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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

(Mark One)



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

For the fiscal year ended December 31, 2001

OR



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

For the transition period from                          to

Commission File Number 23346

EQUITY MARKETING, INC.
(Exact name of registrant as specified in its charter)

|                                                                           |  |                                                
|-------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State of or other jurisdiction of
incorporation or organization) |  | 13-3534145
(I.R.S. employer identification no.)

6330 SAN VICENTE BLVD.
LOS ANGELES, CALIFORNIA 90048
(Address of principal executive offices)

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

Securities registered pursuant to Section 12 (b) of the Act:

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each Class |  | Name of each exchange on which registered
|                    |  |                                          
|None                |  | None                                     

Securities registered pursuant to Section 12(g) of the Act:

Title of each class
Common Stock, $0.001 par value

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

Approximate aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 19, 2002 was $30,798,926.

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

|                               |  |                  |           | 
|------------------------------ |  | ---------------- | --------- | 
|                               |  | Number of Shares
|                               |  | outstanding on  
|                               |  | March 19, 2002  
|                               |  |                 
|Common Stock, $0.001 par value |  |                  | 5,703,401 | 

Documents Incorporated by Reference: Certain portions of the Registrants Proxy
Statement relating to Registrants annual meeting of stockholders scheduled to
be held on May 23, 2002 are incorporated by reference into Part III of this
Form 10-K.





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TABLE OF CONTENTS



|           |                                                                                               |  |  |  |  |  |  | 
|---------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I    
|           | ITEM 1. BUSINESS                                                                             
|           | ITEM 2. PROPERTIES                                                                           
|           | ITEM 3. LEGAL PROCEEDINGS                                                                    
|           | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II   
|           | ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS            
|           | ITEM 6. SELECTED FINANCIAL DATA                                                              
|           | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|           | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|           | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|           | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III  
|           | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|           | ITEM 11. EXECUTIVE COMPENSATION                                                              
|           | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|           | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|PART IV   
|           | ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K                              
|SIGNATURES
|EXHIBIT 21
|EXHIBIT 23
|EXHIBIT 99



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EQUITY MARKETING, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 2001

ITEMS IN FORM 10-K

|         |  |          |  |                                                                                       |  |     
|-------- |  | -------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |          |  |                                                                                       |  | Page
|         |  |          |  |                                                                                       |  |     
|Part I   |  |          |  |                                                                                       |  |     
|         |  | Item 1.  |  | Business                                                                              |  | 2   
|         |  | Item 2.  |  | Properties                                                                            |  | 5   
|         |  | Item 3.  |  | Legal Proceedings                                                                     |  | 6   
|         |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 7   
|Part II  |  |          |  |                                                                                       |  |     
|         |  | Item 5.  |  | Market for the Registrants Common Equity and Related
Stockholder Matters             |  | 7   
|         |  | Item 6.  |  | Selected Financial Data                                                               |  | 8   
|         |  | Item 7.  |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  | 9   
|         |  | Item 7A  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 18  
|         |  | Item 8.  |  | Financial Statements and Supplementary Data                                           |  | 18  
|         |  | Item 9.  |  | Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure  |  | 18  
|Part III |  |          |  |                                                                                       |  |     
|         |  | Item 10. |  | Directors and Executive Officers of the Registrant                                    |  | 19  
|         |  | Item 11. |  | Executive Compensation                                                                |  | 21  
|         |  | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 21  
|         |  | Item 13. |  | Certain Relationships and Related Transactions                                        |  | 21  
|Part IV  |  |          |  |                                                                                       |  |     
|         |  | Item 14. |  | Exhibits,
Financial Statements, Schedule and Reports on Form 8-K                      |  | 22  

FORWARD-LOOKING STATEMENTS

Certain expectations and projections regarding the future performance of Equity
Marketing, Inc., a Delaware corporation (the Company), discussed in this
document are forward-looking and are made under the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. These expectations and
projections are based on currently available competitive, financial and
economic data along with the Companys operating plans and are subject to
future events and uncertainties. Readers should not place undue reliance on any
such forward-looking statements, which speak only as of the date made. Actual
results could vary materially from those anticipated for a variety of reasons.
The Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Readers are advised to review Managements Discussion
and Analysis of Financial Condition and Results of Operations  Cautionary
Statements and Risk Factors.





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PART I




ITEM 1. BUSINESS

($000s omitted)

General

Equity Marketing, Inc., a Delaware corporation (Equity Marketing or the
Company), is a leading global marketing services company based in Los
Angeles, with offices in London, Paris, New York and Hong Kong. The Company
designs and produces custom promotional programs that build sales and brand
value for retailers, restaurant chains and consumer goods companies. The
Company complements its core promotions business by developing and marketing
distinctive consumer products, based on trademarks it owns or classic licensed
properties, which are sold through specialty and mass-market retailers. The
Companys products include character figurines, action vehicles, drinking
vessels, watches, plush toys, play sets and a variety of other items. Programs
of the promotions division of the Company, Equity Promotions (Equity
Promotions or Promotions), are utilized primarily in promotional campaigns
implemented by quick service restaurant and consumer products customers, which
include Burger King Corporation (Burger King), Cadbury, The Coca-Cola
Company, CVS/pharmacy, Kelloggs, Procter & Gamble and others. Equity Consumer
Products (Equity Consumer Products or Consumer Products), the consumer
products division of the Company, designs and produces niche products based on
trademarks owned by the Company such as Tub Tints® or on classic, time-tested
licensed properties such as Scooby-Doofor sale to major mass market and
specialty market retailers such as Toys R Us, Inc. (Toys R Us), Wal-Mart
Stores, Inc. (Wal-Mart), Target Stores, Inc. (Target), Spencer Gifts, Inc.,
and to various international distributors worldwide.

