------------------------------------------------



| | 4Kids Entertainment Music, Inc. a wholly-owned
      subsidiary, markets and administers the musical operations for the Company
      on certain existing and newly created music associated with its television
      programming. 4Kids Entertainment Home Video, Inc. a wholly-owned subsidiary,
      markets and administers the Companys home video operations associated
      with its television programming.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|---------------------------------------------



| | Basis of
Presentation- The consolidated financial statements, except for the December 31, 2002
consolidated balance sheet, are unaudited. In the opinion of management, the
accompanying consolidated financial statements contain all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly the financial position of
the Company as of March 31, 2003 and December 31, 2002 and the results of operations for
the three months ended March 31, 2003 and 2002 and cash flows for the three months ended
March 31, 2003 and 2002. Because of the seasonality and changing trends of the toy and
game, entertainment and advertising industries, operating results of the Company on a
quarterly basis may not be indicative of operating results for the full year.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | These
consolidated financial statements should be read in conjunction with the Companys
audited consolidated financial statements and notes thereto, for the year ended December
31, 2002, which are included in the Companys Annual Report on Form 10-K with respect to
such period filed with the Securities and Exchange Commission on March 31, 2003. All
significant intercompany accounts and transactions have been eliminated. The December
31, 2002 consolidated balance sheet amounts are derived from the Companys audited
consolidated financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| | Episodic
television series initially produced  for networks and first-run  syndication are
generally licensed to domestic and foreign  markets concurrently.  The length of the
revenue cycle for episodic television varies  depending on the  number of seasons a
series remains in active
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | -6- | 
| | --- | 



---





| | exploitation.
Revenues arising from  television license agreements are recognized in the period that
the films or  episodic television series are available for telecast.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Production and
adaptation costs reimbursed or charged to the licensor are  included in net revenue and
the corresponding costs are included in production  service costs in the accompanying
consolidated statements of income.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



| | Reclassifications
- Certain amounts reported for the prior period have been reclassified to conform to the
current periods presentation.
| | -----------------------------------------------------------------------------------------------------------------------------------------



| | Stock-Based Compensation - On December
      31, 2002, the Financial Accounting Standards Board (FASB) issued
      SFAS No. 148, Accounting for Stock-Based Compensation--Transition and
      Disclosure(SFAS No. 148). This standard amends SFAS No.
      123, Accounting for Stock-Based Compensation, to provide alternative
      methods of transition for a voluntary change to the fair value based method
      (expense treatment) of accounting for stock-based employee compensation.
      This standard also requires prominent disclosures in both annual and interim
      financial statements about the method of accounting for stock-based employee
      compensation and the effect of the method used on reported results. The
      Company adopted the disclosure requirements of this statement as of December
      31, 2002. Should the Company elect to utilize the fair value based method
      for its stock-based compensation in the future, it must adopt the remaining
      provisions of SFAS No. 148.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | The Company accounts for stock-based compensation
      under Accounting Principles Board Opinion No. 25,Accounting for Stock
      Issued to Employees (APB No. 25). Under APB No. 25, the
      Companys stock option and employee stock purchase plans qualify as
      noncompensatory
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | -7- | 
| | --- | 



---





|plans. Under FASB Interpretation 44, Accounting for Certain
      Transactions involving Stock Compensation, an Interpretation of APB
      No. 25, outside directors are considered employees for purposes of applying
      APB No. 25 if they are elected by shareholders. Consequently, no compensation
      expense for employees and directors is recognized.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following table illustrates the pro forma effect on net
      income and net income per basic and diluted shares had the Company applied
      the fair value recognition provisions of SFAS No. 123 for the three months
      ended March 31, 2003 and 2002.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                             | Three Months Ended    
|-------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------
|                                                                                                                                             | March 31,
        2003
|Net income as reported                                                                                                                       | $ 2,970               
|                                                                                                                                             |                       
|Deduct stock-based employee compensation
           expense determined under fair 
           value based method for all awards, net of tax. | 31                    
|                                                                                                                                             |                       
|Pro forma net income (loss)                                                                                                                  | $ 2,939               
|                                                                                                                                             |                       
|Net income (loss) per share:                                                                                                                 |                       
|Reported                                                                                                                                     |                       
|Basic                                                                                                                                        | $   0.23              
|Diluted                                                                                                                                      | $   0.21              
|Pro forma                                                                                                                                    |                       
|Basic                                                                                                                                        | $   0.22              
|Diluted                                                                                                                                      | $   0.21              

