|
|

|UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-Q

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

                    For the quarterly period ended June 30, 2010OR




                    |   |      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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes |_|    No |_|
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of   “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Large accelerated filer ___

                    Accelerated filer ___

                    Non-accelerated filerX

                    Smaller reporting company ___


|(Do not check if a smaller reporting company)

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

                    As of August 13, 2010, the number of shares outstanding of the registrant’s common stock, par value $.01 per share was 13,528,958.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4Kids Entertainment,Inc. and Subsidiaries  Table of Contents  Page #Part IFINANCIAL INFORMATIONItem 1.
        
        Financial StatementsConsolidated Balance Sheets as of  June 30, 2010  (Unaudited) and December 31, 2009
        
        2Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2010 and 2009
        
        3Consolidated Statements of Changes in Equity and Comprehensive Loss (Unaudited) for the six months ended June 30, 2010
        
        4Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2010 and 2009
        
        5Notes to Consolidated Financial Statements (Unaudited)
        
        6Item 2.
        
        Managements Discussion and Analysis of Financial Condition and Results of Operations
        
        26Item 3.
        
        Quantitative and Qualitative Disclosures about Market Risk
        
        37Item 4.
        
        Controls and Procedures
        
        37Part IIOTHER INFORMATIONItem 1.
        
        Legal Proceedings
        
        37Item 1A
        
        Risk Factors
        
        38Item 6.
        
        Exhibits
        
        40Signatures
        
        41
          
  Part I  FINANCIAL INFORMATION Item 1. Financial Statements. 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS JUNE 30, 2010 and DECEMBER 31, 2009 (In thousands of dollars, except share data)  ASSETS:
        
        June 30, 2010
        
        December 31, 2009Current assets:
        
        (Unaudited)Cash and cash equivalents
        
        $
        4,295
        
        $
        3,621Accounts receivable - net
        
        
        7,327
        
        
        14,470Inventories - net
        
        
        153
        
        
        1,273Income taxes receivable
        
        
        421
        
        
        4,044Prepaid expenses and other current assets
        
        
        2,304
        
        
        2,612Total current assets
        
        
        14,500
        
        
        26,020Property and equipment - net
        
        
        2,214
        
        
        2,898Long term investments
        
        
        11,402
        
        
        14,180Accounts receivable - noncurrent, net
        
        
        101
        
        
        153Film and television costs - net
        
        
        5,963
        
        
        6,832Other assets - net (includes related party amounts of $1,025 and $1,215,                                     respectively)
        
        
        6,115
        
        
        6,570Total assets
        
        $
        40,295
        
        $
        56,653LIABILITIES AND EQUITY:Current liabilities:Due to licensors
        
        $
        5,474
        
        $
        6,578Accounts payable and accrued expenses
        
        
        8,022
        
        
        12,304Deferred revenue
        
        
        1,752
        
        
        2,279Total current liabilities
        
        
        15,248
        
        
        21,161Deferred rent
        
        
        386
        
        
        375Total liabilities
        
        
        15,634
        
        
        21,536Commitments and contingencies (Note 10)4Kids Entertainment, Inc. shareholders equityPreferred stock, $.01 par value  authorized 3,000,000 shares; none issued
        
        
        
        
        
        Common stock, $.01 par value - authorized 40,000,000 shares;
issued 15,652,845 and 15,411,099 shares; outstanding
13,528,958 and 13,352,053 shares in 2010 and 2009, respectively
        
        
        157
        
        
        154Additional paid-in capital
        
        
        68,699
        
        
        66,991Accumulated other comprehensive loss
        
        
        (4,615
        )
        
        (4,644
        )Retained earnings
        
        
        9,353
        
        
        19,29873,594
        
        
        81,799Less cost of 2,123,887 and 2,059,046 treasury shares in 2010 and 2009, respectively
        
        
        (36,488
        )
        
        (36,434
        )Total shareholders equity of 4Kids Entertainment, Inc.
        
        
        37,106
        
        
        45,365Noncontrolling interests
        
        
        (12,445
        )
        
        (10,248
        )Total equity
        
        
        24,661
        
        
        35,117Total liabilities and equity
        
        $
        40,295
        
        $
        56,653
   See notes to consolidated financial statements. 2  
 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (In thousands of dollars, except share data) Three Months Ended
        
        
        Six Months EndedJune 30,
        
        
        June 30,2010
        
        
        2009
        
        
        2010
        
        
        2009Net revenues:Service revenue
        $
        2,456
        
        $
        3,782
        
        $
        6,686
        
        $
        12,677Product revenue
        
        50
        
        
        (185)
        
        
        57
        
        
        252Total net revenues
        
        2,506
        
        
        3,597
        
        
        6,743
        
        
        12,929Costs and expenses:Selling, general and administrative
        
        8,104
        
        
        11,067
        
        
        15,201
        
        
        23,098Cost of sales of trading cards
        
        1,016
        
        
        762
        
        
        1,380
        
        
        1,264Amortization of television and film costs
        
        727
        
        
        1,066
        
        
        2,085
        
        
        2,257Total costs and expenses
        
        9,847
        
        
        12,895
        
        
        18,666
        
        
        26,619Loss from operations
        
        (7,341
        )
        
        (9,298
        )
        
        (11,923
        )
        
        (13,690
        )Interest income
        
        88
        
        
        346
        
        
        193
        
        
        747Impairment of investment securities
        
        (421
        )
        
        (9
        )
        
        (421
        )
        
        (98
        )Loss on sale of investment securities
        
        
        
        
        (7,250
        )
        
        
        
        
        (7,250
        )Total other expense
        
        (333
        )
        
        (6,913
        )
        
        (228
        )
        
        (6,601
        )Loss before income taxes
        
        (7,674
        )
        
        (16,211
        )
        
        (12,151
        )
        
        (20,291
        )Benefit from income taxes
        
        
        
        
        
        
        
        
        
        
        Net loss
        
        (7,674
        )
        
        (16,211
        )
        
        (12,151
        )
        
        (20,291
        )Net loss attributable to noncontrolling interests (Note 11)
        
        1,208
        
        
        2,461
        
        
        2,206
        
        
        4,501Net loss attributable to 4Kids Entertainment, Inc.
        $
        (6,466
        )
        $
        (13,750
        )
        $
        (9,945
        )
        $
        (15,790
        )Per share amounts:Basic loss per share attributable to 4Kids Entertainment, Inc. common shareholders
        $
        (0.48
        )
        $
        (1.04
        )
        $
        (0.74
        )
        $
        (1.19
        )Diluted loss per share attributable to 4Kids Entertainment, Inc. common shareholders
        $
        (0.48
        )
        $
        (1.04
        )
        $
        (0.74
        )
        $
        (1.19
        )Weighted average common sharesoutstanding - basic
        
        13,428,189
        
        
        13,279,733
        
        
        13,390,331
        
        
        13,253,522Weighted average common sharesoutstanding - diluted
        
        13,428,189
        
        
        13,279,733
        
        
        13,390,331
        
        
        13,253,522
  See notes to consolidated financial statements.  3    
  4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND COMPREHENSIVE LOSS SIX MONTHS ENDED JUNE 30, 2010 (UNAUDITED) (In thousands of dollars and shares)   4Kids Entertainment, Inc. ShareholdersCommon Stock
        Additional Paid-In Capital
        Retained Earnings
        Accumulated Other Comprehensive Loss
        Less Treasury Stock
        Total Shareholders Equity
        Non-controlling Interests
        Total EquityShares
        AmountBALANCE, DECEMBER 31, 2009
        15,411
        
        $
        154
        
        $
        66,991
        
        $
        19,298
        
        $
        (4,644
        )
        $
        (36,434
        )
        $
        45,365
        
        $
        (10,248
        )
        $
        35,117Issuance of common stock and stock options exercised
        242
        
        
        3
        
        
        1,708
        
        
        
        
        
        
        
        
        
        
        
        1,711
        
        
        
        
        
        1,711Capital contribution from noncontrolling interests
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        9
        
        
        9Acquisition of treasury stock, at cost
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (54
        )
        
        (54
        )
        
        
        
        
        (54
        )Comprehensive loss:Net loss
        
        
        
        
        
        
        
        
        
        (9,945
        )
        
        
        
        
        
        
        
        (9,945
        )
        
        (2,206
        )
        
        (12,151
        )Translation adjustment
        
        
        
        
        
        
        
        
        
        
        
        
        (189
        )
        
        
        
        
        (189
        )
        
        
        
        
        (189
        )Unrealized loss reclassified to earnings
        
        
        
        
        
        
        
        
        
        
        
        
        423
        
        
        
        
        
        423
        
        
        
        
        
        423Unrealized loss on investment securities
        
        
        
        
        
        
        
        
        
        
        
        
        (205
        )
        
        
        
        
        (205
        )
        
        
        
        
        (205
        )Total comprehensive loss
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (9,916
        )
        
        (2,206
        )
        
        (12,122
        )BALANCE, JUNE 30, 2010
        15,653
        
        $
        157
        
        $
        68,699
        
        $
        9,353
        
        $
        (4,615
        )
        $
        (36,488
        )
        $
        37,106
        
        $
        (12,445
        )
        $
        24,661
    See notes to consolidated financial statements.               4  
  4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (In thousands of dollars)
 2010
        
        
        2009Cash flows from operating activities:Net loss
        $
        (12,151
        )
        $
        (20,291
        )Adjustments to reconcile net loss to net cashprovided by (used in) operating activities:Depreciation and amortization
        
        735
        
        
        815Amortization of television and film costs
        
        2,085
        
        
        2,257Provision for doubtful accounts
        
        769
        
        
        100Impairment of investment securities
        
        421
        
        
        98Loss on sale of investment securities
        
        
        
        
        7,250Changes in operating assets and liabilities:Accounts receivable
        
        6,315
        
        
        11,409Inventories - net
        
        1,120
        
        
        (1,169
        )Income taxes receivable
        
        3,623
        
        
        50Prepaid expenses and other current assets
        
        283
        
        
        (1,275
        )Film and television costs
        
        (1,216
        )
        
        (3,182
        )Other assets - net
        
        455
        
        
        (2,587
        )Due to licensors
        
        (1,109
        )
        
        (713
        )Accounts payable and accrued expenses
        
        (2,540
        )
        
        (165
        )Deferred revenue
        
        (527
        )
        
        (1,228
        )Deferred rent
        
        11
        
        
        (85
        )Net cash used in operating activities
        
        (1,726
        )
        
        (8,716
        )Cash flows from investing activities:Proceeds from sale of investments
        
        2,575
        
        
        2,750Proceeds from disposal of property and equipment
        
        1
        
        
        (274
        )Purchase of property and equipment
        
        (52
        )
        
        Net cash provided by investing activities
        
        2,524
        
        
        2,476Cash flows from financing activities:Capital contribution from noncontrolling interests
        
        9
        
        
        54Purchase of treasury shares
        
        (54
        )
        
        (58
        )Net cash used in financing activities
        
        (45
        )
        
        (4
        )Effect of exchange rate changes on cash and cash equivalents
        
        (79
        )
        
        (288
        )Net increase (decrease) in cash and cash equivalents
        
        674
        
        
        (6,532
        )Cash and cash equivalents, beginning of period
        
        3,621
        
        
        13,503Cash and cash equivalents, end of period
        $
        4,295
        
        $
        6,971Supplemental disclosure of cash flow information:Cash paid during period for income taxes
        $
        16
        
        $
        4Supplemental schedule of non-cash investing and financing activitiesUnrealized gain on marketable securities included in other comprehensive loss
        $
        218
        
        $
        2,254Vesting of restricted shares
        $
        1,711
        
        $
        1,886
  See notes to consolidated financial statements.   5 
 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands of dollars, except share and per share data)  1. DESCRIPTION OF BUSINESS  GeneralDevelopment and Narrative Description of Business- 4Kids Entertainment, Inc., together with the subsidiaries through which its 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: (i) Licensing; (ii) Advertising Media and Broadcast; (iii) Television and Film Production/Distribution; and (iv) Trading Card and Game Distribution. The Company was organized as a New York corporation in 1970.  Licensing- The Licensing business segment consists of the results of operations of the following wholly-owned subsidiaries of the Company: 4Kids Entertainment Licensing, Inc. (4Kids Licensing); 4Sight Licensing Solutions, Inc. (4Sight Licensing); 4Kids Entertainment International, Ltd. (4Kids International); and 4Kids Technology, Inc. (4Kids Technology). 4Kids Licensing is engaged in the business of licensing the merchandising rights to popular childrens television series, properties and product concepts (individually, the Property or collectively the Properties). 4Kids Licensing typically acts as exclusive merchandising agent in connection with the grant to third parties of licenses to manufacture and sell all types of merchandise, including toys, videogames, trading cards, apparel, housewares,
footwear, books and other published materials, based on such Properties. 4Sight Licensing is engaged in the business of licensing properties and product concepts to adults, teens and tweens.  4Sight Licensing focuses on brand building through licensing. 4Kids International, based in London, manages Properties represented by the Company in the United Kingdom and European marketplaces. 4Kids Technology develops ideas and concepts for licensing which integrate new and existing technologies with traditional game and toy play patterns.  Advertising Media and Broadcast- The Company, through a multi-year agreement with The CW Network, LLC (The CW), leases The CWs Saturday morning programming block (The CW4Kids) which broadcasts in most markets from 7am to 12pm for an initial term of five years beginning with The CW's 2008-2009 broadcast season.  The Company provides substantially all programming content to be broadcast on The CW4Kids.  4Kids Ad Sales, Inc. (4Kids Ad Sales), a wholly-owned subsidiary of the Company, retains a portion of the revenue from its sale of network advertising time for the five-hour time period.  The Advertising Media and Broadcast segment also generates revenues from the sale of advertising on the Companys multiple websites.  These websites also showcase and promote The CW4Kids, as well as its many Properties.  Television and Film Production/Distribution- The Television and Film Production/Distribution business segment consists of the results of operations of the following wholly-owned subsidiaries of the Company:  4Kids Productions, Inc. (4Kids Productions); 4Kids Entertainment Music, Inc. (4Kids Music); and 4Kids Entertainment Home Video, Inc. (4Kids Home Video). 4Kids Productions produces and adapts animated and live-action television programs and theatrical motion pictures for distribution to the domestic and international television, home video and theatrical markets. 4Kids Music composes original music for incorporation into television programming produced by 4Kids Productions and markets and manages such music. 4Kids Home Video distributes home videos associated with television programming produced by 4Kids Productions.  Trading Card and Game Distribution- Through its wholly-owned subsidiary, 4Kids Digital Games, Inc. (4Kids Digital), the Company owns 55% of TC Digital Games LLC, a Delaware limited liability company (TC Digital) that produces, markets and distributes the Chaotic trading card game. In December 2006, 4Kids Digital acquired a 53% ownership interest in TC Digital and entered into TC Digitals operating agreement (the TCD Agreement) with Chaotic USA Digital Games LLC (CUSA LLC), a wholly-owned subsidiary of Chaotic USA Entertainment Group, Inc. (CUSA).   The TCD Agreement contains terms and conditions governing the operations of TC Digital, and entitles 4Kids Digital and CUSA to elect two managers to the entitys Management Committee with 4Kids Digital having the right to break
any dead-locks.  On December 18, 2007, 4Kids Digital purchased an additional 2% membership interest in TC Digital from CUSA increasing 4Kids Digitals ownership percentage to 55%.  The consideration for the purchase of the additional membership interest was paid through the settlement of certain capital contributions required to be made by CUSA to TC Websites LLC, a Delaware limited liability company and subsidiary of the Company (TC Websites) under TC Websites operating agreement (the TCW Agreement).  TC Digital is consolidated in the Companys consolidated financial statements, subject to a noncontrolling interest.  6
  