The Companys promotional programs are often based upon characters from
entertainment properties licensed by television and motion picture studios and
others. Licenses for characters upon which Equity Promotions programs are
based are generally obtained directly by the Companys customers (often with
the Companys assistance) from licensors, including Warner Bros. Inc. (Warner
Bros.), Universal Studios (Universal), Nickelodeon, a division of MTV
Networks, a division of Viacom, DreamWorks SKG, The Walt Disney Company, Sony
Pictures Entertainment and Twentieth Century Fox. Such licenses are typically
specific to the promotional campaign implemented by the Companys customers and
generally do not extend beyond the end of the promotional campaign. In
contrast, Equity Consumer Products generally obtains licenses directly from
licensors. These licenses generally grant the Company rights to design,
manufacture and distribute certain specific items or types of items in specific
United States and/or international markets for defined terms, typically one to
three years.

The Company believes its principal competitive advantages are its extensive
brand-building and measurable sales-building experience developed over years of
serving Burger King and other customers, extensive creative capabilities,
access to a broad range of intellectual property from the worlds of
entertainment, music and sports and an infrastructure that can deliver unique,
high-quality and cost-effective products and services in a very tight time
frame.

The Company is seeking to acquire other companies.
On July 31, 2001, the
Company acquired 100% of the common stock of Logistix Limited, a United Kingdom
corporation (Logistix). (see Note 4 of the accompanying Notes to Consolidated
Financial Statements). Logistix is a leading marketing services agency which
focuses primarily on assisting consumer packaged goods companies in their
efforts to market to children between the ages of seven and fourteen by
developing and executing premium-based promotions and by providing marketing
consulting services. Logistix also derives a portion of its revenues from a
consumer products business which holds the licenses for the leading BBC TV
program Robot Wars®, UBOS (Ultimate Book of Spells) and more recently Ace
Lightning, among others. No assurance can be given that the acquisition of
Logistix will be economically successful for the Company. In addition, no
assurance can be given that the Company will find additional suitable
acquisition candidates or that it will be successful in consummating such
transactions.

Equity Promotions

The Companys largest current market is the design and implementation of fully
integrated promotional marketing programs which incorporate products used as
free premiums or sold in conjunction with the purchase of meals at Burger King.
The Company also produces products and provides related marketing services for
use in promotional programs run by its consumer products and oil and gas
company customers. Premium-based promotions are used for marketing purposes by
both the companies sponsoring the promotions, typically the Companys clients,
and the licensors of the entertainment, music or sports properties on which the
promotional products are based. The use of promotional products based upon
entertainment, music or sports properties allows promotion sponsors to draw
upon the popular identity developed by the licensed characters through exposure
in various media such as television programs, motion pictures and publishing.
Promotions are designed to benefit sponsors by generating consumer loyalty,
building market share and enhancing the sponsors images as providers of
value-added products and services. In addition, motion picture and television
studio licensors often incorporate such promotions into their own marketing
plans because of the substantial advertising expenditures made by sponsors of
promotions and because the broad exposure of the licensed property to consumers
in the sponsors restaurants and other retail outlets supplements the marketing
of motion pictures and television programs by the studios.

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Equity Promotions performs a wide range of
creative, design, development,
production and fulfillment services for its customers. The Company assists
customers with promotional strategy, calendar planning, and concept
development; provides an initial evaluation of intellectual properties for
which licenses are available; advises customers as to which licenses are
consistent with their marketing objectives; and sometimes assists customers in
procuring such licenses. The Company also proposes specific product and
non-product based promotions utilizing the properties secured by its customers;
develops promotional concepts and designs based on the property; provides the
development and engineering necessary to translate the property, which often
consists of two-dimensional artwork, into finished products; obtains or
coordinates licensor approval of product designs, prototypes and finished
products; contracts for and supervises the manufacture of products; arranges
for safety testing to customer and regulatory specifications by an independent
testing laboratory; and arranges insurance, customs clearance and, in most
instances, the shipping of finished products to the customer. In some
instances, the Company also provides warehousing, fulfillment and billing
services. The Company also provides creative services as needed to customers
for packaging and point-of-sale advertising. In some cases, customers obtain
license rights or develop promotions concepts independently and engage the
Company only to design and produce specific products. In other cases, the
Company provides the full range of its services.

Equity Promotions principal strategy is to be a market-driven and
customer-driven organization that seeks to be a strategic marketing partner
with its clients through recommending, executing and measuring a broad range of
fully integrated brand-building and sales-building programs that may or may not
be product-based. Equity Promotions also intends to continue to diversify its
promotions customer base outside of quick service restaurants and to continue
to expand its relationship with Burger King. In connection with these
strategic goals, the Company acquired Logistix in July 2001, a marketing
services agency with offices in London and Paris which focuses primarily on
assisting consumer packaged goods companies in their efforts to market to
children between the ages of seven and fourteen. Typically, this involves a
broad-based strategic relationship, including research, new product
development, licensing guidance and the development of premium-based
promotions. (see Note 4 of the accompanying Notes to Consolidated Financial
Statements). Logistix also derives a portion of its revenues from a consumer
products business which holds the licenses for the leading BBC TV program Robot
Wars®, UBOS (Ultimate Book of Spells) and more recently Ace Lightning, among
others. In addition to providing revenue diversification, access to new
clients and greater access to existing markets, the Company intends to use
Logistix as a platform from which to expand organically and through acquisition
into other international markets not currently served by Logistix or the
Company. No assurance can be given that the Company will be successful in
pursuing such expansion.

