FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

      For the Quarterly Period Ended      September 30, 1996

                                       OR

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

      For the transition period from              to

                           COMMISSION FILE NO. 0-7843

                            4KIDS ENTERTAINMENT, INC.
             (Exact name of registrant as specified in its Charter)

                                    NEW YORK
                            (State of Incorporation)

                                   13-2691380
                    (I.R.S. Employer Identification Number)

                1414 Avenue of the Americas, New York, New York
                    (Address of Principal Executive Offices)

                                     10019
                                   (Zip Code)

                                 (212) 758-7666
              (Registrant's Telephone Number, Including Area Code)

                                 NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year if changed
since last report)

Indicate by a check mark whether the registrant: (1) has filed all annual,
quarterly and other reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or 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 the number of shares outstanding of each of the Registrant's classes of
common stock, as of the close of the latest practicable date.

Class                                        Outstanding at November 12, 1996

Common Stock, $.01 Par Value                             2,944,831


<PAGE>






                           4KIDS ENTERTAINMENT, INC.
                                AND SUBSIDIARIES
                                     INDEX

                                                             PAGE NUMBER

PART I:       FINANCIAL INFORMATION

    Item 1:           Financial Statements

    Consolidated Balance Sheets                                  1
    September 30, 1996 (Unaudited) and
    December 31, 1995.

    Consolidated Statements of Operations                        2
    Three and Nine Months Ended
    September 30, 1996 and 1995 (Unaudited)

    Consolidated Statements of Cash Flows                        3
    Nine Months Ended
    September 30, 1996 and 1995 (Unaudited)

    Notes to Consolidated Financial                              4
    Statements (Unaudited)

    Item 2: Management's Discussion and Analysis                 6
    of Financial Condition and Results of Operations

PART II:  OTHER INFORMATION                                      9


<PAGE>

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


                                                       SEPTEMBER 30,     DECEMBER 31,
                                                           1996             1995
                                                   ----------------- --------------------
ASSETS                                                  (UNAUDITED)
------
CURRENT ASSETS:
  <S>  <C>
  Cash and cash equivalents                             $2,185,327            $3,505,777
  Accounts receivable, net                               5,835,098            14,668,829
  Film inventory-net                                     3,183,147             1,210,918
  Prepaid refundable income taxes                        1,519,120               448,442
  Prepaid expenses and other current assets                567,761               704,215
  Current deferred tax asset                                34,445                34,445
                                                   ----------------  --------------------
       Total current assets                             13,324,898            20,572,626
                                                   ----------------  --------------------

FURNITURE, FIXTURES AND COMPUTER EQUIPMENT- (Net)          258,474               347,772

FILM INVENTORY - Noncurrent                              2,531,703             2,531,703

ACCOUNTS RECEIVABLE - Noncurrent, net                    2,455,427             2,317,639

SECURITY DEPOSITS AND OTHER ASSETS                         235,226               198,835
                                                   ----------------  --------------------
TOTAL ASSETS                                           $18,805,728           $25,968,575
                                                   ================  ====================

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
  Due to licensors                                      $1,471,104            $1,613,606
  Media payable                                          6,104,464            11,428,185
  Accounts payable and accrued expenses                    357,604               636,017
                                                   ----------------  --------------------
       Total current liabilities                         7,933,172            13,677,808

NONCURRENT DEFERRED TAX LIABILITY                          661,859               661,859
                                                   ----------------  --------------------
       Total liabilities                                 8,595,031            14,339,667
                                                   ----------------  --------------------

STOCKHOLDERS' EQUITY
  Preferred stock, $.01 par value - authorized,
    3,000,000 shares; none issued
  Common stock, $.01 par value - authorized,
    10,000,000 shares; issued, 2,944,831 shares             29,448                29,448
  Additional paid-in capital                             4,429,906             4,429,906
  Retained earnings                                      5,751,343             7,169,554
                                                   ----------------  --------------------
       Total stockholders' equity                       10,210,697            11,628,908
                                                   ----------------  --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY             $18,805,728           $25,968,575
                                                 ==================  ====================
</TABLE>

See notes to consolidated financial statements

                                      -1-


<PAGE>



4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED                 NINE MONTHS ENDED
                                             SEPTEMBER 30,    SEPTEMBER 30,      SEPTEMBER 30, SEPTEMBER 30,
                                                 1996             1995                1996          1995
                                            ---------------  ----------------   -------------  --------------
<S>  <C>

NET REVENUES:                                      995,434        $1,283,252      $2,689,498      $2,990,339

COST AND EXPENSES:
  Selling, general and administrative cost       1,314,138         1,698,438       4,573,488       5,319,911
  Amortization of capitalized film cost            171,264            85,025         682,937         148,991
                                            ---------------  ----------------   -------------  --------------
         TOTAL COST AND EXPENSES                 1,485,402         1,783,463       5,256,424       5,468,902
                                            ---------------  ----------------   -------------  --------------