 Through its wholly-owned subsidiary, 4Kids Websites, Inc. (4Kids Websites), the Company owns 55% of TC Websites, a company that owns and operateswww.chaoticgame.com, the companion website for the Chaotic trading card game which was launched as a public beta version on October 24, 2007. In December 2006, 4Kids Websites purchased a 50% membership interest in TC Websites from CUSA and entered into the TCW Agreement.  The TCW Agreement contains terms and conditions governing TC Websites operations and entitles 4Kids Websites and CUSA to elect two managers to its Management Committee.  On December 18, 2007, 4Kids Websites entered into an agreement pursuant to which it acquired an additional 5% ownership interest in TC Websites from CUSA, and the TCW Agreement was concurrently amended to provide 4Kids Websites with the right to
break any deadlocks on TC Websites Management Committee, including with respect to operational matters. The consideration for the purchase of the additional membership interest was paid through the settlement of certain capital contributions required to be made by CUSA to TC Websites under the TCW Agreement. Prior to the acquisition by 4Kids Websites of the additional 5% ownership interest and amendment of the TCW Agreement, the Company used the equity method to account for its investment in TC Websites, where it did not have control but had significant influence.  As a result of 4Kids Websites increased ownership and operational control, TC Websites is consolidated in the Companys financial statements, subject to a noncontrolling interest.  Additionally, in March 2009, TC Digital, the Company and Home Focus entered into various agreements pursuant to which TC Digital and Home Focus agreed to form TC Digital International, Ltd. (TDI), an Irish Private Corporation, for the purpose of distributing Chaotic trading cards principally in Europe and the Middle East (TDI Territory) and the Company agreed to purchase a 25% interest in TDI from Home Focus (the "TDI Interest"). As a result, TDI is owned 50% by TC Digital, 25% by the Company and 25% by Home Focus.   As permitted by authoritative guidance issued by the Financial Accounting Standards Board (FASB) and based on the Companys controlling interest and operational control, TDIs financial statements are included in the Companys consolidated financial statements since its inception.  TC Digital and TC Websites are the exclusive licensees of certain patents covering the uploading of coded trading cards to a website where online game play and community activities occur. Thewww.chaoticgame.comwebsite provides full access to all of its content and is free of charge for all users.  No purchase of trading cards is necessary to play the online version where virtual playing decks are available to users who register on the website.  These two businesses enable the Company to offer traditional trading card game play with an online digital play experience.  Certain of the Companys current and former executive officers have interests in CUSA, CUSA LLC and certain other entities with which TC Digital and TC Websites have engaged in transactions since their formation. Information regarding these relationships can be found in Note 8.  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Basis of Presentation- The consolidated financial statements, except for the December 31, 2009 consolidated balance sheet and the consolidated statement of changes in equity and comprehensive loss for the year ended December 31, 2009, are unaudited and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2009 presented in our Annual Report on Form 10-K. All significant intercompany accounts and transactions have been eliminated.  In the opinion of management, the accompanying consolidated financial statements contain all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position of the Company as of June 30, 2010 and December 31, 2009, and the results of operations for the three and six months ended June 30, 2010 and 2009, and changes in equity and
comprehensive loss for the six months ended June 30, 2010 and the year ended December 31, 2009, and cash flows for the six months ended June 30, 2010 and 2009. Because of the inherent seasonality and changing trends of the toy, game, entertainment and advertising industries, operating results for the Company on a quarterly basis may not be indicative of operating results for the full year.  Liquidity- In recent years, the Company has incurred substantial net losses and has used substantial amounts of cash in its operating activities.  Sales by the Company of certain securities held in its investment portfolio as well as certain other assets have significantly contributed to the funding of these operating losses.  While the timing of these sales was not primarily motivated by then current cash needs, without these sales the Company would not have had sufficient cash to fund its operations.   In addition to the Company's operating losses, the Companys liquidity has been negatively affected by the illiquidity of certain securities held in its investment portfolio.    7
  
 Based on the Companys cash position as of June 30, 2010, the anticipated effects of the significant cost cutting initiatives implemented by the Company during 2009 and continuing into 2010, and the Companys belief that economic conditions have become more stable, the Company expects its overall cash position to provide adequate liquidity to fund its day-to-day operations for the next twelve months.  Additionally, certain of the Companys investment securities, classified as long-term would be available to fund the Companys current cash flow requirements.  However, the illiquidity affecting a significant portion of the Companys portfolio of investment securities is impacting the Companys ability to make capital investments or expand its operations.  If the Company determines that it is necessary to generate additional cash to fund its operations, the Company will consider all alternatives available to it, including, but not limited to sales of assets, issuance of equity or debt securities and third party arrangements. There can be no assurance, however, that the Company would be able to generate such additional cash in a timely manner or that such additional cash could be obtained on terms acceptable to the Company.  Revenue RecognitionMerchandise licensing revenues: Licensing revenues, net of licensor participations, are recognized when the underlying royalties from the sales of the related products are earned.  If the Company has no significant direct continuing involvement with the underlying Property or obligation to the licensee, the Company recognizes guaranteed royalties, net of licensor participations, at the time the arrangement becomes effective as long as the license period has commenced.   Where the Company has significant continuing direct involvement with the underlying Property or obligation to the licensee, guaranteed minimum royalties, net of licensor participations, are recognized ratably over the term of the license or based on sales of the related products, if greater. Licensing advances and guaranteed
payments collected but not yet earned by the Company are classified as deferred revenue in the accompanying consolidated balance sheets.  Broadcast advertising revenues: Advertising revenues, net of network participations, are recognized when the related commercials are aired and are recorded net of agency commissions and net of an appropriate reserve when advertising is sold together with a guaranteed audience delivery. Internet advertising revenues are recognized on the basis of impression views in the period the advertising is displayed.  Episodic television series revenues: Television series initially produced for networks and first-run syndication are generally licensed to domestic and foreign markets concurrently or licensed to foreign markets with a one year lag from the domestic broadcast of the series. 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 executed television license agreements, net of licensor participations, are recognized in the period that the films or episodic television series are available for telecast.  Home video revenues: Revenues from home video and DVD sales, net of a reserve for returns, are recognized, net of licensor participations, on the date that video and DVD units are shipped by the Companys distributor to wholesalers/retailers. Consistent with the practice in the home video industry, the Company estimates the reserve for returns based upon its review of historical returns rates and expected future performance.  Music revenues: Revenues from music sales, net of licensor participations, and net of a reserve for returns, are recognized on the date units are shipped by the Companys distributor to wholesalers/retailers as reported to the Company. In the case of musical performance revenues, the revenue is recognized when the musical recordings are broadcast and/or performed.  Trading card revenues: The FASB provides guidance on how and when to recognize revenues for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. Revenue arrangements with multiple deliverables are required to be divided into separate units of accounting if the deliverables in the arrangement meet certain criteria.  Arrangement consideration must be allocated among the separate units of accounting based on their relative fair values.  The Company has determined that because its trading card game is provided with a web component, there is a multiple deliverable arrangement.  However, since no purchase of trading cards is necessary to access the website and virtual cards are available free of charge to users who register on the website, the Company has determined that the selling price of the trading cards should
be fully attributable to the cards.  Certain of the Companys trading card distributors, have contractually changed to a point-of-sale (POS) model in response to the demands from retailers.  Under the POS model, sales are recorded once the sales are made to the ultimate consumer. Distributors and retailers not under the POS model remain under the FOB shipping point model in which sales are recorded, net of a reserve for returns and allowance, upon shipment to distributors.    8
  
 Revenue generated from merchandise licensing, broadcast advertising, episodic television series, home video, and music are classified as service revenue on the consolidated statement of operations while revenue generated from the sale of trading cards is classified as product revenue.  Fair Value Measurements-The fair values of the Companys financial instruments reflect the estimates of amounts that would be received from selling an asset in an orderly transaction between market participants at the measurement date.  The fair value estimates presented in this report are based on information available to the Company as of June 30, 2010 and December 31, 2009.  The carrying values of cash and cash equivalents, accounts receivable, due to licensors, accounts payable, accrued expenses and deferred revenue approximate fair value. The Company has estimated the fair value of its investment in auction rate securities (ARS) and other long-term investments using unobservable inputs at June 30, 2010.  The authoritative guidance issued by the FASB includes a fair value hierarchy based on three levels of inputs, the first two of which are considered observable and the last of which is considered unobservable, that may be used to measure fair value. The three levels are the following:  
        Level 1 - Quoted prices in active markets for identical assets or liabilities.
  
        Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
  
        Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
  Investments- The Companys long-term investments principally consist of ARS, corporate bonds and preferred shares. ARS are generally rated BBB or better by one or more national rating agencies and have contractual maturities of up to 80 years. Of the aggregate principal amount of $26,850 in investment securities held by the Company as of June 30, 2010, 31% mature within the next 30 years, 57% mature through 2087 and the remaining 43% have no maturity date.  The Company classifies these investments as available for sale, for certain investments in debt and equity securities.  The ARS that the Company invests in generally had interest reset dates that occurred every 7 or 35 days and despite the long-term nature of their stated contractual maturity, the historical operation of the ARS market had given the Company the ability to quickly liquidate
these securities at ongoing auctions every 35 days or less.  During 2007, liquidity issues began to affect the global credit and capital markets.  In addition, certain individual ARS experienced liquidity issues specific to such securities.  As a result, ARS, which historically have had a liquid market and had their interest rates reset periodically (e.g. monthly) through Dutch auctions, began to fail at auction.  These auction failures have caused ARS to become illiquid, which in turn has caused the fair market values of these securities to decline.  The ARS currently held by the Company are private placement debt securities with long-term nominal maturities and interest rates that typically reset monthly.  The Companys investments in ARS represent interests in debt obligations issued by banks and insurance companies that originally had at least an A credit rating at the time of purchase, including JP Morgan Chase, bond insurers and re-insurers such as MBIA, AMBAC, FGIC, and FSA. The collateral underlying these securities consists primarily of commercial paper, but also includes asset-backed and mortgage-backed securities, corporate debt, government holdings, money market funds and other ARS.  As of June 30, 2010, the Company held investment securities having an aggregate principal amount of $26,850.  The estimated fair market value of these securities as determined by the Company had declined by $15,448 (a decline of $15,245 prior to 2010, and a decrease in value of $203 during 2010) to $11,402, as of June 30, 2010.  During the second quarter of 2010, the Company concluded that $421 of the decline in the fair value of the investment securities held by the Company was now other than temporary. The Companys determination that certain of its long-term investment securities were other than temporarily impaired was based upon the fact that: (i) one of such securities with an aggregate par value of $1,000 was sold subsequent to June 30, 2010 for $240 resulting in an unrealized loss of $760 and $342 being recorded as other than temporarily impaired as of June 30, 2010 because the Company had
previously recorded $418 in respect of these securities as being other than temporarily impaired; and (ii) certain of such securities classified as preferred stock have ceased to pay interest and were additionally impaired for $79.  Additionally, one of such securities with a par value of $2,000 was sold  9
  
 subsequent to June 30, 2010 for a price in excess of its stated fair value, resulting in no additional impairment charge.  The Company did not incur any impairment charges in 2010 due to credit losses.  Since the Company has the ability, and presently expects, to hold its remaining investment securities until recovery of their face value, which may not be prior to the maturity of the applicable security (to the extent such security has a specified maturity date) and based on consideration of all of the factors described above, the Company considered certain of these investments to be temporarily impaired as such term is defined in the accounting literature. Accordingly, the entire balance of unrealized loss in accumulated other comprehensive income at June 30, 2010 relates to securities which the Company considers temporarily impaired.  Additionally, these remaining investment securities held by the Company have continued to pay interest according to their stated terms, which the Company believes may create an incentive for the issuers to redeem these securities once the current liquidity problems in the
credit market substantially improve.  The Company continues to monitor the market for ARS and considers its impact (if any) on the fair value of its investments.  If the current market conditions deteriorate further, the Company may be required to record additional impairment charges to non-operating expense in future periods.  The credit and capital markets, including the market for ARS, have remained illiquid, and as a result of this and other factors specific to certain investment securities, the Companys unrealized loss on its investment securities may subsequently increase. The Company estimates the fair values of the investment securities quarterly based upon consideration of such factors as: issuer and insurer credit rating; comparable market data, if available; current market conditions; the credit quality of the investment securities; the rate of interest received since the date the auctions began; and yields of securities similar to the underlying investment securities.  These considerations are used to determine a range of values for each security from moderate to highly conservative.  The Company has based its evaluation on the mid-point of that range.  Specifically, the Company considers the composition of the
collateral supporting the investment securities and the default probabilities of the collateral underlying these securities in our overall valuation of each security.  The Company has also researched the secondary market, and while such a market may be available, there is no guarantee that such a market will exist at any particular point in time.  Additionally, the Company looks at the probabilities of default, probabilities of successful auctions and probabilities of earning the maximum (failed auction) rate for each period.  Due to the sensitivity of the methodologies and considerations used, the Company continually re-evaluates the investment securities and although the valuation methodologies have remained consistent for each quarter in which these securities were valued, certain inputs may have changed.  The changes in these inputs primarily relate to the changes in the economic environment and the market for such securities.  Given the failed auctions, the Companys investment securities are currently illiquid.  Accordingly, the Company has classified all of its investment in ARS and the securities into which certain of the ARS have been exchanged, as non-current assets as of June 30, 2010 on its balance sheet due to the fact that the Company believes that the liquidity of these securities is unlikely to be restored in a period less than twelve months from such date.  If uncertainties in the credit and capital markets continue or the Companys investments experience any rating downgrades on any investments in its portfolio or the value of such investments declines further, the Company may incur additional impairment charges to its investment portfolio, which could negatively affect the Companys financial condition, results of operations and cash flow.  As a result of the current market issues, any of the Companys surplus cash will be invested solely in government securities with a maturity of 90 days or less.  Based on the Companys cash position as of June 30, 2010, the anticipated effects of the significant cost cutting initiatives implemented by the Company during 2009 and continuing into 2010, and the Companys belief that economic conditions have become more stable, the Company expects its overall cash position to provide adequate liquidity to fund its day-to-day operations for the next twelve months.  Additionally, certain of the Companys investment securities, classified as long-term would be available to fund the Companys current cash flow requirements.  However, the illiquidity affecting a significant portion of the Companys portfolio of investment securities is impacting the Companys ability to make capital investments or expand its operations.  If the Company determines that it is necessary to generate additional cash to fund its operations, the Company will consider all alternatives available to it, including, but not limited to sales of assets, issuance of equity or debt securities and third party arrangements. There can be no assurance, however, that the Company would be able to generate such additional cash in a timely manner or that such additional cash could be obtained on terms acceptable to the Company. 10
  