The Companys international promotions include unique products and programs
tailored to local markets and the use of products from promotions originally
run in the United States. American entertainment properties are generally
released in other countries subsequent to the date of their release in the
United States. Because the Company has already made its investment in the
creative development of concepts based upon such entertainment properties by
the time of their domestic release, it often has completed both creative, and
in some instances, production work in advance of their foreign release. The
Company pursues promotions opportunities worldwide. In 2001, the Company sold
promotional products internationally in the United Kingdom, Germany, Spain,
Sweden, Italy, Turkey, Australia, the Philippines, Singapore, Korea, Mexico and
throughout Latin America.

Promotions revenues for the years ended December 31, 1999, 2000 and 2001 were
$202,195, $208,607 and $117,305 or 89%, 90% and 81% of the Companys revenues,
respectively. A single promotions customer, Burger King, accounted for
approximately 80%, 80% and 66% of the Companys total revenues for the years
ended December 31, 1999, 2000 and 2001, respectively. (see Managements
Discussion and Analysis of Financial Condition and Results of
Operations Cautionary Statements and Risk Factors).

Equity Consumer Products

Equity Consumer Products designs and manufactures toys and other consumer
products for sale to major mass market retailers such as Toys R Us, Wal-Mart
and Target, specialty market retailers such as Spencer Gifts, Inc., Store of
Knowledge, Zany Brainy, and Blockbuster and to various international
distributors worldwide. These products incorporate trademarks the Company owns
such as Tub Tints® or licenses of classic, time-tested properties the Company
has obtained from entertainment companies such as Warner Bros. In some cases,
the products are based on the same licensed properties that are used by Equity
Promotions.

In June 1998, the Company obtained a three-year licensing agreement with Warner
Bros. to design, manufacture, market and distribute toys based on characters
from Scooby-Doo,one of the longest-running childrens cartoon shows in
television history. In September 2000, the Company renewed through the end of
2003 its licensing agreement with Warner Bros. to design, manufacture, market
and distribute toys based on characters from Scooby-Doo. In 2001, the Company
elected to exercise its option to design, manufacture, market and distribute
toys in the United States and Canada based on the live-action Scooby-Doo
feature film scheduled to be released by Warner Bros. Pictures in June 2002.
Also in 2001, the Company executed a separate agreement with Warner Bros.
granting to the Company manufacturing and distribution rights for Scooby-Doo
toys in Europe and Latin America.

In July 1998, the Company acquired the worldwide rights to manufacture, market
and distribute Tub Tints®, a childrens bath product consisting of effervescent
tablets which dissolve in the bath and currently come in three colors: red,
yellow and blue. Depending on which color tablets are mixed, a wide variety of
colors can be created. In 2000, the Company introduced Tub Tints® toys, color
tablets

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co-packed with either a wand, submarine or bath book. In 2001, the
Company expanded its line of Tub Tints® toys to include, among others, stacking
cups, a turtle, a whale and a diver.

In January 2002, the Company obtained a three-year licensing agreement with MGM
to design, manufacture, market and distribute toys based on characters from The
Pink Panther. Under terms of the agreement, Equity Marketing will design and
produce Pink Panther plush items for distribution to mass and specialty
markets in the United States and Canada. The first products developed under
this agreement will be available by spring 2002. The Pink Panther first
debuted in 1964. Over the past 38 years, the Pink Panther has won an animated
short Academy Award® for Pink Phink (1964) and has been featured in a total
of nine live-action films and 176 cartoon shorts. Additionally, the Pink
Panther serves as the proud spokescat for Owens Corning building
materials/insulation and German telecommunications giant Deutsche Telekom.

Equity Consumer Products principal strategy is to focus on distinctive, niche
products that compliment the Companys promotions business and are based on
trademarks owned by the Company or on classic, time-tested licensed properties
that are likely to produce revenue for several years, thus increasing the
predictability of the Companys revenues. The Company intends to implement
this strategy through internal growth. No assurance can be given that the
Company will be successful in obtaining or renewing licenses under satisfactory
terms.

Equity Consumer Products revenues were $24,868, $23,680 and $27,011 or 11%,
10% and 19% of the Companys total revenues, for the years ended December 31,
1999, 2000 and 2001, respectively.

Backlog

Order backlog at March 22, 2001 and March 19, 2002 was approximately $66,108
and $106,150, respectively. The Company expects the 2002 order backlog to be
filled by December 31, 2002.

Manufacturing

The Companys products are manufactured according to Company and customer
specifications by unaffiliated contract manufacturers. Equity Marketing Hong
Kong, Ltd., a wholly owned subsidiary of the Company (Equity Marketing HK),
manages production of the Companys products by third parties in the Far East
and currently is responsible for performing and/or procuring product sourcing,
product engineering, quality control inspections, independent safety testing
and export/import documentation. The Company believes that the presence of a
dedicated staff in Hong Kong results in lower net costs, increased ability to
respond rapidly to customer orders and maintenance of more effective quality
control standards. The Companys products are also manufactured by third
parties in the United States. Equity Marketing generally retains, for itself or
on behalf of its customers, ownership of the molds and tooling required for the
manufacture of its products. The Company is not a party to any long-term
contractual arrangements with any manufacturer. During 2001, approximately 95%
of the Companys products were manufactured in China. China currently enjoys
permanent normal trade relations (NTR) status under US tariff laws, which
provides a favorable category of US import duties. Chinas NTR status became
permanent on January 1, 2002, following enactment of a bill authorizing such
status upon Chinas accession to the World Trade Organization, which
occurred in December 2001. This substantially reduces the possibility of China
losing its NTR status, which would result in increased costs for the Company.
The impact of such an event on the Company could be somewhat mitigated by the
Companys ability to source product for the US market from countries other than
China. (see Cautionary Statements and Risk Factors).