|Recently Issued Accounting Pronouncements -
      Derivative Instruments and Hedging Activities - In April 2003, the
      FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments
      and Hedging Activities (SFAS No. 144). SFAS No. 149 amends
      and clarifies financial accounting and reporting for derivative instruments,
      including certain derivative instruments embedded in other contracts and
      for hedging activities. SFAS No. 149 is effective for contracts entered
      into or modified after June 30, 2003, except as stated in the statement
      for hedging relationships designated after June 30, 2003. The Company does
      not believe that the adoption of this standard will have a material effect
      on its financial position or results of operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3.  COMMITMENTS AND CONTINGENCIES
|---------------------------------

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

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

| |  |  | The
Company will defer all amounts received or to be received under the  contract, and will
recognize revenue as the Current Music Assets and  Future Music Assets generate revenue
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | -8- | 
| | --- | 



---



| |  |  | over the contract term. Notwithstanding the foregoing,
      as of the date the Company has delivered all of the Future Music Assets
      required under the contract, any portion of the $5,000 that remains deferred
      and not recognized, will be recognized as revenue. Pursuant to the above,
      the Company recognized revenue of $104 for the three months ended March
      31, 2003 and has included $2,582 as deferred revenue in the accompanying
      consolidated balance sheets as of March 31, 2003 and $2,686 as of December
      31, 2002.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Home Video - In May 2002, 4Kids Home Video, entered
      into an agreement with an unaffiliated third party home video distributor
      (the Video Distributor), pursuant to which 4Kids Home Video
      provides ongoing advertising, marketing and promotional services with respect
      to certain home video titles that are owned or controlled by the Company
      and which are distributed by the Video Distributor. The Video Distributor
      has paid the Company an advance of $1,300 against 4Kids Home Videos
      share of the service fee proceeds to be realized by 4Kids Home Video from
      such titles. Pursuant to the above, the Company recognized revenue of $335
      for the three months ended March 31, 2003 and has included $252 as deferred
      revenue in the accompanying consolidated balance sheets as of March 31,
      2003 and $587 as of December 31, 2002.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Other Agreements - In addition, the Company has
      entered into other agreements for various properties in which the Company
      has received certain advances and/or minimum guarantees. Accordingly, as
      of March 31, 2003 and 2002, the unearned portion of these advances and guaranteed
      payments received was $1,661 and $198, respectively and these amounts are
      included as deferred revenue in the accompanying consolidated balance sheets
      as of March 31, 2003 and $703 as of December 31, 2002.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  |  | Under the terms of the Agreement, Licensee is required
      to pay a minimum royalty for the period starting January 1, 2001 and ending
      December 31, 2006. Since all of the conditions under the Agreement were
      met and the full amount of the minimum guaranteed royalties were payable
      by the Licensee, the Company earned $7,500 over the period of the Agreement.
      For each of the three months ended March 31, 2003 and 2002, the Company
      earned royalties relating to the Agreement of $2,500.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. |  | Fox Broadcast Agreement - In January 2002, the Company entered into a multi-year
agreement with Fox to lease the Fox Box. The Company is providing all programming
content for the Fox Box and commenced doing so with the September 2002 broadcast year.
The agreement has an initial term of four broadcast years, with the Company having the
option to extend the term for up to two additional broadcast years. 4Kids will pay a fee
of $25,312 for each broadcast year during the initial term of the agreement.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The agreement provided for 50% of the fee for the
      first broadcast season to be paid within ten days of the execution of the
      short form agreement in February 2002, with the balance of the fee for the
      first broadcast season payable in four equal installments in September 2002,
      December 2002, February 2003 and April 2003. All payments required to be
      made on or prior to March 31, 2003 have been made.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | -9- | 
| | --- | 