 Film and Television Costs The Company's cost of production for television programming, including overhead, participations and talent residuals is capitalized and amortized in accordance with authoritative guidance issued by the FASB using the individual-film-forecast method under which such costs are amortized for each television program in the ratio that revenue earned in the current period for such program bears to managements estimate of the ultimate revenues to be realized from all media and markets for such program. Management regularly reviews, and revises when necessary, its ultimate revenue estimates on a title-by-title basis, which may result in a change in the rate of amortization applicable to such title and/or a write-down of the value of such title to estimated fair value. These revisions can result in significant quarter-to-quarter and
year-to-year fluctuations in film write-downs and rates of amortization. If a total net loss is projected for a particular title, the associated film and television costs are written down to estimated fair value. All exploitation costs, including advertising and marketing costs are expensed as incurred. Television adaptation and production costs that are adapted and/or produced are stated at the lower of cost, less accumulated amortization, or fair value.  Deferred Revenue -The Company enters into various agreements for Properties under which the Company has received certain advances and/or minimum guarantees. The unearned portion of these advances and guaranteed payments are included in deferred revenue.  Translation of Foreign Currency-In accordance with authoritative guidance issued by the FASB, the Company classifies items as other comprehensive income by their nature in the financial statements and displays the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the consolidated balance sheet. The assets and liabilities of the Companys foreign subsidiary, 4Kids International have been recorded in their local currency and translated to U.S. dollars using period-end exchange rates. Income and expense items have been translated at the average rate of exchange prevailing during the period. Any adjustment resulting from translating the financial statements of the foreign subsidiary is reflected as other comprehensive
income, net of related tax. Comprehensive loss for the three and six months ended June 30, 2010 was $7,599 and $12,122, respectively, which included translation adjustments of $(35) and $(189) for the respective periods.  Comprehensive loss for the three and six months ended June 30, 2009 was $11,222 and $17,484, respectively, which included translation adjustments of $661 and $553 for the respective periods.  Recently Adopted Accounting StandardsIn August 2009, the FASB issued authoritative guidance regarding the measurement of liabilities at fair value when a quoted price in an active market is not available.  In these circumstances, a valuation technique should be applied that uses either the quote of the liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique consistent with existing fair value measurement guidance, such as an income approach or a market approach.  The guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability.  This
guidance is currently effective and the adoption of this guidance did not have an impact on the Companys consolidated financial position and results of operations.  In June 2009, the FASB issued authoritative guidance intended to improve the relevance, representational faithfulness, and comparability of the information a reporting entity provides in its financial statements about a transfer of financial assets, the effects of a transfer on its financial position, financial performance and cash flows, and a transferors continuing involvement, if any, in transferred financial assets.  This guidance is effective as of the beginning of the first interim period within a reporting entitys first annual reporting period that begins after November 15, 2009. The adoption of this guidance did not have an impact on the Companys consolidated financial position and results of operations.  In May 2009, the FASB issued authoritative guidance which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance sets forth (1) the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which events or transactions occurring after the balance sheet date should be recognized in its financial statements and (3) the disclosures that should be made about events or transactions that occurred after the balance sheet date. In February 2010, the FASB amended this new standard to eliminate the requirement to disclose the date through which subsequent events have been evaluated. As the new standard was not intended to
significantly change the current practice of reporting subsequent events, it did not have an impact on the Companys consolidated financial position and results of operations.    11
  
 In April 2009, the FASB issued authoritative guidance related to investments in debt and equity securities. The objective of the new guidance is to make impairment guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments (OTTI) of debt and equity securities in financial statements.  The guidance revises the OTTI evaluation methodology.  Under the guidance, the security is analyzed for credit loss, (the difference between the present value of cash flows expected to be collected and the amortized cost basis). The credit loss, if any, will then be recognized in the statement of earnings, while the balance of impairment related to other factors will be recognized in other comprehensive income. This guidance was effective for all interim and annual periods ending after June 15, 2009. The Company adopted this authoritative guidance issued
by the FASB as of January 1, 2009 and recorded a cumulative-effect adjustment of $2,130 to its opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive loss. The Company did not incur any impairment charges in 2010 due to credit losses.  Recently Issued Accounting Standards-In October 2009, the FASB issued authoritative guidance which will allow companies to allocate arrangement consideration to multiple deliverables. The guidance provides principles and application guidance on whether multiple deliverables exist, how an arrangement should be separated, and the consideration allocated. The guidance requires an entity to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of the selling price. The guidance eliminates the use of the residual method, requires entities to allocate revenue using the relative-selling-price method and significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. The guidance requires new and expanded disclosures
and is applied prospectively to revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 or retrospectively for all periods presented. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial position and results of operations.  In January 2010, the FASB issued authoritative guidance regarding fair value measurements that clarifies existing disclosure requirements and requires the separate disclose of transfers of instruments between level 1 and level 2 of the fair value hierarchy effective for interim reporting periods beginning after December 15, 2009, and requires that purchases, sales, issuances and settlements in level 3 of the hierarchy rollforward on a gross basis effective for fiscal years beginning after December 15, 2010. The Company adopted this guidance in the first quarter of 2010.  In July 2010, the FASB issued authoritative guidance that will require enhanced disclosures regarding the credit characteristics of receivables. Under the new guidance, accounting policies, the methods used to determine the components of the allowance for doubtful accounts, and qualitative and quantitative information about the credit risk inherent in receivables, are each required to be disclosed.  The new disclosures on the rollforward of the allowance for credit losses and the new disclosures about troubled-debt modifications required under the guidance are effective for annual and interim reporting periods beginning after December 15, 2010. The adoption of this guidance will not have an impact on the Companys consolidated financial position or results of operations as they relate only to financial disclosures.             12
  
 3. FAIR VALUE OF FINANCIAL INSTRUMENTS  The carrying values and estimated fair values of the Companys financial instruments for the periods presented are as follows:  Estimated Fair Value MeasurementsCarryingValue
        
        Quoted
Pricesin
Active
Markets
(Level1)
        
        Significant
Other
Observable
Inputs
(Level2)
        
        Significant
Unobservable
Inputs
(Level3)June 30, 2010:Financial AssetsCash and cash equivalents
        
        $
        4,295
        
        $
        4,295
        
        $
        
        
        $
        Total short-term investments
        
        $
        4,295
        
        $
        4,295
        
        $
        
        
        
        Auction rate securities
        
        $
        7,352
        
        $
        
        
        $
        
        
        $
        7,352Corporate obligations
        
        
        3,863
        
        
        
        
        
        
        
        
        3,863Preferred shares
        
        
        187
        
        
        
        
        
        
        
        
        187Total long-term investments
        
        $
        11,402
        
        $
        
        
        $
        
        
        $
        11,402Total Financial Assets
        
        $
        15,697
        
        $
        4,295
        
        $
        
        
        $
        11,402December 31, 2009:Financial AssetsCash and cash equivalents
        
        $
        3,621
        
        $
        3,621
        
        $
        
        
        $
        Total short-term investments
        
        $
        3,621
        
        $
        3,621
        
        $
        
        
        
        Auction rate securities
        
        $
        9,050
        
        $
        
        
        $
        
        
        $
        9,050Corporate obligations
        
        
        3,689
        
        
        
        
        
        
        
        
        3,689Preferred shares
        
        
        1,441
        
        
        
        
        
        
        
        
        1,441Total long-term investments
        
        $
        14,180
        
        $
        
        
        $
        
        
        $
        14,180Total Financial Assets
        
        $
        17,801
        
        $
        3,621
        
        $
        
        
        $
        14,180
  Level 1- The Companys Level 1 assets consist of cash and U.S. Treasury securities with original maturities of three months or less.  Level 2 - At June 30, 2010 and December 31, 2009, the Company had no investments which were considered to be Level 2 assets.  Level 3  The Companys Level 3 assets consist of the Companys investment in ARS, corporate obligations, and preferred shares.  The recent uncertainties in the credit markets have made it more difficult for the Company and other investors to liquidate their holdings of these securities for the six months ended June 30, 2010 and the year ended December 31, 2009, because the amount of securities submitted for sale has exceeded the amount of purchase orders.  The carrying value of the Companys investments in its Level 3 assets, as of June 30, 2010 and December 31, 2009, represent the Companys best estimate of the fair value of these investments based on currently available information. The Company estimates the fair values of the investment securities quarterly based upon consideration of such factors as: issuer and insurer credit rating; comparable market data, if available; current market conditions; the credit quality of the investment securities; the rate of interest received since the date the auctions began; and yields of securities similar to the underlying investment securities.  These considerations are used to determine a range of values for each security from moderate to highly conservative.  The Company has based its evaluation on the mid-point of that range. Specifically, the Company considered the composition of the collateral
supporting the investment securities and the default probabilities of the collateral underlying the ARS in its overall valuation of each security.  The Company has also researched the secondary market, and while such a   13
  
 market may be available, there is no guarantee that such a market will exist at any particular point in time.  Additionally, the Company looked at the probabilities of default, probabilities of successful auctions and probabilities of earning the maximum (failed auction) rate for each period.  If the issuers are unable to successfully close future auctions and their credit ratings deteriorate, the Company may be required to further adjust the carrying value of its investment securities through additional devaluations.  The table below provides a summary of changes in fair value for the Companys available for sale investments:  June 30, 2010Amortized Cost
        
        Unrealized Loss
        
        Estimated
Fair ValueLong-term investments:Auction rate securities
        
        
        $13,300
        
        $(5,948
        )
        
        $7,352Corporate obligations
        
        
        5,400
        
        (1,537
        )
        
        3,863Preferred shares
        
        
        8,150
        
        (7,963
        )
        
        187Total long-term investments
        
        
        $26,850
        
        $(15,448
        )
        
        $11,402December 31, 2009Amortized Cost
        
        Unrealized Loss
        
        
        Estimated
Fair ValueLong-term investments:Auction rate securities
        
        
        $17,300
        
        $(8,250
        )
        
        $9,050Corporate obligations
        
        
        5,400
        
        (1,711
        )
        
        3,689Preferred shares
        
        
        12,850
        
        (11,409
        )
        
        1,441Total long-term investments
        
        
        $35,550
        
        $(21,370
        )
        
        $14,180
  The following table presents additional information about assets measured at fair value using Level 3 inputs for the six months ended June 30, 2010:  Long-TermAuction Rate Securities
        
        
        Corporate Bonds
        
        Preferred Shares
        
        TotalBalance as of January 1, 2010
        $
        9,050
        
        $
        3,689
        $
        1,441
        
        $14,180Unrealized  net gain   included in other comprehensive loss
        
        44
        
        
        174
        
        
        
        218Unrealized loss - included in earnings
        
        (342
        )
        
        
        
        (79
        )
        (421
        )Proceeds from sales or settlements
        
        (1,400
        )
        
        
        
        (1,175
        )
        (2,575
        )Balance as of June 30, 2010
        $
        7,352
        
        $
        3,863
        $
        187
        
        $11,402
  The amount of total gains or losses included in earnings attributable to the change in unrealized gain or loss relating to assets still held at June 30, 2010 is $10,435.       14
  
 4. STOCK-BASED EMPLOYEE COMPENSATION  The Company has stock-based compensation plans for employees and non-employee members of the Board of Directors.  The plans provide for discretionary grants of stock options, shares of restricted stock, and other stock-based awards. The plans are administered by the Compensation Committee of the Board of Directors, consisting of non-employee directors.  The Companys recognition of stock-based compensation expense in the statement of operations over the vesting period is based on the fair value of the award at the grant date.  The following table summarizes activity under our stock option plans for the six months ended June 30, 2010:  Shares under
Options
(in thousands)
        
        WeightedAverageExercisePrice
        
        Remaining
Contractual
Life
(in years)
        
        AggregateIntrinsicValueOutstanding at January 1, 2010
        
        
        770
        
        $
        18.28Granted
        
        
        
        
        
        Exercised
        
        
        
        
        
        Forfeited
        
        
        (480
        )
        
        20.56Outstanding at June 30, 2010
        
        
        290
        
        $
        14.29
        
        
        1.0
        
        $
        Exercisable at June 30, 2010
        
        
        290
        
        $
        14.29
        
        
        1.0
        
        $
        
  The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing price of our common stock on the date of determination for those awards that have an exercise price currently below the closing price.  As of June 30, 2010, there were no options outstanding to purchase shares with an exercise price below the quoted price of our common stock.  During the three and six months ended June 30, 2010 and 2009, the aggregate intrinsic value of options exercised under the Companys stock option plans was $0, determined as of the date of exercise.  Restricted Stock Awards  The Company granted restricted stock awards of approximately 378,000 shares on May 22, 2009 under its 2008 long-term incentive compensation plan (LTICP), 311,000 shares on May 23, 2008 under its 2007 LTICP, 162,000 shares on May 25, 2007 under its 2006 LTICP and 145,000 and 4,000 shares on May 23, 2006 and June 15, 2006, respectively, under its 2005 LTICP. The restricted stock awards were granted to certain employees, including officers and members of the Board of Directors, at grant prices of $1.46, $7.85, $16.79, $16.52 and $15.78 (in each case, the average of the high and low stock price from the previous day of trading) for the May 22, 2009, May 23, 2008, May 25, 2007, the May 23, 2006 and the June 15, 2006 grants, respectively.  The restricted stock awards vest annually over a period of three years from the date of grant for the awards made under the 2008 and 2007 LTICPs and over a period
of four years for the awards made under the 2006 and 2005 LTICPs, with accelerated vesting upon a change of control of the Company (as defined in the applicable plan).  During the restriction period, award holders do not have the rights of stockholders and cannot transfer ownership. Additionally, nonvested shares of award holders are subject to forfeiture.  These awards are forfeited and revert to the Company in the event of employment termination, except in the case of death, disability, retirement or other specified events.  A summary of restricted stock award activity under the Companys LTICPs as of June 30, 2010 and changes during the six months then ended is presented as follows:  Number of Shares
(in thousands)
        
        Weighted- Average Grant Date Fair ValueOutstanding at January 1, 2010
        
        
        594
        
        $
        5.58Granted
        
        
        
        
        
        Vested
        
        
        (242
        )
        
        7.09Forfeited
        
        
        (54
        )
        