Virtually all of the Companys raw materials are available from numerous
suppliers. The Company does not have long-term supply contracts in place with
its suppliers. Accordingly, petroleum price increases could result
in higher prices for the Companys products which the Company may not be able
to fully pass on to its customers. Any such failure could negatively impact
the Companys business, financial condition or results of operations.

Trademarks and Copyrights

The Company does not own trademarks or copyrights on properties on which most
of its current products are based. These rights are typically owned or
controlled by the creator of the property or by the entity which develops or
promotes a property, such as a motion picture or television producer.

Competition

The domestic and international promotions and consumer products businesses are
highly competitive. In its core domestic promotions business, Equity Marketing
competes with several other companies. Competitors in promotions include the
Alcone Marketing Group, a subsidiary of Omnicom Group, Inc., Marketing Store
Worldwide, Promotional Partners International and DraftWorldwide, a subsidiary
of The Interpublic Group of Companies. Competition in the international
promotions industry includes local companies in each market and a small number
of emerging international promotions companies. The Company expects that in
2002 the principal competitors to the Companys consumer products business
will be mid-sized toy companies like Trendmasters, Inc. and JAKKS Pacific, Inc.
However, the toy industry includes major toy and game manufacturers such as
Hasbro, Inc. and Mattel, Inc. that compete in some of the same product
categories as Equity Consumer Products. The Company believes the principal
competitive factors affecting its business are development of client
promotional strategy, creative execution, license selection, price, product
quality and safety and speed of

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production. The Companys consumer products
competitors include companies which have far more extensive sales and
development staffs and significantly greater financial resources than does the
Company. There can be no assurance that the Company will be able to compete
effectively against such companies in the future.

Government Regulation

In the United States, the Company is subject to the provisions of, among other
laws, the Federal Consumer Product Safety Act and the Federal Hazardous
Substances Act (the Acts). The Acts empower the Consumer Product Safety
Commission (the CPSC) to protect the public against unreasonable risks of
injury associated with consumer products, including toys and other articles.
The CPSC has the authority to exclude from the market articles which are found
to be hazardous and can require a manufacturer to repair or repurchase such
toys under certain circumstances. Any such determination by the CPSC is
subject to court review. Violations of the Acts may also result in civil and
criminal penalties. Similar laws exist in some states and cities in the United
States and in many jurisdictions throughout the world. The Company performs
quality control procedures (including the inspection of goods at factories and
the retention of independent testing laboratories) to ensure compliance with
applicable laws. Notwithstanding the foregoing, there can be no assurance that
all of the Companys products are or will be hazard-free. Any material product
recall could have a material adverse effect on the Companys results of
operations and financial condition and could also negatively effect the
Companys reputation and the sales of its other products. (see Managements
Discussion and Analysis of Financial Condition and Results of
Operations).

Employees

As of December 31, 2001, Equity Marketing employed a total of 219 individuals,
including 135 individuals located in the United States, 43 individuals located
in Europe and 41 individuals employed by and located at Equity Marketing HK.
In addition, the Company utilizes, on an ongoing basis, the services of
freelance artists and other temporary staff. Equity Marketing believes it
maintains satisfactory relations with its employees.




ITEM 2. PROPERTIES

On January 4, 1999, Equity Marketing occupied its corporate offices and studio
facilities of approximately 54,000 square feet of leased space in Los Angeles,
California. The lease expires July 31, 2005. Equity Marketing Hong Kong, Ltd.
occupies approximately 6,000 square feet of leased space in Hong Kong, under a
lease which expires August 31, 2002. Logistix occupies approximately 3,800
square feet of leased space in Gerrards Cross outside of London under a lease
that expires September 19, 2011 and approximately 6,300 square feet of leased
space in Paris under a lease that expires January 2, 2004.

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ITEM 3. LEGAL PROCEEDINGS

The Perper Matter

On February 1, 2002, Alan Perper filed a complaint (No. BC 267 408) against the
Company, Donald A. Kurz (Chairman of the Board and Chief Executive Officer of
the Company) and Gaetano Mastropasqua (Executive Vice President, Client
Services, of the Company) in the Superior Court of the State of California,
County of Los Angeles. The plaintiff is a former employee of the Company who
was terminated in November 2001. The complaint alleges that the plaintiff was
wrongfully terminated and seeks $2,000,000 in compensatory damages plus
punitive damages, interest and attorneys fees for (i) breach of written
contract; (ii) breach of covenant of good faith and fair dealing; (iii)
fraudulent deceit; (iv) intentional infliction of emotional distress; and (v)
negligent infliction of emotional distress. Pursuant to indemnification
agreements between the Company and each of Messrs. Kurz and Mastropasqua, the
Company is obligated to defend and indemnify them in this matter. The Company
believes the allegations of the complaint are without merit and intends to
defend the action vigorously.