---



| |  |  | The cost of the Fox Box is capitalized and amortized
      over each broadcast season based on estimated advertising revenue. As of
      March 31, 2003, the Company has paid Fox and certain affiliates a total
      of $22,465, representing a portion of the first year fee of which $14,454
      was amortized. The remaining $8,011, representing the unamortized portion
      of the first broadcast seasons fee paid as of March 31, 2003, is included
      in Prepaid Fox broadcast fee on the accompanying consolidated
      balance sheets as of March 31, 2003. The fee for each subsequent broadcast
      year is payable 50% in the June preceding the beginning of the broadcast
      year (which begins in September) with the balance of the fee for the broadcast
      year payable in four equal installments in September, December, February
      and April. Additionally, the agreement required the Company to establish
      a $25,000 letter of credit for the benefit of Fox, which letter of credit
      may be reduced by the Company as installments of the final years fee
      are paid. As of March 31, 2003, the Company had received a commitment for
      the letter of credit, but the letter of credit had not been issued pending
      completion of the long form agreement with Fox. Upon the issuance of the
      letter of credit, the Company will grant a security interest in its cash
      balances to the issuing bank to secure the amount of such letter of credit
      and will appropriately disclose these amounts as restricted cash in its
      financial statements.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  |  | The Companys ability to recover the cost
      of its fee payable to Fox will depend on the popularity of the television
      programs the Company broadcasts on the Fox Box and the general market demand
      and pricing of advertising time for Saturday morning childrens broadcast
      television. The popularity of such programs impacts audience levels and
      the level of the network advertising rates that the Company can charge.
      Additionally, the success of merchandise licensing programs and home video
      sales based on such television programs broadcast on the Fox Box is dependent
      on consumer acceptance of the properties. If the Company estimates that
      it will be unable to generate sufficient future revenue from advertising
      sales, home video sales and merchandising licensing at levels to cover the
      cost of its contractual obligation to Fox, the Company would record a charge
      to earnings to reflect an expected loss on the Fox agreement in the period
      in which the deficiency or factors affecting the recoverability of the fee
      payable become known. The Company will be required to make certain assumptions
      and estimates about future events such as advertising rates and audience
      viewing levels in evaluating its ability to recover the cost of the Fox
      fee. Such estimates and assumptions are subject to market forces and factors
      beyond the control of the Company and are inherently subject to change.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | There
can be no assurance that the Company will be able to recover the  full cost of the Fox
fee and in the event it cannot, it would record the  resulting charge to earnings to
reflect an expected loss on the Fox fee,  which could be significant.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | -10- | 
| | ---- | 



---





|4. SEGMENT AND RELATED INFORMATION
|----------------------------------

| |  |  | The Company applies SFAS No. 131, Disclosures About Segments
        of an Enterprise and Related Information. The Company has three reportable
        segments; (i) Licensing, (ii) Advertising Media and Broadcast, and (iii)
        Television and Film Production/Distribution. The Companys reportable
        segments are strategic business units, which, while managed separately,
        work together as a vertically integrated entertainment company. The Companys
        management regularly evaluates the performance of each segment based upon
        its net revenues, profit and loss after all expenses, including amortized
        film, television costs and the Fox Box broadcast fee and interest income.
      The accounting policies of the segments are the same as
        those described in the summary of significant accounting policies. Commencing
        in 2003, the Companys TV and Film Production/Distribution segment
        recorded inter-segment revenues and the Companys Advertising Media
        and Broadcast segment recorded inter-segment charges related to the estimated
        acquisition costs of episodic television series for broadcast. In the
        opinion of management, such acquisition costs represent the estimated
        fair market value which would have been incurred in a transaction between
        unaffiliated third parties on an arms length basis. All inter-segment
        transactions have been eliminated.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
Company periodically reviews its operating segments, and as such, evaluates  the
relevance and appropriateness of each of its reportable segments. During the  quarter
ended September 30, 2002, management reviewed the Companys operating  segments, as they
relate to current operations and in accordance with the  Companys internal management
structure. In response to this evaluation, the  Company revised its operating segments to
reflect a more appropriate measure of  evaluating the operating performance of its
reportable segments. These revisions  have been reflected in the 2003 disclosure, with
all previously reported amounts  reclassified to conform to the current presentation.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | -11- | 
| | ---- | 