        4.80Outstanding at June 30, 2010
        
        
        298
        
        $
        4.49
 15
  
 The Company recognized $361 and $750 of compensation costs related to the LTICPs during the three and six months ended June 30, 2010, respectively and $488 and $950 of compensation costs related to the LTICPs during the three and six months ended June 30, 2009, respectively.   Additionally, as of June 30, 2010, there was approximately $270, $518, and $427 of unrecognized compensation cost related to restricted stock awards granted under the Companys 2008, 2007, and 2006 LTICPs, respectively.  The cost is expected to be recognized over a remaining weighted-average period of 1.9, 0.9, and 0.9 years under the 2008, 2007, and 2006 LTICPs, respectively.  There were approximately 106,000, 80,000, 31,000 and 25,000 shares of restricted stock that vested during the six months ended June 30, 2010 that were issued under the 2008, 2007, 2006 and 2005 LTICPs, respectively.  Availability for Future Issuance -As of June 30, 2010, (i) options to purchase approximately 1,833,000 shares of the Companys common stock were available for future issuance under the Companys stock option plans and (ii) options to purchase a maximum of approximately 564,000 shares of the Companys common stock were available for future issuance under the Companys LTICPs, reduced by four shares for each share of restricted stock awarded under the 2006 and 2005 LTICPs, under which an aggregate of 168,000 shares of the 564,000 total shares were available for issuance as options, and reduced by two shares for each share of restricted stock awarded under the 2008 and 2007 LTICPs, under which an aggregate of 396,000 of the 564,000 total shares were available for issuance as options.  5. INCOME TAXES  The benefit from income taxes consisted of the following:  Three Months Ended
        
        Six Months EndedJune 30,
        
        June 30,2010
        
        2009
        
        2010
        
        2009Current
        
        $
        
        
        $
        
        
        $
        
        
        $
        Deferred
        
        
        2,294
        
        
        4,747
        
        
        3,700
        
        
        7,442$
        2,294
        
        $
        4,747
        
        $
        3,700
        
        $
        7,442Less: Changes in Valuation allowance
        
        
        (2,294
        )
        
        (4,747
        )
        
        (3,700
        )
        
        (7,442
        )Total
        
        $
        
        
        $
        
        
        $
        
        
        $
        
   The Company and its wholly-owned subsidiaries file income tax returns in the United States and in the United Kingdom. Income tax expense (benefit) is determined using the asset and liability method provided for in the authoritative guidance issued by the FASB. Deferred income taxes are recognized at currently enacted tax rates for the expected future tax consequences attributable to temporary differences between amounts reported for income tax purposes and financial reporting purposes. Deferred taxes are provided for the undistributed earnings of subsidiaries as if they were to be distributed. The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has not recorded any liability for unrecognized tax benefits.  The Company is no longer subject to examinations by income tax authorities in most jurisdictions for years prior to 2006.  As of June 30, 2010, there were no outstanding tax audits.          16
  
 6. EARNINGS (LOSS) PER SHARE  The Company computes basic EPS based solely on the weighted average number of common shares outstanding during the period in accordance with authoritative guidance issued by the FASB. Diluted EPS reflects all potential dilution of common stock. The following table reconciles Basic EPS with Diluted EPS for the three and six months ended June 30, 2010 and 2009:  Three Months Ended
        
        
        Six Months EndedJune 30, 2010
        
        Net Loss
        
        Weighted Average Shares
        
        Per Share
        
        
        Net Loss
        
        Weighted Average Shares
        
        Per ShareBasic loss per share attributable to 4Kids Entertainment, Inc. common shareholders
        $
        (6,466
        )
        13,428,189
        $
        (0.48
        )
        $
        (9,945
        )
        13,390,331
        $
        (0.74
        )Effect of dilutive security  Stock options
        
        
        
        
        
        
        
        
        
        
        
        
        Diluted loss per share attributable to 4Kids Entertainment, Inc. common shareholders
        $
        (6,466
        )
        13,428,189
        $
        (0.48
        )
        $
        (9,945
        )
        13,390,331
        $
        (0.74
        )
    Three Months Ended
        
        
        Six Months EndedJune 30, 2009
        
        Net Loss
        
        Weighted Average Shares
        
        Per Share
        
        
        Net Loss
        
        Weighted Average Shares
        
        Per ShareBasic loss per share Loss available to common shareholders
        $
        (13,750
        )
        13,279,733
        $
        (1.04
        )
        $
        (15,790
        )
        13,253,522
        $
        (1.19
        )Effect of dilutive security  Stock options
        
        
        
        
        
        
        
        
        
        
        
        
        Diluted loss per share
        $
        (13,750
        )
        13,279,733
        $
        (1.04
        )
        $
        (15,790
        )
        13,253,522
        $
        (1.19
        )
  For the six months ended June 30, 2010 and 2009, 290,000 and 874,250 shares, respectively, attributable to the exercise of outstanding options, were excluded from the calculation of diluted EPS because the effect was antidilutive.  7. LEGAL PROCEEDINGS  TCD International Ltd. -On February 12, 2010, Home Focus Development, LTD, a British Virgin Islands Corporation, (Home Focus) filed suit against 4Kids in the United States District Court for the Southern District of New York. Home Focus alleged that 4Kids owed Home Focus $1,075 under an Interest Purchase Agreement among 4Kids, Home Focus and TC Digital entered into on March 2, 2009, pursuant to which the Company acquired a 25% ownership interest in TDI.  On April 26, 2010, 4Kids filed an answer and asserted various counterclaims against Home Focus and its owners, in their individual capacities. In its counterclaims, 4Kids has alleged that Home Focus failed to make its contractually required initial capital contribution of $250 to TDI necessary to acquire the 25% ownership interest in TDI it purported to sell to the Company and also failed to contribute its 50% share of the expenses. 4Kids has further asserted counterclaims of fraud and misrepresentation.  Pokémon Royalty Audit- During the first quarter of 2010, The Pokémon Company International (TPC) commenced an audit of 4Kids covering the period from mid-2001 through 2008. On May 28, 2010, 4Kids received a letter from counsel for TPC ("TPC Letter") claiming that the audit identified deficiencies totaling almost $4,700 and demanding payment of the deficiency together with interest thereon.  The TPC Letter failed to provide any schedules or other specific information regarding the alleged deficiencies. By letter dated June 11, 2010 (4Kids Letter), 4Kids disputed the allegations made in the TPC Letter and advised TPC that 4Kids would not be paying the alleged deficiency or any interest thereon. The 4Kids Letter also proposed that, as had been discussed by the parties, 4Kids would audit TPC which was the
recipient and payee of  17
  
 Pokémon merchandise licensing, television broadcast and home video proceeds during the 2001 - 2008 period, and that after the completion of the parties respective audits, the parties would review the audit reports and discuss any outstanding issues.  On July 14, 2010, 4Kids and TPC executed a tolling agreement tolling the statute of limitations until October 21, 2010 with respect to TPCs claims. 4Kids and TPC also agreed in the tolling agreement that neither party would commence any litigation against the other party until after the expiration of the tolling period in order to allow for the parties to complete their respective audits and to discuss the results thereof. During mid-June 2010, 4Kids commenced its audit of TPC which 4Kids expects to complete over the next few months.  Yu-Gi-Oh! Royalty Audit- During the first quarter of 2010, Asatsu-DK Inc (ADK), a member of the consortium of Japanese companies that controls the rights to Yu-Gi-Oh! ("Yu-Gi-Oh! Consortium"), commenced an audit of 4Kids with respect to the amounts paid by 4Kids to ADK during the course of the 4Kids representation of Yu-Gi-Oh!, which started in 2001.  On June 25, 2010, 4Kids received a letter from counsel for ADK (ADK Letter) alleging that 4Kids had improperly deducted certain expenses from amounts paid to ADK and had failed to pay ADK a share of certain Yu-Gi-Oh! home video revenues. In addition, the ADK Letter requested that 4Kids provide additional documentation with respect to withholding taxes deducted from ADKs share of Yu-Gi-Oh! revenues. The ADK Letter claimed that the total of the improper deductions and underpayments was approximately $3,000.  By letter dated June 29, 2010 (4Kids Yu-Gi-Oh! Letter), 4Kids disputed substantially all of the allegations contained in the ADK Letter.  The ADK Letter also demanded that 4Kids and ADK sign a tolling agreement with an effective date of June 1, 2010 which would stop the running of the statute of limitations during the four month tolling period starting on June 1, 2010. On June 29, 2010, 4Kids and ADK entered into the tolling agreement described above. Subsequent to June 29, 2010, 4Kids provided additional information to the auditor for ADK to address various inquiries contained in the ADK Letter. After the completion of the audit, it is expected that 4Kids and ADK will review the audit report and seek to resolve any claims.4Kids believes that it has paid the Yu-Gi-Oh! Consortium its full share of Yu-Gi-Oh! revenues.  The Company, from time to time, is involved in litigation, contract disputes and claims arising in the ordinary course of its business. The Company does not believe that such litigation to which the Company or any subsidiary of the Company is a party or of which any of their Properties is the subject or any claims made against it will, individually or in the aggregate, have a material adverse effect on the Companys financial position or the results of its operations.  The Company has established certain reserves reflected in its balance sheet as of June 30, 2010 which 4Kids believes will be sufficient to cover any liability the Company may have in connection with any such litigation and claims.  8. RELATED PARTY TRANSACTIONS  Chaotic USA Entertainment Group, Inc. (CUSA)- On December 11, 2006, 4Kids Digital and CUSA LLC, entered into the TCD Agreement with respect to the operation of TC Digital as a joint venture, with 4Kids Digital owning 53% of TC Digitals membership interests and CUSA LLC owning 47% of TC Digitals membership interests.  On December 18, 2007, 4Kids Digital purchased an additional 2% membership interest in TC Digital from CUSA LLC increasing 4Kids Digitals ownership percentage to 55%. TC Digital is treated as a consolidated subsidiary of the Company as a result of its majority ownership in TC Digital and its right to break any dead-locks within the TC Digital Management Committee. Bryan Gannon (Gannon), President and Chief Executive Officer of CUSA and John Milito (Milito), Executive Vice President and Chief Operating Officer of
CUSA, each own an interest of approximately 32% in CUSA and became officers of TC Digital in 2006.  Militos employment with TC Digital was terminated on December 31, 2009.  As of June 30, 2010, the Company has entered into the following transactions with CUSA and CUSA LLC, or parties related to Gannon and Milito that are summarized below:  °
        Chaotic Property Representation Agreement -On December 11, 2006, 4Kids Licensing, CUSA and Apex Marketing, Inc. (Apex), a corporation in which Gannon holds 60% of the outstanding capital stock and Milito owns 39% of the outstanding capital stock, entered into an amended and restated Chaotic Property Representation Agreement (CPRA) replacing the original Chaotic Property Representation Agreement entered into by the parties in April 2005. Under the terms of the CPRA, 4Kids Licensing is granted exclusive television broadcast and production, merchandising licensing, and home video rights to the Chaotic Property worldwide in perpetuity, subject to certain limited exceptions. Under the terms of the CPRA, all Chaotic related income less approved merchandising and
other expenses shall be distributed 50% to the Company and 50% to CUSA and Apex, excluding
 18
  
 trading card royalties which are distributed 55% to 4Kids Digital and 45% to CUSA. Additionally, all approved production expenses for television episodes based on the Chaotic property are allocated 50% to 4Kids Licensing and 50% to CUSA and Apex. As of June 30, 2010 and 2009 there were no distributions and approximately $8,807 and $7,925, respectively, of production, merchandising and other general expenses were owed to 4Kids Licensing by CUSA and Apex, collectively.  °
        Patent License Agreements -On December 11, 2006, TC Digital and TC Websites each entered into an agreement (the Patent License Agreements) with Cornerstone Patent Technologies, LLC (Cornerstone), a limited liability company, in which Gannon and Milito each hold a 25% membership interest. Pursuant to the Patent License Agreements, TC Digital and TC Websites obtained exclusive licenses (subject to certain exceptions) to use certain patent rights in connection with Chaotic and other trading card games which are uploaded to websites owned and operated by each such entity. Additionally, each of TC Digital and TC Websites agreed to pay Cornerstone a royalty of 1.5% of the Manufacturers Suggested Retail Price for the sale of trading cards.  On September 10, 2007, the Company
purchased a 25% interest in such patents from Cornerstone for $750. During the three and six months ended June 30, 2010, the Company earned no royalties, and during the three and six months ended June 30, 2009, the Company earned royalties of $75 and $73, respectively, associated with its portion of such patents which are eliminated in the Companys consolidated financial statements.
  °
        TCD Agreement -Under the terms of the TCD Agreement, TC Digital is obligated to pay the following fees and/or royalties to: (i) 4Kids Digital equal to 3% of TC Digitals gross revenues up to $350 per year for management services performed; (ii) 4Kids Digital and CUSA equal to 3% of net sales of each pack of trading cards sold; and  (iii) the Company equal to (x) 10% of the net sales of Chaotic trading cards and (y) an additional 1% of net sales of Chaotic trading cards above $50 million during a calendar year.  During the three and six months ended June 30, 2010, the Company earned royalties and/or fees of $36 and $68, respectively, and during the three and six months ended June 30, 2009, the Company earned royalties and or
fees of $147 and $329, respectively, relating to the sales of Chaotic trading cards under the TCD agreement.  The Companys portion of such royalties and / or management fee were eliminated in its consolidated financial statements.
  4Kids Digital is required under the terms of the TCD Agreement and the related loan and line of credit agreements to provide loans to TC Digital from time to time with a maturity date of December 31, 2010 at an interest rate of 9%.  °
        Chaotic Merchandise License Agreement -On December 11, 2006, 4Kids Licensing, CUSA and TC Digital entered into a merchandise licensing agreement pursuant to which 4Kids Licensing and CUSA granted TC Digital exclusive rights to manufacture, produce and license Chaotic trading cards and related accessories through December 31, 2016. Under the terms of the agreement, TC Digital is obligated to pay a royalty on trading cards and all related accessories equal to (i) 4% of net sales to 4Kids Licensing while any amounts are outstanding to 4Kids Digital under the loan agreement or line of credit agreement or (ii) if no amounts are outstanding to 4Kids Digital under the loan agreement of line of credit agreement, 8% of net sales of such cards and accessories, 55% of which will be paid to 4Kids
Licensing and 45% of which will be paid to CUSA.  For the three and six months ended June 30, 2010 and 2009, no royalties had been earned under this agreement.
  °
        Operating Agreement of TC Websites LLC -On December 11, 2006, 4Kids Websites entered into the TCW Agreement with CUSA to purchase a 50% membership interest in TC Websites, which was amended on December 18, 2007 in connection with 4Kids Websites acquisition of an additional 5% ownership interest in TC Websites.   Under the terms of the TCW Agreement, each member of TC Websites is obligated to make capital contributions on a pro-rata basis to the extent determined by its Management Committee to be necessary to fund the operation of the Website. Any transaction resulting in the sale of more than 50% of TC Websites membership interests or in the sale of all or substantially all of TC Digitals assets requires the consent of members of TC Websites holding two-thirds of its membership
interests (as opposed to a majority of its membership interests).
  °
        Interest Purchase Agreement-On March 2, 2009, TC Digital, the Company and Home Focus entered into various agreements pursuant to which TC Digital and Home Focus agreed to form TDI and the Company agreed to purchase the TDI Interest from Home Focus.  The purchase price for the TDI Interest is an initial price of $1,575 with an obligation to pay up to an additional $1,000 (the "Conditional Payments") conditioned upon the Chaotic television series being telecast in the five largest European television markets (the United Kingdom, France, Germany, Spain and Italy) and/or TDI selling in excess of $10,000 of Chaotic trading cards. To date, the Company has entered into
  19
  