General Litigation

The Company is involved in various other legal proceedings generally incidental
to its business. While the result of any litigation contains an element of
uncertainty, management presently believes that the outcome of any other known,
pending or threatened legal proceeding or claim, individually or combined, will
not have a material adverse effect on the Companys financial position or
results of operations.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None




PART II




ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Companys Common Stock is traded on the Nasdaq National Market under the
symbol EMAK.

As of January 16, 2002 there were approximately 1,165 beneficial holders of the
Companys Common Stock.

The Company currently has no plans to pay dividends on its Common Stock. The
Company intends to retain all earnings for use in its business. Under the
Companys current credit facility, the Company cannot pay dividends on its
Common Stock without the prior consent of the lenders. (see Note 6 of the
accompanying Notes to Consolidated Financial Statements).

The following table sets forth the high and low sales prices on the Nasdaq
National Market for the calendar periods indicated:

|               |  |                             |        |      |  |      |        |     |  |  |          |  |  |  |        | 
|-------------- |  | --------------------------- | ------ | ---- |  | ---- | ------ | --- |  |  | -------- |  |  |  | ------ | 
|               |  | Price Range of Common Stock
|               |  |                            
|               |  | 2000                        |        | 2001
|               |  |                             |        |     
|               |  | High                        |        | Low  |  | High |        | Low
|               |  |                             |        |      |  |      |        |    
|First Quarter  |  |                             | 13 1/2 |      |  |      | 7      |     |  |  | 14       |  |  |  | 8 1/2  | 
|Second Quarter |  |                             | 12 1/4 |      |  |      | 8 7/8  |     |  |  | 11 1/2   |  |  |  | 7 3/4  | 
|Third Quarter  |  |                             | 14 3/8 |      |  |      | 10 3/8 |     |  |  | 13 3/4   |  |  |  | 10 1/4 | 
|Fourth Quarter |  |                             | 14     |      |  |      | 11 3/4 |     |  |  | 13 16/41 |  |  |  | 10 3/4 | 

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be
read with the Companys consolidated financial statements and
the notes to those statements and Managements Discussion
and Analysis of Financial Condition and Results of Operations
included elsewhere in this Form 10-K. The consolidated statements of
operations data for the years ended December 31, 1999, 2000 and 2001
and the consolidated balance sheet data at December 31, 2000 and 2001
are derived from the Companys consolidated financial statements
which have been audited by Arthur Andersen LLP, the Companys
independent public accountants, and are included elsewhere in this
Form 10-K. The statements of operations data for the years ended
December 31, 1997 and 1998 and the consolidated balance sheets dated
as of December 31, 1997, 1998 and 1999 are derived from the Companys
consolidated financial statements which have been audited by Arthur
Andersen LLP and are not included in this Form 10-K.

|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |        |        | 
|--------------------------------------------------------- | ------------ | ----------------------------------------------- | --------- | ------ | ------ | ---- | --------- | ------ | ------ | ---- | --------- | ------ | ------ | - | --------- | ------ | ------ | - | --------- | ------ | ------ | 
|Year Ended December 31,                                   |              | 1997                                            |           | 1998   |        | 1999 |           | 2000   |        | 2001
|                                                          |              |                                                 |           |        |        |      |           |        |        |     
|(in thousands, except share and per share data)          
|Consolidated Statements of
Operations and Per Share Data: |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |       
|Revenues                                                  |              | $                                               | 146,328   |        |        | $    | 159,136   |        |        | $    | 227,063   |        |        | $ | 232,287   |        |        | $ | 144,316   |       
|Cost of sales                                             |              |                                                 | 105,310   |        |        |      | 112,153   |        |        |      | 170,416   |        |        |   | 172,270   |        |        |   | 104,129   |       
|Provision for production-in-process losses                |              |                                                 |          |        |        |      | 2,666     |        |        |      |          |        |        |   |          |        |        |   |          |       
|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|                                                          | Gross Profit |                                                 |           | 41,018 |        |      |           | 44,317 |        |      |           | 56,647 |        |   |           | 60,017 |        |   |           | 40,187 |       
|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|Operating expenses:                                       |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|                                                          |              | Salaries, wages and benefits                    |           |        | 11,563 |      |           |        | 14,550 |      |           |        | 17,350 |   |           |        | 17,610 |   |           |        | 15,924 | 
|                                                          |              | Selling, general and administrative             |           |        | 14,330 |      |           |        | 22,127 |      |           |        | 22,829 |   |           |        | 23,075 |   |           |        | 18,323 | 
|                                                          |              | AmeriServe bankruptcy bad debt expense          |           |        |       |      |           |        |       |      |           |        | 1,014  |   |           |        | 482    |   |           |        |       | 
|                                                          |              | Impairment of assets                            |           |        |       |      |           |        | 6,712  |      |           |        |       |   |           |        | 8,504  |   |           |        |       | 
|                                                          |              | Business process reengineering                  |           |        |       |      |           |        | 2,220  |      |           |        |       |   |           |        |       |   |           |        |       | 
|                                                          |              | Logistix integration costs                      |           |        |       |      |           |        |       |      |           |        |       |   |           |        |       |   |           |        | 192    | 
|                                                          |              | Restructuring loss (gain)                       |           |        |       |      |           |        | 4,121  |      |           |        | (604   | ) |           |        | (418   | ) |           |        |       | 
|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|                                                          |              | Total operating expenses                        |           |        | 25,893 |      |           |        | 49,730 |      |           |        | 40,589 |   |           |        | 49,253 |   |           |        | 34,439 | 
|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|                                                          |              | Income (loss) from operations                   |           |        | 15,125 |      |           |        | (5,413 | )    |           |        | 16,058 |   |           |        | 10,764 |   |           |        | 5,748  | 
|Other income (expense), net                               |              |                                                 | 522       |        |        |      | (511      | )      |        |      | (510      | )      |        |   | 1,375     |        |        |   | 1,370     |       
|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|                                                          |              | Income (loss) before provision
for income taxes |           |        | 15,647 |      |           |        | (5,924 | )    |           |        | 15,548 |   |           |        | 12,139 |   |           |        | 7,118  | 
|Provision for income taxes                                |              |                                                 | 6,024     |        |        |      | 69        |        |        |      | 6,134     |        |        |   | 6,797     |        |        |   | 2,517     |       
|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|                                                          |              | Net income (loss)                               |           | $      | 9,623  |      |           | $      | (5,993 | )    |           | $      | 9,414  |   |           | $      | 5,342  |   |           | $      | 4,601  | 
|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|Preferred stock dividends                                 |              |                                                 |          |        |        |      |          |        |        |      |          |        |        |   | 956       |        |        |   | 1,500     |       
|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|Net
income (loss) available to common
stockholders        |              | $                                               | 9,623     |        |        | $    | (5,993    | )      |        | $    | 9,414     |        |        | $ | 4,386     |        |        | $ | 3,101     |       
|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|Basic income (loss) per share:                            |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|                                                          |              | Income (loss) per share                         |           | $      | 1.63   |      |           | $      | (0.98  | )    |           | $      | 1.51   |   |           | $      | 0.70   |   |           | $      | 0.52   | 
|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|Basic weighted average shares
outstanding                 |              |                                                 | 5,913,313 |        |        |      | 6,089,618 |        |        |      | 6,227,842 |        |        |   | 6,275,590 |        |        |   | 5,996,662 |       
|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|Diluted income (loss) per share:                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|                                                          |              | Income (loss) per share                         |           | $      | 1.55   |      |           | $      | (0.98  | )    |           | $      | 1.46   |   |           | $      | 0.68   |   |           | $      | 0.50   | 
|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       
|Diluted weighted average shares
outstanding               |              |                                                 | 6,216,794 |        |        |      | 6,089,618 |        |        |      | 6,440,738 |        |        |   | 6,460,557 |        |        |   | 6,164,154 |       
|                                                          |              |                                                 |           |        |        |      |           |        |        |      |           |        |        |   |           |        |        |   |           |       