                                                  (489,968)         (500,211)     (2,566,927)     (2,478,563)

INTEREST INCOME                                      5,443            54,383          78,838         241,380
                                            ---------------  ----------------   -------------  --------------
LOSS BEFORE INCOME
TAX BENEFIT                                       (484,525)         (445,828)     (2,488,089)     (2,237,183)

INCOME TAX BENEFIT                                (208,378)         (192,000)     (1,069,878)       (962,000)
                                            ---------------  ----------------   -------------  --------------

NET LOSS                                         ($276,147)        ($253,828)    ($1,418,211)    ($1,275,183)
                                            ===============  ================   =============  ==============

PER SHARE AMOUNTS
Loss per common and dilutive
common equivalent share                             ($0.09)           ($0.08)         ($0.48)         ($0.42)
                                            ===============  ================   =============  ==============
Loss per common share-
assuming full dilution                              ($0.09)           ($0.08)         ($0.48)         ($0.42)
                                            ===============  ================   =============  ==============
Weighted average number of common and
common equivalent shares outstanding             2,944,831         3,001,555       2,970,627       2,990,702
                                            ===============  ================   =============  ==============

</TABLE>




See notes to consolidated financial statements.


                                      -2-


<PAGE>

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


<TABLE>
<CAPTION>


                                                                          NINE             NINE
                                                                      MONTHS ENDED      MONTHS ENDED
                                                                      SEPTEMBER 30,     SEPTEMBER 30,
                                                                          1996              1995
                                                                 -----------------     ---------------
<S>  <C>
OPERATING ACTIVITIES:
 Net loss                                                             ($1,418,211)        ($1,275,183)
  Adjustments to reconcile net loss to net
   (used in) provided by operating by operating activity
    Depreciation and amortization                                         111,334             174,472
    Amortization of capitalized film cost                                 682,937             148,991
    Changes in assets and liabilities (using)/providing cash:
    Accounts receivable                                                 8,695,943          10,982,767
    Film inventory                                                     (2,655,166)         (2,167,744)
    Prepaid expenses and other current assets                             136,454            (184,471)
    Prepaid/Refundable income taxes                                    (1,070,678)         (1,027,718)
    Security deposits and other assets                                    (36,391)            193,789
    Due to licensors                                                     (142,502)           (175,155)
    Accounts payable and accrued expenses                                (278,413)           (117,779)
    Media payable                                                      (5,323,721)        (10,527,938)
                                                                 -----------------     ---------------

     Net cash (used in) provided by operating activities               (1,298,414)         (3,975,969)
                                                                 -----------------     ---------------
INVESTING ACTIVITIES:
  Purchase of furniture and fixtures                                      (22,036)           (110,909)
                                                                 -----------------     ---------------

     Net cash used in investing activities                                (22,036)           (110,909)
                                                                 -----------------     ---------------
NET (DECREASE) INCREASE IN CASH AND
  CASH EQUIVALENTS                                                     (1,320,450)         (4,086,878)
CASH AND CASH EQUIVALENTS, BEGINNING PERIOD                             3,505,777           7,371,311
                                                                 -----------------     ---------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                               $2,185,327          $3,284,433
                                                                 =================     ===============
</TABLE>

See accompanying notes to consolidated financial statements.


                                      -3-


<PAGE>


4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1996

Note 1

The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes as
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation of
the interim financial information have been included. Operating results for nine
months ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in 4Kids Entertainment, Inc.'s (the "Company") Form 10-K for
the year ended December 31, 1995.

Note 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: For a summary of significant
accounting policies reference is made to the Company's report on Form 10-K
previously filed for the year ended December 31, 1995.

Note 3

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

                                      -4-


<PAGE>






Note 4

STOCK OPTIONS:

In accordance with the provisions of the 1994 stock option plan, options to
purchase 100,000 shares of the Company's common stock were granted in the first
quarter of 1996 to the Chairman and Chief Executive Officer of the Company and
options to purchase 50,000 shares were granted to each of the two outside
directors. All such options were at an exercise price of $2.3125 the market
price of the Company's common stock at the time of grant. Additionally, the
Compensation Committee of the Board of Directors granted options on June 5, 1996
to purchase 63,000 shares of the Company's common stock at an exercise price of
$2.375, the market price of the Company's common stock at that date, to
employees of the Company including four executive officers.