---



|                                                                                            | Licensing             | Advertising 
          Media and 
          Broadcast | TV and Film 
          Production/ 
          Distribution | Total
|------------------------------------------------------------------------------------------- | --------------------- | ----------------------------------------------------- | ---------------------------------------------------------- | -----
|Three Months Ended 
        March 31, 2003:                                                 |                       |                                                       |                                                            |      
|Net revenues from external customers                                                        | $ 11,261              |                                                       | $   4,123                                                  |      
|                                                                                            |                       |                                                       |                                                            |      
|Amortization of television 
             and film costs and Fox 
             broadcast fee | $-                    |                                                       | $   5,010                                                  |      
|                                                                                            |                       |                                                       |                                                            |      
|Segment profit (loss)                                                                       | $    7,524            |                                                       | $ (3,340)                                                  |      
|                                                                                            |                       |                                                       |                                                            |      
|Segment assets                                                                              | $126,184              |                                                       | $ 15,627                                                   |      
|                                                                                            |                       |                                                       |                                                            |      
|Interest income                                                                             | $      
          317 |                                                       | $         
          7                                     |      
|                                                                                            |                       |                                                       |                                                            |      
|Three Months Ended 
        March 31, 2002:                                                 |                       |                                                       |                                                            |      
|Net revenues from external customers                                                        | $    4,597            |                                                       | $       355                                                |      
|                                                                                            |                       |                                                       |                                                            |      
|Amortization of televsion                                                                   |                       |                                                       |                                                            |      
|and film costs
        and Fox 
           broadcast fee                                    | $-                    |                                                       | $-                                                         |      
|                                                                                            |                       |                                                       |                                                            |      
|Segment profit (loss)                                                                       | $    1,415            |                                                       | $    (286)                                                 |      
|                                                                                            |                       |                                                       |                                                            |      
|Segment assets                                                                              | $120,433              |                                                       | $    2,723                                                 |      
|                                                                                            |                       |                                                       |                                                            |      
|Interest income                                                                             | $      
          461 |                                                       | $        
          16                                     |      
|                                                                                            |                       |                                                       |                                                            |      



|Additionally, through the Companys London office and
      network of international subagents, which allow it to license its properties
      throughout the world, the Company recognized approximately $2,692 and $1,099
      in net revenue from international sources, primarily in Europe for the three
      months ended March 31, 2003 and 2002, respectively.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|******
|------



| | -12- | 
| | ---- | 



---





|Item 2.  Managements Discussion and Analysis
of Financial Condition and Results of Operations
|----------------------------------------------------------------------------------------------

|(In thousands of dollars unless otherwise
specified)
|----------------------------------------------------



| | Critical
Accounting Policies and Estimates
| | ------------------------------------------



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



| | Management
believes the following critical accounting policies, among others,  involve the
significant judgments and estimates used in the preparation of its  consolidated
financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



| | Production and
adaptation costs reimbursed or charged to the licensor are  included in net revenue and
the corresponding costs are included in production  service costs in the accompanying
consolidated statements of income.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | -13- | 
| | ---- | 



---





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



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



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



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



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



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



| | Guarantees - In November 2002, the FASB issued
      Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
      for Guarantees, Including Indirect Guarantees of Indebtedness of Others.
      Such Interpretation elaborates on the disclosures to be made by a guarantor
      about its obligations under certain guarantees issued. It also clarifies
      that a guarantor is required to recognize, at the inception of a guarantee,
      a liability for the fair value of the obligation undertaken in issuing the
      guarantee. The initial recognition and measurement provisions of this Interpretation
      apply to guarantees issued or modified after December 31, 2002. The disclosure
      provisions of
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | -14- | 
| | ---- | 



---





| | this
Interpretation are effective for financial statements with annual periods ending  after
December 15, 2002. The Company does not believe that the adoption of this  standard will
have a material effect on its financial position or results of  operations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock-Based Compensation - On December 31, 2002,
      the FASB issued SFAS No. 148, Accounting for Stock-Based CompensationTransition
      and Disclosure(SFAS No. 148).This standard amends
      SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative
      methods of transition for a voluntary change to the fair value based method
      (expense treatment) of accounting for stock-based employee compensation.
      This standard also requires prominent disclosures in both annual and interim
      financial statements about the method of accounting for stock-based employee
      compensation and the effect of the method used on reported results. The
      Company adopted the disclosure requirements of this statement as of December
      31, 2002. Should the Company elect to utilize the fair value based method
      for its stock-based compensation in the future, it must adopt the remaining
      provisions of SFAS No. 148.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Consolidation of Variable Interest Entities - On
      January 17, 2003, the FASB issued Interpretation No. 46, Consolidation
      of Variable Interest Entities. Such Interpretation addresses consolidation
      of entities that are not controllable through voting interests or in which
      the equity investors do not bear the residual economic risks and rewards.
      These entities have been commonly referred to as special purpose entities.
      The Interpretation provides guidance related to identifying variable interest
      entities and determining whether such entities should be consolidated. It
      also provides guidance related to the initial and subsequent measurement
      of assets, liabilities and noncontrolling interests in newly consolidated
      variable interest entities and requires disclosures for both the primary
      beneficiary of a variable interest entity and other beneficiaries of the
      entity. Such Interpretation is effective for newly created Variable Interest
      Entities beginning February 1, 2003 and for existing Variable Interest Entities
      as of the third quarter of 2003. The Company does not believe that the adoption
      of this standard will have a material effect on its financial position or
      results of operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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