 agreements for the telecast of the Chaotic television series in the UK, France and Germany, requiring the Company to make $600 of the Conditional Payments. The Company has paid Home Focus the following consideration for the TDI interest: the Company paid $475 upon execution of the various agreements and has paid the monthly installments of $125 for each of April, May, June, July and August of 2009.  The Company ceased paying Home Focus additional amounts under the Interest Purchase Agreement due to the failure by Home Focus to make the required capital contributions to TDI required under the Shareholders Agreement, dated March 2, 2009, entered into by the Company and Home Focus with respect to TDI (the TDI Agreement).  See Note 7. Legal Proceedings for details of this matter.  °
        TDI Shareholders Agreement-Under the TDI Agreement, the Board of Directors of TDI consists of four directors. TC Digital has the right to elect two directors and the Company and Home Focus each have the right to elect one director. There are a number of extraordinary actions that require the consent by shareholders holding at least 80% of the voting stock of TDI in addition to approval of the Board of Directors. The TDI Agreement requires the shareholders to provide TDI with additional capital on a pro rata basis in exchange for additional equity. Under the TDI Agreement, TDI is required to pay or reimburse TC Digital for the costs and expenses associated with the printing, advertising, marketing and promotion of the Chaotic trading card game
in the TDI Territory. In addition, TDI is responsible for reimbursing TC Digital and TC Websites for the cost of translating the Chaotic trading cards and Chaotic website into the European languages and for bandwidth and equipment charges associated with making the Chaotic website operational in the TDI Territory. TDI is also required to pay TC Digital and TC Websites a design fee equal to 3% and 1.5%, respectively, of net sales of Chaotic trading cards in the TDI  Territory.   For the three and six months ended June 30, 2010, TC Digital and TC Websites earned no royalties and for the three and six months ended June 30, 2009, TC Digital and TC Websites earned royalties of $17 and $6, respectively, under this agreement arising from the net sales of Chaotic trading cards in the TDI Territory.  The royalties earned by TC Digital and TC Websites are eliminated in the Companys consolidated financial statements.
  9. ACCOUNTING CHANGE AND RECLASSIFICATION  Certain of the Companys representation contracts contain provisions for the production of animated television episodes based on the licensors property. These contracts typically contain provisions for the licensor to reimburse the Company for costs incurred in the production of the television programming. The reimbursement may be in the form of reduced royalty fees owed the licensor under other provisions of the contract or in the form of direct cash reimbursement. The Company has accounted for this reimbursement as reduction of its film costs capitalized.  Additionally, the Company has historically recorded the reimbursement as service revenue with an equal amount as cost of production.  These reimbursements are contained under overall representation contracts with licensors. Under these contracts, the Company will generate royalty revenue from third party licensees. Since the primary licensor (property owner) will also benefit from the increased awareness of the property, they are willing to contribute to the cost of the production of the programming. The Company believes that it is appropriate to account for the partial reimbursement of production costs as a reduction of its capitalized film costs which is amortized into the cost of revenue.  The Company has reassessed the accounting treatment for reimbursements of its production costs under representation contracts and as of December 31, 2009, has no longer recorded these amounts in the Television and Film Production/Distribution segment as revenue with a corresponding charge to production service costs.  The Company has retroactively adjusted revenue and production service costs for all periods presented.   The Company considered the qualitative aspect of these adjustments, as well as the impact on the Companys operating losses and earnings per share calculations in determining that no further restatement of the Companys financial statements is necessitated by this accounting change.  The following table shows the summary impact in the consolidated statements of operations for the three and six months ended June 30, 2009:  Three Months Ended June 30, 2009As Originally Reported
        
        
        As ReclassifiedTotal net revenues
        $
        4,401
        
        $
        3,597Total costs and expenses
        
        13,699
        
        
        12,895Loss from operations
        $
        (9,298
        )
        $
        (9,298
        )
  20
  
  Six Months Ended June 30, 2009As Originally Reported
        
        
        As ReclassifiedTotal net revenues
        $
        14,593
        
        $
        12,929Total costs and expenses
        
        28,283
        
        
        26,619Loss from operations
        $
        (13,690
        )
        $
        (13,690
        )
  10. COMMITMENTS AND CONTINGENCIES  a.Broadcast Agreement(The CW Broadcast Agreement)- On October 1, 2007, the Company and The CW entered into an agreement pursuant to which The CW granted to the Company the exclusive right to program The CW's Saturday morning children's programming block (The CW4Kids) that is broadcast in most markets between 7am and 12pm for an initial term of five years beginning with The CW's 2008-2009 broadcast season,which agreement was amended on June 24, 2010 (as amended, the CW Agreement).  Under the terms of the CW Agreement, the Company is obligated to make quarterly minimum guaranteed payments which are subject to reduction under certain circumstances. The Company and The CW share advertising revenues earned from the sale of national commercial time during The CW4Kids with The CW's share to be applied against such quarterly guarantee payments.  In addition, The CW is entitled under the CW Agreement to participate in the Company's merchandising revenue from certain content broadcast on The CW4Kids, if such merchandising revenues exceed a certain annual minimum.  4Kids Ad Sales, Inc. manages and accounts for the ad revenue and costs associated with The CW4Kids.  The CW and the Company share in national ad revenue (revenue) from the block, with The CWs share of revenue to be applied against a guarantee payable by the Company to The CW. The minimum guarantee payable by the Company to The CW under the CW Agreement was $15,000 for broadcast seasons prior to the 2009/2010 broadcast season and will be $12,000 for the 2009 / 2010 broadcast season, and $11,500 for the remaining three broadcast seasons under the period covered by the CW Agreement.  Prior to the 2009 / 2010 broadcast season, the revenue sharing percentage split in favor of the CW was 80% / 20% until $20,000 in revenue has been realized and a revenue split of 50% / 50% applied thereafter; commencing with the 2009 / 2010 broadcast season, the CW Agreement provides for (1) an 80% / 20% revenue split in favor of The CW until it has received its minimum guarantee applicable
to such broadcast season, (2) the Company to retain 100% of the revenue until its share of the revenue for such broadcast season equals 35%, (3) a 65% / 35% revenue split in favor of The CW until $20,000 in revenue has been realized and (4) a revenue split between the parties to be 50% / 50% thereafter.  The Agreement also requires the Company to make certain security arrangements in favor of The CW to secure payment of the minimum guarantee and The CW's share of national advertising proceeds.  As of June 30, 2010, the minimum guaranteed payment obligations under the CW Agreement, assuming full payment is required, are as follows:  Year Ending
December 31,
        
        Amount2010
        $
        7,0402011
        
        11,5002012
        
        11,5002013
        
        6,500Total
        $
        36,540
  The Companys ability to recover the cost of its minimum guarantee due to The CW will depend on the popularity of the television programs the Company broadcasts on The CW4Kids and the general market demand and pricing of advertising time for Saturday morning childrens broadcast television.  The popularity of such programs, broadcast by the Company on The CW4Kids, impacts audience levels and the level of the network advertising rates that the Company can charge.  Additionally, the success of the merchandise licensing  21
  
  programs and home video sales based on such television programs broadcast on The CW4Kids is dependent on consumer acceptance of such television programs.  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 The CW, the Company would record a charge to earnings to reflect an expected loss on The CW agreements in the period in which the factors negatively 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 minimum guaranteed payments.  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 minimum guaranteed payments and in the event it cannot, it would record the resulting charge to earnings to reflect an expected loss on the minimum guaranteed payments, which could be significant.  In addition to the minimum guarantee paid to The CW, the Company incurs additional costs to program the broadcast block and sell the related network advertising time.  These costs include direct programming costs to acquire, adapt and deliver programming for the broadcast block as well as additional indirect expenses of advertising sales, promotion and administration.  b.  Contractual Arrangements- During the normal course of business, the Company may enter into various agreements with third parties to license, acquire, distribute, broadcast, develop and/or promote Properties. The terms of these agreements will vary based on the services and/or Properties included within the agreements, as each of these agreements also have specific provisions relating to rights granted, territory and contractual term.  11. NONCONTROLLING INTEREST  Effective January 1, 2009, all earnings and losses of a subsidiary are attributed to both the parent and the noncontrolling interest, even if the losses attributable to the noncontrolling interest result in a deficit noncontrolling interest balance.  Previously, any losses exceeding the noncontrolling interestsinvestment in the subsidiaries were attributed to the parent.  a)TC Digital Games LLC -TC Digital was formed inDecember 2006.  4Kids Digital has owed 55% of TC Digitals membership interests, and CUSA has owned the remanding 45% of TC Digitals membership interests,since December 2007.   TC Digital is treated as a consolidated subsidiary of the Company as a result of its majority ownership and its right to break any dead-locks within the TC Digital Management Committee.  Noncontrolling interest of membership units in TC Digital represents the noncontrolling members proportionate share of the equity in the entity. Income is allocated to the membership units noncontrolling interest based on the ownership percentage throughout the year. As of June 30, 2010, the noncontrolling member continued to hold 45% of the equity in the entity.  The following table summarizes the noncontrolling interests loss attributable to the noncontrolling equity interest in TC Digital:  Three Months Ended
        
        Six Months EndedJune 30,
        
        June 30,2010
        
        2009
        
        2010
        
        2009TC Digital net loss before common units noncontrolling interest
        $
        (2,368
        )
        $
        (4,287
        )
        $
        (4,231
        )
        $
        (7,652
        )Noncontrolling interest percentage
        
        45
        %
        
        45
        %
        
        45
        %
        
        45
        %Noncontrolling interest loss allocation
        
        (1,066
        )
        
        (1,929
        )
        
        (1,904
        )
        
        (3,443
        )Less: Capital contribution from noncontrolling interest
        
        
        
        
        
        
        
        
        
        
        Loss attributable to noncontrolling interest
        $
        (1,066
        )
        $
        (1,929
        )
        $
        (1,904
        )
        $
        (3,443
        )
  Included in the TC Digital net loss is $33 related to the operations of TDI, a joint venture owned 50% by TC Digital, 25% by the Company and 25% by Home Focus Development Ltd. (Home Focus), see Note 8 for further details.  As of June 30, 2010, Home Focus has not made a required capital contribution to TDI.  As of June 30, 2010, the loss in excess of noncontrolling interest for TC Digital absorbed by 4Kids Digital, in the aggregate, since the formation of such entity is $18,195.   22
  
  b)TC Websites LLC -Under the terms of the TCW Agreement, 4Kids Websites and CUSA are each entitled to elect two managers to TC Websites Management Committee, with 4Kids Websites having the right to break any deadlocks on TC Websites' Management Committee with respect to operational matters.  TC Websites is treated as a consolidated subsidiary of the Company as a result of its majority ownership and its right to break any dead-locks within the TC Websites Management Committee.  As of June 30, 2010, the noncontrolling member held 45% of the equity in the entity.  The following table summarizes the noncontrolling interests loss attributable to the noncontrolling equity interest in TC Websites:  Three Months Ended
        
        Six Months EndedJune 30,
        
        June 30,2010
        
        2009
        
        2010
        
        2009TC Websites net loss before common units noncontrolling interest
        $
        (316)
        
        $
        (1,182
        )
        $
        (671)
        
        $
        (2,351
        )Noncontrolling interest percentage
        
        45
        %
        
        45
        %
        
        45
        %
        
        45
        %Noncontrolling interest loss allocation
        
        (142
        )
        
        (532
        )
        
        (302)
        
        
        (1,058
        )Less: Capital contribution from noncontrolling interest
        
        5
        
        
        23
        
        
        9
        
        
        54Loss attributable to noncontrolling interest
        $
        (137
        )
        $
        (509
        )
        $
        (293
        )
        $
        (1,004
        )
  As of June 30, 2010, the loss in excess of noncontrolling interest for TC Websites absorbed by 4Kids Websites in the aggregate since the formation of such entity is $5,723.  12.  SUBSEQUENT EVENTS  Subsequent events were evaluated by the Company through the date the financial statements were issued. There were no events that occurred subsequent to June 30, 2010 that would require recognition in the Companys consolidated financial statements.                 23
  
  13. SEGMENT AND RELATED INFORMATION  The Company has four reportable segments: (i) Licensing; (ii) Advertising Media and Broadcast; (iii) Television and Film Production/Distribution; and (iv) Trading Card and Game Distribution. The Companys reportable segments are strategic business units, which, while managed separately, work together as a vertically integrated entertainment company.   The Companys management regularly evaluates the performance of each segment based on its net revenues, profit and loss after all expenses, including amortized film and television costs and the 4Kids TV broadcast fee and interest income. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Companys Television and Film Production/Distribution segment records inter-segment revenues and the Companys Advertising Media and Broadcast segment records inter-segment charges
related to the estimated acquisition costs of episodic television series for broadcast.  All inter-segment transactions have been eliminated in consolidation.  Licensing
        
        Advertising Media and Broadcast
        
        TV and Film Production/ Distribution
        
        Trading Card and Game Distribution
        
        TotalThree Months Ended June 30,2010:Net revenues from external customers
        
        $
        1,913
        
        $
        (345
        )
        $
        888
        
        $
        50
        
        $
        2,506Amortization of television and film costs
        
        
        
        
        
        
        
        
        727
        
        
        
        
        
        727Interest income
        
        
        88
        
        
        
        
        
        
        
        
        
        
        
        88Impairment of investment securities
        
        
        (421
        
        )
        
        
        
        
        
        
        
        
        
        (421
        )Segment loss
        
        
        (2,709
        
        )
        (2,200
        )
        
        (1,025
        )
        
        (1,740
        )
        
        (7,674
        )2009:Net revenues from external customers
        
        $
        2,317
        
        $
        155
        
        $
        1,310
        
        $
        (185
        )
        $
        3,597Amortization of television and film costs
        
        
        
        
        
        
        
        
        1,066
        
        
        
        
        
        1,066Interest income
        
        
        340
        
        
        6
        
        
        
        
        
        
        
        
        346Loss on sale of investment securities
        
        
        (7,250
        
        )
        
        
        
        
        
        
        
        
        
        (7,250
        )Impairment of investment securities
        
        
        (9
        
        )
        
        
        
        
        
        
        
        
        
        (9
        )Segment loss
        
        
        (8,652
        
        )
        (1,636
        )
        
        (1,129
        )
        
        (4,794
        )
        
        (16,211
        )Six Months Ended June 30,2010:Net revenues from external customers
        
        $
        5,166
        
        $
        (319
        )
        $
        1,839
        
        $
        57
        
        $
        6,743Amortization of television and film costs
        
        
        
        
        
        
        
        
        2,085
        
        
        
        
        
        2,085Interest income
        
        
        187
        
        
        6
        
        
        
        
        
        
        
        
        193Impairment of investment securities
        
        
        (421
        
        )
        
        
        
        
        
        
        
        
        
        (421
        )Segment loss
        
        
        (2,570
        
        )
        (3,951
        )
        