Note 5

COMMITMENTS AND CONTINGENCIES:

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

                                      -5-


<PAGE>






MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS:

The Company typically derives a substantial portion of its licensing revenues
from a small number of properties, which properties usually generate revenues
only for a limited period of time. Because the Company's revenues are highly
subject to changing fashion in the toy and entertainment business, its licensing
revenues from year to year from particular sources are subject to dramatic
increases and decreases. It is not possible to precisely anticipate the length
of time a project will be commercially successful, if at all. Popularity of
properties can vary from months to years. As a result, the Company's revenues
and net income may fluctuate significantly between comparable periods. The
Company's revenues have historically been primarily derived from the license of
toy and game concepts. Thus a substantial portion of the Company's revenues and
net income are subject to the seasonal variations of the toy and game industry.
Typically, a majority of toy orders are shipped in the third and fourth calendar
quarters. In addition the Company's media buying subsidiary concentrates its
activities on the youth oriented market. As a result, most of its revenue is
earned in the third and fourth quarters when the majority of toy and video game
advertising occurs. As a result, in the Company's usual experience, its net
income during the second half of the year will generally be greater than during
the first half of the year. Furthermore, the Company has little control over the
timing of guarantee and minimum payments, some of which are made upon the
execution and delivery of license agreements.

Three and Nine Months Ended September 30, 1996 Compared to Three
and Nine Months Ended September 30, 1995

Consolidated net revenue decreased 22% ($287,818) for the three month period
ended September 30, 1996 as compared to the same period in 1995. Revenue levels
for the nine month period ended September 30, 1996 decreased approximately 10%
($300,841) as compared to the same period in 1995. The decrease in net revenue
for the three and nine month periods was primarily due to decreased revenue
related to the Company's licensing activities. The more mature properties and
characters represented by the Company for licensing generated lower levels of
royalties, while newer properties and characters have not yet developed into
mass-market licensing programs. This decrease in licensing revenue was partially
offset by an increase in revenue from the Company's media buying activities.

                                      -6-


<PAGE>






Selling, general and administrative expenses decreased by 23% ($384,300) and 14%
($746,423) for the three and nine month periods ended September 30, 1996 when
compared to the same periods in 1995. The lower level of expenditures in the
three and nine month periods are principally due to the effect of cost
reductions in the Company's licensing business.

At September 30, 1996 there were approximately $5,714,850 of capitalized film
production costs(film inventory). The increase in such costs from December 31,
1995 relates to the production of the second season of the television series
"WMAC Masters". "WMAC Masters" is a weekly syndicated television program
produced by the Company's 4Kids Productions subsidiary. This weekly half hour TV
program is syndicated by the Company's Summit Media subsidiary in over 80% of
the Country.

Amortization of capitalized film cost increased by $86,239 and $533,946 for the
three and nine month periods when compared to the same periods in 1995. The 1996
amortization relates primarily to the Olympic specials produced for the Atlanta
Committee for the Olympic games, which ran on the NBC television network, and
WMAC Masters. At September 30, 1996 the percentage of unamortized film cost of
$5,714,850 expected to be amortized within the next three years exceeds 80%. The
Company periodically evaluates its anticipated revenue from film production and,
consequently, amortization rates may change as a result of such estimates.

Interest income decreased by approximately 90% ($48,940) and 67% ($162,542) for
the three and nine month periods ending September 30, 1996 as compared to the
same periods in 1995. This decrease is primarily attributable to lower levels of
invested cash during the first nine months of the year as compared to the same
period in 1995.

                                      -7-


<PAGE>






LIQUIDITY AND CAPITAL RESOURCES:

At September 30, 1996 the Company had working capital of $5,391,726 as compared
to working capital of $ 6,894,818 at December 31, 1995, a decrease in working
capital of $1,503,092. Cash and cash equivalents decreased by $1,320,450 from
December 31, 1995. The decrease in working capital and cash and cash equivalents
is due primarily to cash expenditures associated with funding the production of
season two of "WMAC Masters" which substantially completed production in
September 1996. Additional cash expenditures were required to fund the operating
losses for the nine month period ended September 30, 1996. The decrease in
working capital was offset to some extent by an increase in prepaid taxes. The
prepaid taxes primarily reflect the anticipated tax benefit based on the nine
month loss.

Accounts receivable, net (current and noncurrent) decreased from $16,986,468 at
December 31, 1995 to $8,290,525 at September 30, 1996. The decrease is primarily
due to the Company's media buying activities. The seasonality of the Company's
business tends to generate higher receivables in the fourth quarter which are
generally collected in the first quarter. As a result higher receivables at year
end are converted to cash during the first quarter. There is a corresponding
decrease in media payable of $5,323,721.

Amounts due to licensors, which represents the owner's share of royalties
collected, decreased by $142,502 to $1,471,104 from December 31, 1995. The
decrease is primarily due to lower amounts of royalties collected during the
quarter which are payable to the licensor after the close of the quarter.

In the opinion of management, the Company will be able to satisfy its
foreseeable financial obligations from its current working capital and credit
facility. As described in Note 5 to the financial statements, the Company has
established a $2,000,000 credit facility with Chemical Bank for general working
capital purposes. As of November 13, 1996 there have been no borrowings under
this facility.

                                      -8-


<PAGE>






PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

         a.  Exhibits

                  27    Financial Data Schedule

         b.  Reports on Form 8-K
                  None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated: November 14, 1996

4KIDS ENTERTAINMENT, INC.

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




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

                                      -9-


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