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



---





| | Three Months
Ended March 31, 2003 compared to Three Months Ended March 31, 2002.
| | --------------------------------------------------------------------------------



| | Consolidated net revenues for the three months
      ended March 31, 2003 increased 201%, or $14,017, to $20,978 as compared
      to the same period in 2002. The increase was due to a number of factors.
      In the Licensing segment, net revenue increased 145%, or $6,664, to $11,261
      for the three months ended March 31, 2003, when compared to the same period
      in 2002. Licensing and fee revenue primarily from the Yu-Gi-Oh!
      and Teenage Mutant Ninja Turtles properties increased significantly
      in the current period over the same period in 2002. Net revenue in the Advertising
      Media and Broadcast segment increased 1,061% or $3,768 to $4,123 primarily
      due to sales of advertising time on the Fox Box which began broadcast operations
      in September 2002. Net revenue for the Television and Film Production/Distribution
      segment increased 178% or $3,585 to $5,594 for the three months ended March
      31, 2003, when compared to the same period in 2002. In this segment, increased
      production service revenue was earned for work performed on the Kirby,
      Teenage Mutant Ninja Turtles and Pokémon
      television programs when compared to the same period in 2002. Additionally,
      license fee revenue increased from international broadcast agreements for
      the Yu-Gi-Oh, Cubix, and Pokémon
      television programs.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Selling, general and administrative expenses increased
      64% or approximately $2,848 to $7,316, for the three months ended March
      31, 2003 when compared to the same period in 2002, primarily due to increased
      advertising, payroll and benefits resulting from higher staffing levels
      in advertising sales, the operation of the Fox Box network and the Companys
      FoxBox.TV website, all of which commenced significant operations in the third
      quarter of 2002. Along with these increased payroll and benefits costs,
      the Company incurred additional infrastructure costs to support these new
      operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Production service costs increased 1,461% or $1,797
      to $1,920 for the three months ended March 31, 2003, when compared to the
      same period in 2002. This increase was attributable to certain television
      production costs related to the Kirby, Teenage Mutant
      Ninja Turtles and Pokémon television programs for
      which the Company is reimbursed. When the Company is reimbursed for production
      costs, it categorizes them as Production service costs and reflects a corresponding
      amount in revenue for the amount of the reimbursement.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | At March 31, 2003, there were approximately $6,921
      of capitalized film production costs relating primarily to various stages
      of production on 572 episodes of animated programming. Amortization of capitalized
      film costs increased by $1,886, or 857%, to $2,106 for the three months
      ended March 31, 2003, as compared to the same period in 2002, due to increased
      amortization of Yu-Gi-Oh!, Ultra Man, Ultimate
      Muscle, Teenage Mutant Ninja Turtles and the Cubix
      television programs.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Amortization of the Fox broadcasting fee was $5,010
      for the three months ended March 31, 2003. The Fox Box commenced operations
      in September 2002. The fee payable to Fox and affiliates is capitalized
      and amortized over each broadcast season based on estimated advertising
      revenue. As of March 31, 2003, the Company had paid Fox and certain affiliates
      a total amount of $22,465, representing a portion of the first years
      fee of which $14,454 was amortized as of March 31, 2003. The remaining $8,011,
      representing the unamortized portion of the first broadcast seasons
      fee paid, is included in Prepaid Fox broadcast fee on the accompanying
      consolidated balance sheets as of March 31, 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Interest income decreased $153, or 32%, to $324
      for the three months ended March 31, 2003 as compared to the same period
      in 2002, as a result of the declining interest rate environment.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | -16- | 
| | ---- | 