|                                 |  |      |        |      |  |      |         |      |  |      |        |  |  |   |         |  |  |   |        | 
|-------------------------------- |  | ---- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------ |  |  | - | ------- |  |  | - | ------ | 
|As of December 31,               |  | 1997 |        | 1998 |  | 1999 |         | 2000 |  | 2001
|                                 |  |      |        |      |  |      |         |      |  |     
|(in thousands)                   |  |      |        |      |  |      |         |      |  |      |        |  |  |   |         |  |  |   |        | 
|Consolidated Balance Sheet Data: |  |      |        |      |  |      |         |      |  |      |        |  |  |   |         |  |  |   |        | 
|Working capital                  |  | $    | 28,128 |      |  | $    | 4,268   |      |  | $    | 11,045 |  |  | $ | 52,140  |  |  | $ | 36,620 | 
|Total assets                     |  |      | 57,153 |      |  |      | 115,480 |      |  |      | 97,244 |  |  |   | 110,542 |  |  |   | 99,487 | 
|Long-term debt                   |  |      |       |      |  |      |        |      |  |      |       |  |  |   |        |  |  |   |       | 
|Stockholders equity             |  |      | 36,140 |      |  |      | 32,407  |      |  |      | 42,025 |  |  |   | 45,241  |  |  |   | 42,473 | 

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##### Table of Contents






ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Results of Operations

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

|                            |                                          |      |       |      |    |      |       |      |    |  |       |      |  
|--------------------------- | ---------------------------------------- | ---- | ----- | ---- | -- | ---- | ----- | ---- | -- |  | ----- | ---- | -
|Year Ended December 31,     |                                          | 1999 |       | 2000 |    | 2001
|                            |                                          |      |       |      |    |     
|Revenues                    |                                          |      | 100.0 | %    |    |      | 100.0 | %    |    |  | 100.0 | %   
|Cost of sales               |                                          |      | 75.1  | %    |    |      | 74.2  | %    |    |  | 72.2  | %   
|                            |                                          |      |       |      |    |      |       |      |    |  |       |     
|Gross Profit                |                                          |      | 24.9  | %    |    |      | 25.8  | %    |    |  | 27.8  | %   
|                            |                                          |      |       |      |    |      |       |      |    |  |       |     
|Operating expenses:         |                                          |      |       |      |    |      |       |      |    |  |       |     
|                            | Salaries, wages and benefits             |      |       | 7.6  | %  |      |       | 7.6  | %  |  |       | 11.0 | %
|                            | Selling, general and administrative      |      |       | 10.1 | %  |      |       | 9.9  | %  |  |       | 12.7 | %
|                            | AmeriServe bankruptcy bad debt expense   |      |       | 0.4  | %  |      |       | 0.2  | %  |  |       |     | %
|                            | Impairment of assets                     |      |       |     | %  |      |       | 3.7  | %  |  |       |     | %
|                            | Logistix integration costs               |      |       |     | %  |      |       |     | %  |  |       | 0.1  | %
|                            | Restructuring loss (gain)                |      |       | (0.3 | )% |      |       | (0.2 | )% |  |       |     | %
|                            |                                          |      |       |      |    |      |       |      |    |  |       |     
|                            | Total operating expenses                 |      |       | 17.8 | %  |      |       | 21.2 | %  |  |       | 23.8 | %
|                            |                                          |      |       |      |    |      |       |      |    |  |       |     
|                            | Income from operations                   |      |       | 7.1  | %  |      |       | 4.6  | %  |  |       | 4.0  | %
|Other income (expense), net |                                          |      | (0.2  | )%   |    |      | 0.6   | %    |    |  | 0.9   | %   
|                            |                                          |      |       |      |    |      |       |      |    |  |       |     
|                            | Income before provision for
income taxes |      |       | 6.9  | %  |      |       | 5.2  | %  |  |       | 4.9  | %
|Provision for income taxes  |                                          |      | 2.7   | %    |    |      | 2.9   | %    |    |  | 1.7   | %   
|                            |                                          |      |       |      |    |      |       |      |    |  |       |     
|                            | Net income                               |      |       | 4.2  | %  |      |       | 2.3  | %  |  |       | 3.2  | %
|                            |                                          |      |       |      |    |      |       |      |    |  |       |     