        (2,382
        )
        
        (3,248
        )
        
        (12,151
        )Segment assets
        
        
        24,297
        
        
        2,673
        
        
        11,269
        
        
        2,056
        
        
        40,2952009:Net revenues from external customers
        
        $
        7,913
        
        $
        997
        
        $
        3,767
        
        $
        252
        
        $
        12,929Amortization of television and film costs
        
        
        
        
        
        
        
        
        2,257
        
        
        
        
        
        2,257Interest income
        
        
        728
        
        
        19
        
        
        
        
        
        
        
        
        747Loss on sale of investment securities
        
        
        (7,250
        
        )
        
        
        
        
        
        
        
        
        
        (7,250
        )Impairment of investment securities
        
        
        (98
        
        )
        
        
        
        
        
        
        
        
        
        (98
        )Segment loss
        
        
        (7,057
        
        )
        (2,606
        )
        
        (1,720
        )
        
        (8,908
        )
        
        (20,291
        )Segment assets
        
        
        42,598
        
        
        4,664
        
        
        23,841
        
        
        9,372
        
        
        80,475
  Through the Companys London office and network of international subagents, which allow it to license its Properties throughout the world, the Company recognized net merchandise licensing revenues from international sources, primarily in Europe, of $628 and $1,428 for the three and six months ended June 30, 2010, respectively, and $1,164 and $3,534 for the  24
  
  three and six months ended June 30, 2009.  As of June 30, 2010 and 2009, net assets of the Companys London office were $1,834 and $5,464, respectively. ******                             25
  
  Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. (In thousands of dollars unless otherwise specified)  Overview  The Companys operating results for the three and six months ended June 30, 2010 were negatively impacted by the decline in licensing revenue from the Monster Jam and American Kennel Club Properties as well as a significant decline in the Teenage Mutant Ninja Turtles Property since its sale and the start of the sell-off period.  Accordingly, the Company experienced an overall significant decrease in licensing revenues worldwide as compared with the comparable period last year. The Company also experienced a decrease in television and film revenues during 2010 relating to its broadcast sales both domestically and internationally.  These declines are generally the result of the declining popularity of the Companys existing Properties combined with the failure of new Properties to achieve similar popularity levels.  During 2009 and continuing in 2010, the Company
implemented significant cost-cutting initiatives, primarily pertaining to personnel related costs and advertising and marketing expenses, in an effort to offset its poor operating results; however, these initiatives failed to offset lower revenues and other charges.  General  The Company receives revenues from the following four business segments: (i) Licensing; (ii) Advertising, Media and Broadcasting; (iii) Television and Film Production/Distribution; and (iv) Trading Card and Game Distribution. The Company typically derives a substantial portion of its licensing revenues from a small number of Properties, which usually generate revenues for only a limited period of time. The Companys revenues are highly subject to changing trends in the toy, game and entertainment businesses, potentially causing dramatic increases and decreases from year to year due to the popularity of particular Properties. It is not possible to accurately predict the length of time a Property will be commercially successful and/or if a Property will be commercially successful at all. Popularity of Properties can vary from months to years. As a result, the Companys revenues from particular
Properties may fluctuate significantly between comparable periods.  The Companys licensing revenues have historically been derived primarily from the licensing of toy and game concepts. As a result, a substantial portion of the Companys revenues and net income are subject to the seasonal variations of the toy and game industry. Typically, a majority of toy orders are shipped in the third and fourth calendar quarters resulting in increased royalties earned by the Company during such calendar quarters. The Company recognizes revenues from the sale of advertising time on the leased Saturday morning programming block from The CW (The CW4Kids), as more fully described in Note 2 of the notes to the Companys consolidated financial statements. The Companys advertising sales subsidiary, 4Kids Ad Sales, sells advertising time on The CW4Kids at higher rates in the fourth quarter due to the increased demand for commercial time by childrens
advertisers during the holiday season. As a result, much of the revenues of 4Kids Ad Sales are earned in the fourth quarter when the majority of toy and video game advertising occurs. As a result of the foregoing, the Company has historically experienced greater revenues during the second half of the year than during the first half of the year.  Critical Accounting Policies  The Companys accounting policies are fully described in Note 2 of the notes to the Companys consolidated financial statements. Below is a summary of the critical accounting policies, among others, that management believes involve significant judgments and estimates used in the preparation of its consolidated financial statements.  Accounting for Film and Television Costs- The Company amortizes the costs of production for film and television programming using the individual-film-forecast method under which such costs are amortized for each film or television program in the ratio that revenue earned in the current period for such title bears to managements estimate of the total revenues to be realized from all media and markets for such title. All exploitation costs, including advertising and marketing costs, are expensed as incurred.  Management regularly reviews, and revises when necessary, its total revenue estimates on a title-by-title basis, which may result in a change in the rate of amortization and/or a write-down of the film or television asset to estimated fair value. The Company determines the estimated fair value for individual film and television Properties based on the estimated future ultimate revenues and costs.   26
  
 Any revisions to ultimate revenues can result in significant quarter-to-quarter and year-to-year fluctuations in film and television write-downs and amortization. A typical film or television series recognizes a substantial portion of its ultimate revenues within the first three years of release. By then, the film or television series has been exploited in the domestic and international television (network and cable) and home video markets.  In addition, a significant portion of licensing revenues associated with the film or television series will have been realized.  A similar portion of the films or television series capitalized costs should be expected to be amortized accordingly, assuming the film or television series is profitable.  The commercial potential of individual films and television programming varies dramatically, and is not directly correlated with production or acquisition costs. Therefore, it is difficult to predict or project the impact that individual films or television programming will have on the Companys results of operations.  However, the likelihood that the Company will report losses, particularly in the year of a television series initial release, is increased as the applicable accounting literature requires the immediate recognition of all of the production or acquisition costs (through increased amortization) in instances where it is estimated that the ultimate revenues of a film or television series will not recover those costs. Conversely, the profit from a film or television series must be deferred and recognized over the entire revenue stream generated by that film or television series. As a result,
significant fluctuations in reported income or loss can occur, particularly on a quarterly basis, depending on release schedules and broadcast dates, the timing of advertising campaigns and the relative performance of individual film or television series.  Other Estimates-   The Company estimates reserves for future returns of product in the trading card and home video markets as well as provisions for uncollectible receivables. In determining the estimate of trading card and home video product sales that will be returned, the Company performs an analysis that considers historical returns, changes in customer demand and current economic trends. Based on this information, a percentage of each sale is reserved provided that the customer has the right to return unsold trading card and home video inventory. The Company estimates the amount of uncollectible receivables from its business segments by monitoring delinquent accounts and estimating a reserve based on contractual terms and other customer specific issues.  Revenue Recognition- The Companys revenue recognition policies for its four business segments are appropriate to the circumstances of each segments business.  See Note 2 of the notes to the Companys consolidated financial statements for a discussion of these revenue recognition policies.  Accounting Changes- The Company has reassessed the accounting treatment for reimbursements of its production costs under representation contracts and will no longer record these amounts as revenue with a corresponding charge to production service costs.  In accordance with authoritative guidance issued by the FASB, the Company has retroactively adjusted revenue and production service costs for all periods presented.   The Company considered the qualitative aspect of these adjustments, as well as the impact on the Companys operating losses and earnings per share calculations in determining that no further restatement of the Companys consolidated financial statements is necessitated by this accounting change.  See Note 9 of the notes to the Companys consolidated financial statements for a discussion of these changes.  Managements Discussion and Analysis of Financial Condition and Results of Operations discusses the Companys consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company continually evaluates the policies and estimates that it uses to prepare its consolidated financial statements.  In general, managements estimates and assumptions are based on historical experience, known trends or events, information from third-party professionals and other factors that are believed
to be reasonable under the circumstances, the results of which form the basis for making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.  Recently Adopted Accounting StandardsIn August 2009, the FASB issued authoritative guidance regarding the measurement of liabilities at fair value when a quoted price in an active market is not available.  In these circumstances, a valuation technique should be applied that uses either the quote of the liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique consistent with existing fair value measurement guidance, such as an income approach or a market approach.  The guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability.  This
guidance is currently effective and the adoption of this guidance did not have an impact on the Companys consolidated financial position and results of operations. 27
  
 In June 2009, the FASB issued authoritative guidance intended to improve the relevance, representational faithfulness, and comparability of the information a reporting entity provides in its financial statements about a transfer of financial assets, the effects of a transfer on its financial position, financial performance and cash flows, and a transferors continuing involvement, if any, in transferred financial assets.  This guidance is effective as of the beginning of the first interim period within a reporting entitys first annual reporting period that begins after November 15, 2009. The adoption of this guidance did not have an impact on the Companys consolidated financial position and results of operations.  In May 2009, the FASB issued authoritative guidance which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance sets forth (1) the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which events or transactions occurring after the balance sheet date should be recognized in its financial statements and (3) the disclosures that should be made about events or transactions that occurred after the balance sheet date. In February 2010, the FASB amended this new standard to eliminate the requirement to disclose the date through which subsequent events have been evaluated. As the new standard was not intended to
significantly change the current practice of reporting subsequent events, it did not have an impact on the Companys consolidated financial position and results of operations.  In April 2009, the FASB issued authoritative guidance related to investments in debt and equity securities. The objective of the new guidance is to make impairment guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments (OTTI) of debt and equity securities in financial statements.  The guidance revises the OTTI evaluation methodology.  Under the guidance, the security is analyzed for credit loss, (the difference between the present value of cash flows expected to be collected and the amortized cost basis). The credit loss, if any, will then be recognized in the statement of earnings, while the balance of impairment related to other factors will be recognized in other comprehensive income. This guidance was effective for all interim and annual periods ending after June 15, 2009. The Company adopted this authoritative guidance issued
by the FASB as of January 1, 2009 and recorded a cumulative-effect adjustment of $2,130 to its opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive loss. The Company did not incur any impairment charges in 2010 due to credit losses.  Recently Issued Accounting Standards-In October 2009, the FASB issued authoritative guidance which will allow companies to allocate arrangement consideration to multiple deliverables. The guidance provides principles and application guidance on whether multiple deliverables exist, how an arrangement should be separated, and the consideration allocated. The guidance requires an entity to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of the selling price. The guidance eliminates the use of the residual method, requires entities to allocate revenue using the relative-selling-price method and significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. The guidance requires new and expanded disclosures
and is applied prospectively to revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 or retrospectively for all periods presented. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial position and results of operations.  In January 2010, the FASB issued authoritative guidance regarding fair value measurements that clarifies existing disclosure requirements and requires the separate disclose of transfers of instruments between level 1 and level 2 of the fair value hierarchy effective for interim reporting periods beginning after December 15, 2009, and requires that purchases, sales, issuances and settlements in level 3 of the hierarchy rollforward on a gross basis effective for fiscal years beginning after December 15, 2010. The Company adopted this guidance in the first quarter of 2010.  In July 2010, the FASB issued authoritative guidance that will require enhanced disclosures regarding the credit characteristics of receivables. Under the new guidance, accounting policies, the methods used to determine the components of the allowance for doubtful accounts, and qualitative and quantitative information about the credit risk inherent in receivables, are each required to be disclosed.  The new disclosures on the rollforward of the allowance for credit losses and the new disclosures about troubled-debt modifications required under the guidance are effective for annual and interim reporting periods beginning after December 15, 2010. The adoption of this guidance will not have an impact on the Companys consolidated financial position or results of operations as they relate only to financial disclosures.  28
  
 Results of Operations  The following table sets forth our results of operations expressed as a percentage of total net revenues for the three and six months ended June 30, 2010 and 2009:  Three Months Ended June 30,
        
        Six Months Ended June 30,2010
        
        2009
        
        2010
        
        2009Net revenues
        
        
        100
        %
        
        100
        %
        
        100
        %
        
        100
        %Costs and expenses:Selling, general and administrative
        
        
        323
        
        
        308
        
        
        226
        
        
        179Cost of sales of trading cards
        
        
        41
        
        
        21
        
        
        20
        
        
        10Amortization of television and film costs
        
        
        29
        
        
        30
        
        
        31
        
        
        17Total costs and expenses
        
        
        393
        
        
        359
        
        
        277
        
        
        206Loss from operations
        
        
        (293
        )
        
        (259
        )
        
        (177
        )
        
        (106
        )Interest income
        
        
        4
        
        
        10
        
        
        3
        
        
        6Impairment of investment securities
        
        
        (17
        )
        
        
        
        
        (6
        )
        
        (1
        )Loss on sale of investment securities
        
        
        
        
        
        (201
        )
        
        
        
        
        (56
        )Total other expense
        
        
        (13
        )
        
        (191
        )
        
        (3
        )
        
        (51
        )Loss before income taxes
        
        
        (306
        )
        
        (450
        )
        
        (180
        )
        
        (157
        )Benefit from income taxes
        
        
        
        
        
        
        
        
        
        
        
        Net loss
        
        
        (306
        )
        
        (450
        )
        
        (180
        )
        
        (157
        )Net loss attributable to noncontrolling interests
        
        
        48
        
        
        68
        
        
        33
        
        
        35Net loss attributable to 4Kids Entertainment, Inc.
        