---





| | Income tax
expense increased $907 or 85% to $1,980 for the three months ended  March 31, 2003 as
compared to $1,073 in the same period in 2002, due to higher  pre-tax income. The
Companys effective tax rate remained relatively consistent  at approximately 40% for
both 2003 and 2002.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | As a result of
the above, the Company had net income for the three months ended  March 31, 2003 of
$2,970 as compared to net income for the same period in 2002  of $1,554.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



| | For the three months ended March 31, 2003, the
      Companys cash and cash equivalents and short-term investment balances
      increased by $10,409 to $99,908, primarily as a result of increased royalty
      collections on the Yu-Gi-Oh! and Teenage Mutant Ninja
      Turtles properties and a decrease in accounts receivable, partially
      offset by contractual payments made for the Fox Box broadcast rights and
      other film rights and decreases in due to licensors.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Cash flows from operating activities for the three
      months ended March 31, 2003 and 2002, were $10,629 and ($26,084), respectively.
      Working capital, consisting of current assets less current liabilities,
      was $117,665 as of March 31, 2003 and $114,298 as of December 31, 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Cash flows from investing activities for the three
      months ended March 31, 2003 and 2002, were ($3,725), and ($2,008), respectively.
      As of March 31, 2003, the Company had approximately $14,329 invested primarily
      in short-term commercial paper and government obligations. For the three
      months ended March 31, 2003, the Company purchased property and equipment
      of $183, which was comprised primarily of computer and television equipment,
      as compared to purchases of property and equipment of $270 for the same
      period in 2002.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Cash flows from financing activities for the three
      months ended March 31, 2003 and 2002 were $0 and $107, respectively. Cash
      flows from financing activities for the three months ended March 31, 2002
      were generated by proceeds from the exercise of stock options by the Companys
      employees.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | The Companys new license agreement with Fox
      to program the networks four hour Saturday morning childrens
      block beginning in September 2002 requires the Company to pay an annual
      fee of $25,312. Under the terms of the agreement, for the three months ended
      March 31, 2003, the Company paid Fox and certain affiliates a total of $3,164,
      representing a portion of the first years fee, with one additional
      payment of $3,164 due in April 2003. The fee for each subsequent broadcast
      year is payable 50% in the June preceding the beginning of the broadcast
      year (which begins in September) with the balance of the fee for the broadcast
      year payable in four equal installments in September, December, February
      and April. Additionally, the Agreement requires the Company to establish
      a $25,000 Letter of Credit for the benefit of Fox, which Letter of Credit
      may be reduced by the Company as installments of the final years license
      fee are paid. As of March 31, 2003, the Company had received a commitment
      for the letter of credit, but the letter of credit had not been issued pending
      completion of the long form agreement with Fox. Upon the issuance of the
      letter of credit, the Company will grant a security interest in its cash
      balances to the issuing bank to secure the amount of such letter of credit
      and will appropriately disclose these amounts as restricted cash in its
      financial statements. 
      The agreement further provides that, at the Companys option, up to
      $10,300 of each years fee may be paid by delivering shares of the
      Companys common stock. The Company will incur additional costs to
      program the four hour block and to sell the related network advertising
      time. These costs will include direct programming costs to acquire, adapt
      and deliver programming for broadcast during the weekly four hour block
      as well as additional indirect costs of advertising sales, promotion and
      administration.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | -17- | 
| | ---- | 



---









| | Our aggregate minimum payment obligations under
      various operating leases related to certain office, administrative and production
      facilities and the Fox broadcast fee are as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year ending
        December 31, | Leases  | Fox 
        Broadcast 
        Fee | Total  
|-------------------------------- | ------- | ----------------------------------- | -------
|April 1, - December 31, 2003     | $   904 |                                     | $22,148
|2004                             | 1,402   |                                     | 25,312 
|2005                             | 1,522   |                                     | 25,312 
|2006                             | 1,557   |                                     | 6,326  
|2007                             | 1,557   |                                     |       
|2008 and thereafter              | 1,911   |                                     |       
|                                 |         |                                     |        
|Total                            | $8,853  |                                     | $79,098
|                                 |         |                                     |        



| | The Company believes that existing cash and short-term
      investments and anticipated cash to be generated from future operations
      will be sufficient to meet our cash needs over the next twelve months for
      working capital, capital expenditures and strategic investments. However,
      during such period or thereafter, depending on the size and number of the
      projects and investments undertaken by the Company, the Company may seek
      additional financing alternatives.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Forward-looking
Statements
| | --------------------------