EBITDA

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

|                        |  |                               |        |      |       |      |        |  |        |   |       |  |        |   |  | 
|----------------------- |  | ----------------------------- | ------ | ---- | ----- | ---- | ------ |  | ------ | - | ----- |  | ------ | - |  | 
|Year Ended December 31, |  | 1999                          |        | 2000 |       | 2001
|                        |  |                               |        |      |       |     
|Net
income              |  | $                             | 9,414  |      |       | $    | 5,342  |  |        | $ | 4,601 | 
|Less:                   |  | Interest income               |        |      | (138  | )    |        |  | (1,892 | ) |       |  | (1,695 | )
|                        |  | Other income                  |        |      | (233  | )    |        |  |       |   |       |  |       |  
|                        |  | Restructuring gain            |        |      | (604  | )    |        |  | (418   | ) |       |  |       |  
|Add:                    |  | Depreciation and amortization |        |      | 2,708 |      |        |  | 2,655  |   |       |  | 2,477  |  
|                        |  | Interest expense              |        |      | 881   |      |        |  | 405    |   |       |  | 249    |  
|                        |  | Other expense                 |        |      |      |      |        |  | 112    |   |       |  | 76     |  
|                        |  | Logistix integration costs    |        |      |      |      |        |  |       |   |       |  | 192    |  
|                        |  | Impairment of assets          |        |      |      |      |        |  | 8,504  |   |       |  |       |  
|                        |  | Provision for income taxes    |        |      | 6,134 |      |        |  | 6,797  |   |       |  | 2,517  |  
|                        |  |                               |        |      |       |      |        |  |        |   |       |  |        |   |  | 
|EBITDA                  |  | $                             | 18,162 |      |       | $    | 21,505 |  |        | $ | 8,417 | 
|                        |  |                               |        |      |       |      |        |  |        |   |       |  |        |   |  | 

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Year ended December 31, 2001 compared to year ended December 31, 2000

Revenues in 2001 decreased $87,971, or 37.9%, to $144,316 from $232,287 in
2000. Promotions revenues decreased $91,302, or 43.8%, to $117,305 from
$208,607 primarily as a result of decreased revenues associated with Burger
King programs in 2001 as compared to 2000 (see below). This decrease was
partially offset by promotional revenues generated by Logistix following its
acquisition by the Company in July 2001. Consumer products revenues increased
$3,331, or 14.1%, to $27,011 from $23,680 in 2000. This increase is primarily
due to revenue generated by Robot Wars product subsequent to the Logistix
acquisition.

Although the Companys share of Burger Kings custom promotional products
business in 2001 was consistent with 2000 levels, the dollar volume of custom
promotional product purchases by Burger King from the Company declined in 2001
by approximately 49%. Based on its understanding of the factors contributing
to the decline, management believes it is likely that the dollar volume of
purchases by Burger King of custom promotional product will increase in 2002
compared to 2001 and that its relationship with Burger King and its purchasing
cooperative, RSI, remains strong. The statements set forth herein are forward
looking and actual results could differ materially.

Cost of sales decreased $68,141 to $104,129 (72.2% of revenues) from $172,270
(74.2% of revenues) in 2000 due primarily to lower revenues in 2001. The gross
margin percentage for the year increased to 27.8% from 25.8% in 2000. This
increase is a result of a greater relative mix of higher margin Consumer
Products revenue and increased efficiencies produced throughout the Companys
operations.

Salaries, wages and benefits decreased $1,686 in 2001, or 9.6%, to $15,924
(11.0% of revenues) from $17,610 in 2000 (7.6% of revenues). The decrease was
primarily attributable to a reduction in performance bonuses for
employees in 2001. This decrease was partially offset by the addition of
employees from the acquisition of Logistix and staffing additions resulting
from the Companys growth initiatives.

Selling, general and administrative expenses decreased $4,752 in 2001, or
20.6%, to $18,323 (12.7% of revenues) from $23,075 (9.9% of revenues) in 2000. This decrease is
due primarily to decreases in freight out, warehousing costs, product
development costs and bad debt all resulting from the decrease in sales volume.
This decrease is also attributable to a decline in travel and entertainment
expenses, marketing expenses and outside services costs, partially offset by an
increase in advertising expense and insurance expense. The decrease is also
attributable to a reduction in amortization expense resulting from the
write-off of the goodwill and trademark in December 2000 associated with the
1998 acquisition of Corinthian Marketing, Inc. Selling, general and
administrative expenses increased as a percentage of revenues from 9.9% in 2000
to 12.7% in 2001 as a result of lower revenues, which decreased at a greater
rate.