        
        (258
        )%
        
        (382
        )%
        
        (147
        )%
        
        (122
        )%
  Three and six months ended June 30, 2010 as compared to the three and six months ended June 30, 2009.  Revenues  Revenues by reportable segment and for the Company as a whole were as follows:  For the three months ended June 30, 2010 and 20092010
        
        2009
        
        $ Change
        
        % ChangeLicensing
        
        $
        1,913
        
        $
        2,317
        
        $
        (404
        )
        (17
        )%Advertising, Media and Broadcast
        
        
        (345
        )
        
        155
        
        
        (500
        )
        (323
        )Television and Film Production/Distribution
        
        
        888
        
        
        1,310
        
        
        (422
        )
        (32
        )Trading Card and Game Distribution
        
        
        50
        
        
        (185
        )
        
        235
        
        127Total
        
        $
        2,506
        
        $
        3,597
        
        $
        (1,091
        )
        (30
        )%
  For the six months ended June 30, 2010 and 20092010
        
        2009
        
        $ Change
        
        % ChangeLicensing
        
        $
        5,166
        
        $
        7,913
        
        $
        (2,747
        )
        (35
        )%Advertising, Media and Broadcast
        
        
        (319
        )
        
        997
        
        
        (1,316
        )
        (132
        )Television and Film Production/Distribution
        
        
        1,839
        
        
        3,767
        
        
        (1,928
        )
        (51
        )Trading Card and Game Distribution
        
        
        57
        
        
        252
        
        
        (195
        )
        (77
        )Total
        
        $
        6,743
        
        $
        12,929
        
        $
        (6,186
        )
        (48
        )%
     29
  
 The decrease in consolidated net revenues for the three and six months ended June 30, 2010, as compared to the same periods in 2009, was due to a number of factors.  In the Licensing segment, decreased revenues for the three months ended June 30, 2010 were primarily attributable to:  (i)
        reduced licensing revenue on the Teenage Mutant Ninja Turtles Property, worldwide of approximately $335; as well as
 (ii)
        reduced licensing revenue on the Dinosaur King Property, internationally of approximately $250; partially offset by
 (iii)
        increased licensing revenue on the Yu-Gi-Oh! Property, worldwide of approximately $220.
  In the Licensing segment, decreased revenues for the six months ended June 30, 2010 were primarily attributable to:  (i)
        reduced licensing revenues on the Monster Jam and American Kennel Club Properties, domestically of approximately $1,480 and $260, respectively; as well as
 (ii)
        reduced licensing revenues on the Teenage Mutant Ninja Turtles and Dinosaur King Properties, worldwide of approximately $720 and $190, respectively.
  The Yu-Gi-Oh! and Cabbage Patch Kids Properties are the largest contributors to consolidated net revenues, with approximately 70% of the Companys revenues in this business segment for the three and six months ended June 30, 2010.  In the Advertising Media and Broadcast segment, the significant decrease in revenues for the three and six months ended June 30, 2010, as compared to the same periods in 2009, was primarily attributable to decreased revenue from the sale of internet advertising on the Companys websites of approximately $540 and $1,020, respectively.  In the Television and Film Production/Distribution segment, the decrease in revenues for the three months ended June 30, 2010, as compared to the same period in 2009, was primarily attributable to decreased broadcast sales from the Chaotic television series of approximately $390.  In the Television and Film Production/Distribution segment, the decrease in revenues for the six months ended June 30, 2010, as compared to the same period in 2009, was primarily attributable to:  (i)
        decreased international broadcast sales from the Dinosaur King television series of approximately $800;
 (ii)
        decreased broadcast sales from the Chaotic television series of approximately $390; as well as.
 (iii)
        decreased contract revenue from the Pat and Stan television series of approximately $240.
  The change in revenues for the Trading Card and Game Distribution segment for the three months ended June 30, 2010 when compared to the same period in 2009 was primarily attributable to many of the Companys larger trading card distributors migrating to a Point-of-sales model in the second quarter of 2009. In anticipation of this migration, certain of the Companys retailers and distributors significantly reduced inventory levels and were granted additional allowances and promotional markdowns exceeding actual product sales in the second quarter of 2009.  The decrease in revenues for the Trading Card and Game Distribution segment for the six months ended June 30, 2010 when compared to the same period in 2009 was primarily attributable to decreased retail sales which were negatively impacted by diminished popularity of the Chaotic property, as well as continued weakness in the global economic climate.  Selling, General and Administrative Expenses  Selling, general and administrative expenses decreased 27%, or $2,963, to $8,104 for the three months ended June 30, 2010, when compared to the same period in 2009.  The decreases were attributable to broad cost-cutting initiatives implemented throughout the Company and include the following significant changes:  (i)
        decreased personnel related costs of approximately $3,130; as well as
 (ii)
        decreased advertising and marketing costs of approximately $1,700; partially offset by
 (iii)
        decreased capitalized production salaries which increased costs by approximately $1,555; as well as
 (iv)
        increased bad debt expense of approximately $650.
 30
  
 Selling, general and administrative expenses decreased 34%, or $7,897, to $15,201 for the six months ended June 30, 2010, when compared to the same period in 2009.  The decreases were attributable to broad cost-cutting initiatives implemented throughout the Company and include the following significant changes:  (i)
        decreased personnel related costs of approximately $6,810;
 (ii)
        decreased advertising and marketing costs of approximately $3,165;
 (iii)
        decreased international selling expenses of approximately $1,000; as well as
 (iv)
        decreased professional fees of approximately $410; partially offset by
 (v)
        decreased capitalized production salaries which increased costs by approximately $3,350; as well as
 (vi)
        increased bad debt expense of approximately $670.
  Cost of Sales of Trading Cards  Cost of sales of trading cards represents finished goods inventory costs relating to the Chaotic trading card game.  Cost of sales increased 33%, or $254, to $1,016 and 9%, or $116, to $1,380 for the three and six months ended June 30, 2010, respectively, when compared to the same periods in 2009.  The increase was primarily attributable to the diminished popularity of the Chaotic Property, which caused an overall inventory surplus forcing the Company to record additional inventory reserves.  Capitalized Film Costs  For the three months ended June 30, 2010 and 2009  2010
        
        2009
        
        $ Change
        
        % ChangeAmortization of Television and Film Costs
        
        $
        727
        
        $
        1,066
        
        $
        (339
        )
        (32
        )%
  For the six months ended June 30, 2010 and 2009  2010
        
        2009
        
        $ Change
        
        % ChangeAmortization of Television and Film Costs
        
        $
        2,085
        
        $
        2,257
        
        $
        (172
        )
        (8
        )%
  The decrease in amortization of television and film costs for the three months ended June 30, 2010 when compared to the same period in 2009, was primarily due to the decreased amortization of the Teenage Mutant Ninja Turtles television series.  The decrease in amortization of television and film costs for the six months ended June 30, 2010 when compared to the same period in 2009, was primarily due to the decreased amortization of the Teenage Mutant Ninja Turtles television series partially offset by increased amortization on the Chaotic television series.  As of June 30, 2010, there were $5,963 of capitalized film production costs in the Companys consolidated balance sheet relating primarily to various stages of production on 237 episodes of animated programming. Based on managements ultimate revenue estimates as of June 30, 2010, approximately 50% of the total completed and unamortized film and television costs are expected to be amortized during the next year, and over 90% of the total completed and unamortized film and television costs are expected to be amortized during the next three years.  Interest Income  Interest income decreased 75%, or $258, to $88 and 74%, or $554, to $193 for the three and six months ended June 30, 2010, respectively, as compared to the same periods in 2009, primarily as a result of lower cash balances and the Companys investments yielding lower interest rates than in the prior period.      31
  
 Impairment of Investment Securities  As of June 30, 2010, the Company concluded that $421 of the decline in the fair value of the investment securities held by the Company was now other than temporary. The Companys determination that certain of its long-term investment securities were other than temporarily impaired was based upon the fact that: (i) one of such securities with an aggregate par value of $1,000 was sold subsequent to June 30, 2010 for $240 resulting in an unrealized loss of $760 and $342 being recorded as other than temporarily impaired as of June 30, 2010 because the Company had previously recorded $418 in respect of these securities as being other than temporarily impaired; and (ii) certain of such securities classified as preferred stock have ceased to pay interest and were additionally impaired for $79.  Additionally, one of such securities with a par value of $2,000 was sold subsequent to June 30, 2010 for a price in
excess of its stated fair value, resulting in no additional impairment charge.  The Company did not incur any impairment charges in 2010 due to credit losses.  Loss Before Income Taxes  For the three months ended June 30, 2010 and 20092010
        
        2009
        
        $ Change
        
        % ChangeLicensing
        
        $
        (2,709
        )
        $
        (8,652
        )
        $
        5,943
        
        69
        %Advertising, Media and Broadcast
        
        
        (2,200
        )
        
        (1,636
        )
        
        (564
        )
        (34
        )Television and Film Production/Distribution
        
        
        (1,025
        )
        
        (1,129
        )
        
        104
        
        9Trading Card and Game Distribution
        
        
        (1,740
        )
        
        (4,794
        )
        
        3,054
        
        64Total
        
        $
        (7,674
        )
        $
        (16,211
        )
        $
        8,537
        
        53
        %
  For the six months ended June 30, 2010 and 20092010
        
        2009
        
        $ Change
        
        % ChangeLicensing
        
        $
        (2,570
        )
        $
        (7,057
        )
        $
        4,487
        
        64
        %Advertising, Media and Broadcast
        
        
        (3,951
        )
        
        (2,606
        )
        
        (1,345
        )
        (52
        )Television and Film Production/Distribution
        
        
        (2,382
        )
        
        (1,720
        )
        
        (662
        )
        (38
        )Trading Card and Game Distribution
        
        
        (3,248
        )
        
        (8,908
        )
        
        5,660
        
        64Total
        
        $
        (12,151
        )
        $
        (20,291
        )
        $
        8,140
        
        40
        %
  In the Licensing segment, the decrease in segment loss for the three and six months ended June 30, 2010, as compared to the same periods in 2009, was primarily attributable to a decrease in licensing expenses, partially offset by lower licensing revenues, lower interest income allocated to this segment and an other than temporary impairment of one of the Companys investment securities.  In the Advertising Media and Broadcast segment, the increase in segment loss for the three and six months ended June 30, 2010, as compared to the same periods in 2009, resulted from decreased revenue from the sale of internet advertising on the Companys websites, partially offset by a decrease in segment expenses.  In the Television and Film Production/Distribution segment, the decrease in segment loss for the three months ended June 30, 2010, as compared to the same period in 2009, was primarily due to a decrease in international sales expense and personnel related costs, partially offset by increased amortization of television and film costs, as well as an overall decrease in production revenues.  In the Television and Film Production/Distribution segment, the increase in segment loss for the six months ended June 30, 2010, as compared to the same period in 2009, was primarily due to increased amortization of television and film costs, as well as an overall decrease in production revenues partially offset by a decrease in international sales expense and personnel related costs.  In the Trading Card and Game Distribution segment, the decrease in segment loss for the three and six months ended June 30, 2010, as compared to the same periods in 2009, was primarily attributable to the overall decrease in segment expenses partially offset by increased cost of goods sold.    32
  
 Income Taxes  The Company regularly reviews its deferred tax assets for recoverability taking into consideration such factors as historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.  In view of the level of deferred tax assets as of June 30, 2010 and the Companys historical losses from operations, the Company has determined that it should record a full valuation allowance against its net deferred tax assets.  As a result of the valuation allowance, the Company did not record a benefit from income taxes for the three and six months ended June 30, 2010 and 2009.  In the event that the Company earns pre-tax income in the future such that it will be able to use some or all of its deferred tax assets, the Company may reduce or eliminate the valuation allowance.  If the Company were to reverse the valuation allowance, in whole or in part, the Companys income statement for such reporting period would record a reduction in income tax expense and an increase in net income, to the extent of the reversal of the valuation allowance.  Net Loss  As a result of the above, the Company had a net loss for the three and six months ended June 30, 2010 of $7,674 and $12,151, respectively, as compared to a net loss of $16,211 and $20,291, respectively, for the same periods in 2009.  Liquidity and Capital Resources  Financial Position
  Cash and cash equivalents as of June 30, 2010 and December 31, 2009 were as follows:   June 30,
        
        December 31,2010
        
        2009
        
        $ ChangeCash and cash equivalents
        
        $
        4,295
        
        $
        3,621
        
        $
        674
  Long-term investments as of June 30, 2010 and December 31, 2009 were as follows:  June 30,
        
        December 31,2010
        
        2009
        
        $ ChangeInvestments
        
        $
        11,402
        
        $
        14,180
        
        $
        (2,778
        )
  The Companys long-term investments principally consist of ARS, corporate bonds and preferred shares. ARS are generally rated BBB or better by one or more national rating agencies and have contractual maturities of up to 80 years. Of the aggregate principal amount of $26,850 in investment securities held by the Company as of June 30, 2010, 31% mature within the next 30 years, 57% mature through 2087 and the remaining 43% have no maturity date.  The Company classifies these investments as available for sale, for certain investments in debt and equity securities.  The ARS that the Company invests in generally had interest reset dates that occurred every 7 or 35 days and despite the long-term nature of their stated contractual maturity, the historical operation of the ARS market had given the Company the ability to quickly liquidate these securities at ongoing auctions every 35 days or less.  During 2007, liquidity issues began to affect the global credit and capital markets.  In addition, certain individual ARS experienced liquidity issues specific to such securities.  As a result, ARS, which historically have had a liquid market and had their interest rates reset periodically (e.g. monthly) through Dutch auctions, began to fail at auction.  These auction failures have caused ARS to become illiquid, which in turn has caused the fair market values of these securities to decline.    33
  
 The ARS currently held by the Company are private placement debt securities with long-term nominal maturities and interest rates that typically reset monthly.  The Companys investments in ARS represent interests in debt obligations issued by banks and insurance companies that originally had at least an A credit rating at the time of purchase, including JP Morgan Chase, bond insurers and re-insurers such as MBIA, AMBAC, FGIC, and FSA. The collateral underlying these securities consists primarily of commercial paper, but also includes asset-backed and mortgage-backed securities, corporate debt, government holdings, money market funds and other ARS.  As of June 30, 2010, the Company held investment securities having an aggregate principal amount of $26,850.  The estimated fair market value of these securities as determined by the Company had declined by $15,448 (a decline of $15,245 prior to 2010, and a decrease in value of $203 during 2010) to $11,402, as of June 30, 2010.  During the second quarter of 2010, the Company concluded that $421 of the decline in the fair value of the investment securities held by the Company was now other than temporary. The Companys determination that certain of its long-term investment securities were other than temporarily impaired was based upon the fact that: (i) one of such securities with an aggregate par value of $1,000 was sold subsequent to June 30, 2010 for $240 resulting in an unrealized loss of $760 and $342 being recorded as other than temporarily impaired as of June 30, 2010 because the Company had
previously recorded $418 in respect of these securities as being other than temporarily impaired; and (ii) certain of such securities classified as preferred stock have ceased to pay interest and were additionally impaired for $79.  Additionally, one of such securities with a par value of $2,000 was sold subsequent to June 30, 2010 for a price in excess of its stated fair value, resulting in no additional impairment charge.  The Company did not incur any impairment charges in 2010 due to credit losses.  Since the Company has the ability, and presently expects, to hold its remaining investment securities until recovery of their face value, which may not be prior to the maturity of the applicable security (to the extent such security has a specified maturity date) and based on consideration of all of the factors described above, the Company considered certain of these investments to be temporarily impaired as such term is defined in the accounting literature. Accordingly, the entire balance of unrealized loss in accumulated other comprehensive income at June 30, 2010 relates to securities which the Company considers temporarily impaired.  Additionally, these remaining investment securities held by the Company have continued to pay interest according to their stated terms, which the Company believes may create an incentive for the issuers to redeem these securities once the current liquidity problems in the
credit market substantially improve.  The Company continues to monitor the market for ARS and considers its impact (if any) on the fair value of its investments.  If the current market conditions deteriorate further, the Company may be required to record additional impairment charges to non-operating expense in future periods.  The credit and capital markets, including the market for ARS, have remained illiquid, and as a result of this and other factors specific to certain investment securities, the Companys unrealized loss on its investment securities may subsequently increase. The Company estimates the fair values of the investment securities quarterly based upon consideration of such factors as: issuer and insurer credit rating; comparable market data, if available; current market conditions; the credit quality of the investment securities; the rate of interest received since the date the auctions began; and yields of securities similar to the underlying investment securities.  These considerations are used to determine a range of values for each security from moderate to highly conservative.  The Company has based its evaluation on the mid-point of that range.  Specifically, the Company considers the composition of the
collateral supporting the investment securities and the default probabilities of the collateral underlying these securities in our overall valuation of each security.  The Company has also researched the secondary market, and while such a market may be available, there is no guarantee that such a market will exist at any particular point in time.  Additionally, the Company looks at the probabilities of default, probabilities of successful auctions and probabilities of earning the maximum (failed auction) rate for each period.  Due to the sensitivity of the methodologies and considerations used, the Company continually re-evaluates the investment securities and although the valuation methodologies have remained consistent for each quarter in which these securities were valued, certain inputs may have changed.  The changes in these inputs primarily relate to the changes in the economic environment and the market for such securities.  Given the failed auctions, the Companys investment securities are currently illiquid.  Accordingly, the Company has classified all of its investment in ARS and the securities into which certain of the ARS have been exchanged, as non-current assets as of June 30, 2010 on its balance sheet due to the fact that the Company believes that the liquidity of these securities is unlikely to be restored in a period less than twelve months from such date.  34
  