| | The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for  forward-looking
statements made by or on behalf of the Company. We may from time  to time make written or
oral statements that are forward-looking, including  statements contained in
this report and other filings with the Securities and  Exchange Commission and in reports
to our stockholders. Such statements may, for  example, express expectations or
projections about future actions that we may  take, including restructuring or strategic
initiatives or about developments  beyond our control including changes in domestic or
global economic conditions.  These statements are made on the basis of managements views
and assumptions as  of the time the statements are made. There can be no assurance,
however, that  our expectations will come to pass.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Factors that may affect forward-looking statements.
      For the Company, a wide range of factors could materially affect future
      developments and performance, including the following:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | Changes in
U.S., global or regional economic conditions, which may affect  purchases of
Company-licensed consumer products, the advertising market for  broadcast and television
programming and the performance of the Companys  theatrical, music and home
entertainment releases;
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Increased
competitive pressures, both domestically and internationally, which  may, among other
things, lead to increased expenses in such areas as television  programming acquisition
and motion picture production and marketing;
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | -18- | 
| | ---- | 



---





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



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



| | Changing
public and consumer taste, which may among other things, affect the  Companys
entertainment, broadcasting and consumer products businesses generally  or result in
increases in broadcasting losses or loss of advertising revenue;  and
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | International,
political and military developments that may, among other things,  result in increases in
broadcasting costs or loss of advertising revenue.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | The recent outbreak of Severe Acute Respiratory
      Syndrome (SARS) and concerns over its spread in Asia and elsewhere
      could have a negative impact on commerce, travel, and general economic and
      industry conditions and have a material adverse effect on the Companys
      business. For example, the SARS outbreak could result in quarantines or
      closures of manufacturing facilities from which the Company purchases merchandise
      or impact on the Companys ability to locate new properties. In addition,
      fear over the spread of SARS could result in a reduction of demand for the
      Companys products that originate in Asia (and elsewhere).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|Item 3.  Quantitative and Qualitative
Disclosures about Market Risk
|-------------------------------------------------------------------



| | Foreign
Currency Exchange Rate Fluctuations
| | -------------------------------------------



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





|Item 4.  Controls and Procedures
|--------------------------------



| | Within the ninety days prior to the date of this
      report, the Company carried out an evaluation, under the supervision and
      with the participation of the Companys management, including the Companys
      Chief Executive Officer and Chief Financial Officer, of the effectiveness
      of the design and operation of the Companys disclosure controls and
      procedures pursuant to Exchange Act Rule 13a - 14. Based upon that evaluation,
      the Chief Executive Officer and Chief Financial Officer have concluded that
      the Companys disclosure controls and procedures are effective in ensuring
      that information required to be disclosed by the Company in the reports
      it files or submits under the Exchange Act is included in such reports.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | -19- | 
| | ---- | 



---





| | There were no
significant changes in the Companys internal  controls  or in other factors that could
significantly affect these controls subsequent  to  the date of their evaluation.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Part II -OTHER INFORMATION
|--------------------------





|Item 6.  Exhibits and Reports on Form 8-K
|-----------------------------------------



|(a) | Exhibits
|--- | --------



| | (99.1)
Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
| | -------------------------------------------------------------------------------------------------------------------------------



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



| | No reports on Form 8-K were filed during the three
      month period ended March 31, 2003.
| | -------------------------------------------------------------------------------------------



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



---





|SIGNATURES
|----------



| | Pursuant to
the requirements 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Dated: May 15, 2003
| | -------------------



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



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



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



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



| | Joseph P. Garrity 
      Executive Vice President and
      Chief Financial Officer
| | -----------------------------------------------------------------------------------



| | -21- | 
| | ---- | 



---





|CERTIFICATIONS
|--------------

|Certification Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|----------------------------------------------------------------------------------------------------------------------



|I, Alfred R. Kahn, Chairman of the Board and
Chief Executive Officer of 4Kids Entertainment, Inc., certify that:
|----------------------------------------------------------------------------------------------------------------



|1. | I
have reviewed this quarterly report on Form 10-Q of 4Kids  Entertainment, Inc.;
|-- | ---------------------------------------------------------------------------------





|2. | Based on my knowledge, this quarterly
      report does not contain any untrue statement of a material fact or omit
      to state a material fact necessary to make the statements made, in light
      of the circumstances under which such statements were made, not misleading
      with respect to the period covered by this quarterly report;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|3. | Based on my knowledge, the financial
      statements, and other financial information included in this quarterly report,
      fairly present in all material respects the financial condition, results
      of operations and cash flows of the registrant as of, and for, the periods
      presented in this quarterly report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|4. | The registrants other certifying
      officer and I are responsible for establishing and maintaining disclosure
      controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
      for the registrant and have:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | a. | designed such disclosure controls and
      procedures to ensure that material information relating to the registrant,
      including its consolidated subsidiaries, is made known to us by others within
      those entities, particularly during the period in which this quarterly report
      is being prepared;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | evaluated the effectiveness of the registrants
      disclosure controls and procedures as of a date within 90 days prior to
      the filing date of this quarterly report (the Evaluation Date);
      and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | presented in this quarterly report our
      conclusions about the effectiveness of the disclosure controls and procedures
      based on our evaluation as of the Evaluation Date;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------













|5. | The registrants other certifying
      officer and I have disclosed, based on our most recent evaluation, to the
      registrants auditors and the audit committee of registrants
      board of directors:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | all significant deficiencies in the
      design or operation of internal controls which could adversely affect the
      registrants ability to record, process, summarize and report financial
      data and have identified for the registrants auditors any material
      weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | b. | any fraud, whether or not material,
      that involves management or other employees who have a significant role
      in the registrants internal controls; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------









| | -22- | 
| | ---- | 



---





|6. | The registrants other certifying
      officer and I have indicated in this quarterly report whether or not there
      were significant changes in internal controls or in other factors that could
      significantly affect internal controls subsequent to the date of our most
      recent evaluation, including any corrective actions with regard to significant
      deficiencies and material weaknesses.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|Date: May 15, 2003
|------------------



|By: | /s/ Alfred R. Kahn
      Alfred R. Kahn 
      Chairman of the Board and
      Chief Executive Officer
|--- | ------------------------------------------------------------------------------------------------------



| | -23- | 
| | ---- | 



---





|Certification Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|----------------------------------------------------------------------------------------------------------------------



|I, Joseph P. Garrity, Executive Vice President
and Chief Financial Officer of 4Kids Entertainment, Inc., certify that:
|----------------------------------------------------------------------------------------------------------------------



|1. | I have reviewed this quarterly
      report on Form 10-Q of 4Kids Entertainment, Inc.;
|-- | --------------------------------------------------------------------------------------





|2. | Based on my knowledge, this quarterly
      report does not contain any untrue statement of a material fact or omit
      to state a material fact necessary to make the statements made, in light
      of the circumstances under which such statements were made, not misleading
      with respect to the period covered by this quarterly report;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|3. | Based on my knowledge, the financial
      statements, and other financial information included in this quarterly report,
      fairly present in all material respects the financial condition, results
      of operations and cash flows of the registrant as of, and for, the periods
      presented in this quarterly report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|4. | The registrants other certifying
      officer and I are responsible for establishing and maintaining disclosure
      controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
      for the registrant and have:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | designed such disclosure controls and
      procedures to ensure that material information relating to the registrant,
      including its consolidated subsidiaries, is made known to us by others within
      those entities, particularly during the period in which this quarterly report
      is being prepared;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | evaluated the effectiveness of the registrants
      disclosure controls and procedures as of a date within 90 days prior to
      the filing date of this quarterly report (the Evaluation Date);
      and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | presented in this quarterly report our
      conclusions about the effectiveness of the disclosure controls and procedures
      based on our evaluation as of the Evaluation Date;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

















|5. | The registrants other certifying
      officer and I have disclosed, based on our most recent evaluation, to the
      registrants auditors and the audit committee of registrants
      board of directors:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | all significant deficiencies in the
      design or operation of internal controls which could adversely affect the
      registrants ability to record, process, summarize and report financial
      data and have identified for the registrants auditors any material
      weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | any fraud, whether or not material,
      that involves management or other employees who have a significant role
      in the registrants internal controls; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------













| | -24- | 
| | ---- | 



---





|6. | The registrants other certifying
      officer and I have indicated in this quarterly report whether or not there
      were significant changes in internal controls or in other factors that could
      significantly affect internal controls subsequent to the date of our most
      recent evaluation, including any corrective actions with regard to significant
      deficiencies and material weaknesses.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date: May 15, 2003
|------------------



|By: | /s/ Joseph P. Garrity
      Joseph P. Garrity
      Executive Vice President and
      Chief Financial Officer
|--- | --------------------------------------------------------------------------------------------------------------









| | -25- | 
| | ---- | 



---