 If uncertainties in the credit and capital markets continue or the Companys investments experience any rating downgrades on any investments in its portfolio or the value of such investments declines further, the Company may incur additional impairment charges to its investment portfolio, which could negatively affect the Companys financial condition, results of operations and cash flow.  As a result of the current market issues, any of the Companys surplus cash will be invested solely in government securities with a maturity of 90 days or less.  In recent years, the Company has incurred substantial net losses and has used substantial amounts of cash in its operating activities.  Sales by the Company of certain securities held in its investment portfolio as well as certain other assets have significantly contributed to the funding of these operating losses.  While the timing of these sales was not primarily motivated by then current cash needs, without these sales the Company would not have had sufficient cash to fund its operations.   In addition to the Company's operating losses, the Companys liquidity has been negatively affected by the illiquidity of certain securities held in its investment portfolio.  Based on the Companys cash position as of June 30, 2010, the anticipated effects of the significant cost cutting initiatives implemented by the Company during 2009 and continuing into 2010, and the Companys belief that economic conditions have become more stable, the Company expects its overall cash position to provide adequate liquidity to fund its day-to-day operations for the next twelve months.  Additionally, certain of the Companys investment securities, classified as long-term would be available to fund the Companys current cash flow requirements.  However, the illiquidity affecting a significant portion of the Companys portfolio of investment securities is impacting the Companys ability to make capital investments or expand its operations.  If the Company determines that it is necessary to generate additional cash to fund its operations, the Company will consider all alternatives available to it, including, but not limited to sales of assets, issuance of equity or debt securities and third party arrangements. There can be no assurance, however, that the Company would be able to generate such additional cash in a timely manner or that such additional cash could be obtained on terms acceptable to the Company.  Sources and Uses of Cash  Cash flows for the three and six months ended June 30, 2010 and 2009 were as follows:  Sources (Uses)
        
        2010
        
        2009Operating Activities
        
        $
        (1,726
        )
        $
        (8,716
        )Investing Activities
        
        
        2,524
        
        
        2,476Financing Activities
        
        
        (45
        )
        
        (4
        )
  Working capital, consisting of current assets less current liabilities, was $(748) as of June 30, 2010 and $4,859 as of December 31, 2009.  Operating Activities 2010 Net cash used in operating activities for the six months ended June 30, 2010 of $1,726 primarily reflects a decrease in the Companys business performance, offset by an increase in cash collections of the Companys trade and income tax receivables, including a tax refund in an amount of $3,567 relating to extended net operating loss carrybacks.  2009 Net cash used in operating activities for the six months ended June 30, 2009 of $8,716 primarily reflects a decrease in the Companys business performance and a loss on the sale of investment.  This decrease was offset by increased collections of the Companys accounts receivable.  Investing Activities 2010 Net cash provided by investing activities for the  six months ended June 30, 2010 of $2,524 reflects proceeds from the sale of the Companys investment securities for $2,575, partially offset by purchases of property and equipment.    35
  
 2009 Net cash provided by investing activities for the six months ended June 30, 2009 of $2,476 reflects proceeds from the sale of one of the Companys investment securities for $2,750, partially offset by purchases of property and equipment.  Financing Activities 2010 Net cash used in financing activities for the six months ended June 30, 2010 of $45 reflects the Companys purchase of shares of its common stock classified as treasury stock on the consolidated financial statements, offset by capital contributions from the Companys noncontrolling interests.  2009 Net cash used in financing activities for the six months ended June 30, 2009 of $4 reflects the Companys purchase of shares of its common stock classified as treasury stock on the consolidated financial statements, offset by capital contributions from the Companys noncontrolling interests.  During the first half of 2010, the Company's cash flow from operations was impacted by an overall decrease in consumer spending due to the diminished popularity of its Properties, as well as the current economic conditions.  While the Company strives to further diversify its revenue streams, management remains cognizant of changing trends in the toy, game and entertainment business and the difficulty in predicting the length of time a property will be commercially successful.  As a result, the Company's revenues, operating results and cash flow from operations may fluctuate significantly from year to year and present operating results are not necessarily indicative of future performance.  Broadcast Agreements  The CW Broadcast Agreement- On October 1, 2007, the Company and The CW entered into an agreement pursuant to which The CW granted to the Company the exclusive right to program The CW's Saturday morning children's programming block (The CW4Kids) that is broadcast in most markets between 7am and 12pm for an initial term of five years beginning with The CW's 2008-2009 broadcast season,which agreement was amended on June 24, 2010 (as amended, the CW Agreement).  Under the terms of the CW Agreement, the Company is obligated to make quarterly minimum guaranteed payments which are subject to reduction under certain circumstances. The Company and The CW share advertising revenues earned from the sale of national commercial time during The CW4Kids with The CW's share to be applied against such quarterly guarantee payments.  In addition, The CW is entitled under the CW Agreement to participate in the Company's merchandising revenue from certain content broadcast on The CW4Kids, if such merchandising revenues exceed a certain annual minimum.  4Kids Ad Sales, Inc. manages and accounts for the ad revenue and costs associated with The CW4Kids.  The CW and the Company share in national ad revenue (revenue) from the block, with The CWs share of revenue to be applied against a guarantee payable by the Company to The CW. The minimum guarantee payable by the Company to The CW under the CW Agreement was $15,000 for broadcast seasons prior to the 2009/2010 broadcast season and will be $12,000 for the 2009 / 2010 broadcast season, and $11,500 for the remaining three broadcast seasons under the period covered by the CW Agreement.  Prior to the 2009 / 2010 broadcast season, the revenue sharing percentage split in favor of the CW was 80% / 20% until $20,000 in revenue has been realized and a revenue split of 50% / 50% applied thereafter; commencing with the 2009 / 2010 broadcast season, the CW Agreement provides for (1) an 80% / 20% revenue split in favor of The CW until it has received its minimum guarantee applicable to such broadcast
season, (2) the Company to retain 100% of the revenue until its share of the revenue for such broadcast season equals 35%, (3) a 65% / 35% revenue split in favor of The CW until $20,000 in revenue has been realized and (4) a revenue split between the parties to be 50% / 50% thereafter.  The Agreement also requires the Company to make certain security arrangements in favor of The CW to secure payment of the minimum guarantee and The CW's share of national advertising proceeds.  Contractual Commitments  The Companys contractual obligations and commitments are detailed in the Companys Annual Report on Form 10-K for the year ended December 31, 2009.  As of June 30, 2010, the Companys remaining contractual obligations and commitments have not materially changed since December 31, 2009 with the exception of the amendment of the CW Agreement discussed above. 36
  
 Forward Looking Information and Risk Factors That May Affect Future Results  This Quarterly Report on Form 10-Q, including the section titled Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that relate to future events or our future financial performance. We may also make written and oral forward-looking statements in our Securities and Exchange Commission (SEC) filings and otherwise. We have tried, where possible, to identify such statements by using words such as believe, expect, intend, estimate, anticipate, will, project, plan and similar expressions in connection with any discussion of future operating or financial performance. Any forward-looking statements are and will be based upon our then-current expectations, estimates and assumptions regarding future events and are
applicable only as of the dates of such statements. By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated in any forward-looking statements. Such risks and uncertainties include those described in this Quarterly Report on Form 10-Q and in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC, as well as other factors. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  Item 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 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.  Evaluation of Disclosure Controls and Procedures  (a) We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) that are designed to provide reasonable assurance that information required to be disclosed in our filings and submissions under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  We completed an evaluation under the supervision and with participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the second quarter, such disclosure controls and procedures were effective to provide the reasonable assurance described above.  (b) There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the period covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.  Part II -OTHER INFORMATION  Item 1. Legal Proceedings.  TCD International Ltd. -On February 12, 2010, Home Focus Development, LTD, a British Virgin Islands Corporation, (Home Focus) filed suit against 4Kids in the United States District Court for the Southern District of New York. Home Focus alleged that 4Kids owed Home Focus $1,075 under an Interest Purchase Agreement among 4Kids, Home Focus and TC Digital entered into on March 2, 2009, pursuant to which the Company acquired a 25% ownership interest in TDI.   37
  
 On April 26, 2010, 4Kids filed an answer and asserted various counterclaims against Home Focus and its owners, in their individual capacities. In its counterclaims, 4Kids has alleged that Home Focus failed to make its contractually required initial capital contribution of $250 to TDI necessary to acquire the 25% ownership interest in TDI it purported to sell to the Company and also failed to contribute its 50% share of the expenses. 4Kids has further asserted counterclaims of fraud and misrepresentation.  Pokémon Royalty Audit- During the first quarter of 2010, The Pokémon Company International (TPC) commenced an audit of 4Kids covering the period from mid-2001 through 2008. On May 28, 2010, 4Kids received a letter from counsel for TPC ("TPC Letter") claiming that the audit identified deficiencies totaling almost $4,700 and demanding payment of the deficiency together with interest thereon.  The TPC Letter failed to provide any schedules or other specific information regarding the alleged deficiencies. By letter dated June 11, 2010 (4Kids Letter), 4Kids disputed the allegations made in the TPC Letter and advised TPC that 4Kids would not be paying the alleged deficiency or any interest thereon. The 4Kids Letter also proposed that, as had been discussed by the parties, 4Kids would audit TPC which was the
recipient and payee of Pokémon merchandise licensing, television broadcast and home video proceeds during the 2001 - 2008 period, and that after the completion of the parties respective audits, the parties would review the audit reports and discuss any outstanding issues.  On July 14, 2010, 4Kids and TPC executed a tolling agreement tolling the statute of limitations until October 21, 2010 with respect to TPCs claims. 4Kids and TPC also agreed in the tolling agreement that neither party would commence any litigation against the other party until after the expiration of the tolling period in order to allow for the parties to complete their respective audits and to discuss the results thereof. During mid-June 2010, 4Kids commenced its audit of TPC which 4Kids expects to complete over the next few months.  Yu-Gi-Oh! Royalty Audit- During the first quarter of 2010, Asatsu-DK Inc (ADK), a member of the consortium of Japanese companies that controls the rights to Yu-Gi-Oh! ("Yu-Gi-Oh! Consortium"), commenced an audit of 4Kids with respect to the amounts paid by 4Kids to ADK during the course of the 4Kids representation of Yu-Gi-Oh!, which started in 2001.  On June 25, 2010, 4Kids received a letter from counsel for ADK (ADK Letter) alleging that 4Kids had improperly deducted certain expenses from amounts paid to ADK and had failed to pay ADK a share of certain Yu-Gi-Oh! home video revenues. In addition, the ADK Letter requested that 4Kids provide additional documentation with respect to withholding taxes deducted from ADKs share of Yu-Gi-Oh! revenues. The ADK Letter claimed that the total of the improper deductions and underpayments was approximately $3,000.  By letter dated June 29, 2010 (4Kids Yu-Gi-Oh! Letter), 4Kids disputed substantially all of the allegations contained in the ADK Letter.  The ADK Letter also demanded that 4Kids and ADK sign a tolling agreement with an effective date of June 1, 2010 which would stop the running of the statute of limitations during the four month tolling period starting on June 1, 2010. On June 29, 2010, 4Kids and ADK entered into the tolling agreement described above. Subsequent to June 29, 2010, 4Kids provided additional information to the auditor for ADK to address various inquiries contained in the ADK Letter. After the completion of the audit, it is expected that 4Kids and ADK will review the audit report and seek to resolve any claims.4Kids believes that it has paid the Yu-Gi-Oh! Consortium its full share of Yu-Gi-Oh! revenues.  The Company, from time to time, is involved in litigation, contract disputes and claims arising in the ordinary course of its business. The Company does not believe that such litigation to which the Company or any subsidiary of the Company is a party or of which any of their Properties is the subject or any claims made against it will, individually or in the aggregate, have a material adverse effect on the Companys financial position or the results of its operations.  The Company has established certain reserves reflected in its balance sheet as of June 30, 2010 which 4Kids believes will be sufficient to cover any liability the Company may have in connection with any such litigation and claims.  Item 1A. Risk Factors.  In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors of the Annual Report on Form 10-K for the year ended December 31, 2009 (2009 Annual Report), which could materially affect our business, financial condition or future results.  The risks described in the 2009 Annual Report are not the only risks facing us.  Additional risks and uncertainties not currently known to us or that we currently do not consider material also may materially adversely affect our business, financial condition and/or operating results.  There have been no material changes from the risk factors disclosed in the 2009 Annual Report except with respect to the risk factor relating to the potential delisting of our common stock on the New York Stock Exchange, which is amended and restated in its entirety as
follows: 38
  
 Our common stock was delisted from the New York Stock Exchange  On June 1, 2010, our common stock was delisted from the New York Stock Exchange.  Our common stock currently trades on the over-the-counter bulletin board market, although there are no assurances that it will continue to trade on this market.  Over-the-counter (OTC) transactions involve risks in addition to those associated with transactions on a stock exchange. The delisting and OTC status could harm the trading volume and liquidity of our common stock and, as a result, the market price for our common stock might become more volatile. The delisting and OTC status could also cause a reduction in the number of investors willing or able to hold or acquire our common stock, transactions in our common stock could be delayed and securities analysts and news media coverage of us may be reduced. These factors could result in lower prices and larger spreads in the bid and ask prices for shares of
our common stock. Delisting and OTC status could also make our common stock substantially less attractive as collateral for loans, for investment by potential financing sources under their internal policies or state legal investment laws or as consideration in future capital raising transactions. Furthermore, the delisting and OTC status may have other negative implications, including the potential loss of confidence by suppliers, partners and employees. Our OTC status may also make it more difficult and expensive for us to comply with state and federal securities laws in connection with future financings, acquisitions or equity issuances to employees and other service providers, thereby making it more difficult and expensive for us to raise capital, acquire other businesses using our stock and compensate our employees using equity.                       39
  
 Item 6.
        Exhibits.
  (a)
        Exhibits
  31.1
        Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2
        Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1
        Joint Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
                  40
  
 SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  4KIDS ENTERTAINMENT, INC.  Date: August 13, 2010  By:
        /s/Alfred R. Kahn
 ___________________________ Alfred R. Kahn,
 Chairman of the Board,
 Chief Executive Officer and
 Director
   By:
        /s/Bruce R. Foster
 ___________________________ Bruce R. Foster,
 Executive Vice President,
 Treasurer, Chief Financial
 Officer and Principal Accounting
 Officer
                   41