The AmeriServe bad debt expense in 2000 represents a charge resulting from the
bankruptcy of AmeriServe. (see AmeriServe Bankruptcy
below).

In 2000, the Company recorded a charge for impairment of assets of $8,504 for
the write-off associated with the impairment of the goodwill and the
Headliners® trademark acquired in the Companys purchase in 1998 of Corinthian
Marketing Inc. The impairment is a result of the Companys decision at the end
of 2000 to decrease the marketing of the Headliners® brand in the future and of
its decision not to pursue new Headliners® licenses or renew expiring licenses.
This decision was pursuant to a continued slowdown in sales in the sports
collectible market.

The Logistix integration costs totaling $192 incurred in 2001 represent
expenses directly related to the integration of Logistix.

The restructuring gain recorded in 2000 primarily represents a reversal of a
portion of the 1998 restructuring charge related to outstanding inventory
purchase commitments and the lease commitment for a warehouse facility. (see
Note 2, Restructuring Charge in the accompanying Notes to Consolidated
Financial Statements).

Other income is composed primarily of net interest income of $1,446 and a loss
on foreign exchange of $76. Net interest income decreased $41 in 2001 from
$1,487 in 2000. The decrease was due to a decline in interest rates and to the
reduced level of cash and cash equivalents as a result of the acquisition of
Logistix and the stock buyback program as well as a reduction in imputed
interest income on a note receivable (see AmeriServe Bankruptcy).

The effective tax rate changed in 2001 to 35.4% from 56.0% in 2000. This
decrease was due primarily to the write-off of non-deductible goodwill related
to Corinthian in 2000 and tax free municipal interest income earned in 2001.

Net income decreased $741, or 13.9%, to $4,601 in 2001 (3.2% of revenues) from
$5,342 in 2000 (2.3% of revenues) primarily due to lower gross profits earned
on decreased revenues, partially offset by a decrease in salaries and benefits,
selling, general and administrative expenses and a lower effective tax rate in
2001. 2000 net income was negatively impacted by the impairment of assets and
AmeriServe bankruptcy bad debt expense incurred in 2000.

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EBITDA in 2001 decreased $13,088, or 60.9%, to $8,417 from $21,505 in 2000
primarily due to lower gross profits earned on decreased revenues in 2001,
partially offset by a decrease in salaries, wages and benefits and selling,
general and administrative expenses for the year ended December 31, 2001. (see
EBITDA above).

Year ended December 31, 2000 compared to year ended December 31, 1999

Revenues in 2000 increased $5,224, or 2.3%, to $232,287 from $227,063 in 1999.
Promotions revenues increased $6,412, or 3.2%, to $208,607 primarily as a
result of increased revenues in 2000 associated with several large
international Burger King promotions based on Nintendos Pokémon property.
This increase was partially offset by a decrease in revenues from domestic
Burger King promotions compared to 1999, which included an extraordinarily
large Pokémon promotion in the fourth quarter. The increase in promotional
revenue was also the result of growth in the non-Burger King promotions
business, which grew 13% compared to 1999. Consumer Products revenues
decreased $1,188, or 4.8%, to $23,680 from $24,868 in 1999. Excluding
liquidation sales of discontinued consumer product lines of $2,875 in 1999
related to the Companys decision to exit the event-based-license consumer
product business, sales in 2000 increased $1,687, or 7.7%, primarily due to
increased sales in Scooby-Doo and Tub Tints® product, partially offset by
reduced sales of Headliners®.

Cost of sales increased $1,854 to $172,270 (74.2% of revenues) from $170,416
(75.1% of revenues) in 1999 due primarily to higher revenues in 2000. The gross
margin percentage for the year increased to 25.8% from 24.9% in 1999. This
increase is partially a result of lower than expected returns and better than
expected sales from a promotional program, which was closed in the prior year.
The increase was also due to improved margins in the Companys Consumer
Products and non-Burger King promotion businesses.

Salaries, wages and benefits increased $260, or 1.5%, to $17,610 (7.6% of
revenues). This increase was primarily due to staffing additions resulting from
the Companys growth initiatives in 2000.

Selling, general and administrative expenses increased $246, or 1.1%, to
$23,075 (9.9% of revenues) due primarily to increased warehousing costs and
higher creative design and development costs associated with several large 2000
promotional programs. These increases were partially offset by reduced shipping
and commission expenses. Selling, general and administrative expenses
decreased as a percentage of revenues from 10.1% to 9.9% as a result of
revenues which increased at a greater rate.

The AmeriServe bad debt expense represents a charge resulting from the
bankruptcy of AmeriServe. (see AmeriServe Bankruptcy
below).

The Company recorded a charge for impairment of assets of $8,504 for the
write-off associated with the impairment of the goodwill and the Headliners®
trademark acquired in the Companys purchase in 1998 of Corinthian. The
impairment is a result of the Companys decision at the end of 2000 to decrease
the marketing of the Headliners® brand in the future and of its decision not to
pursue new Headliners® licenses or renew expiring licenses. This decision was
pursuant to a continued slowdown in sales in the sports collectible market.

The restructuring gain primarily represents a reversal of a portion of the 1998
restructuring charge related to outstanding inventory purchase commitments and
the lease commitment for a warehouse facility. (see Note 2, Restructuring
Charge in the accompanying Notes to Consolidated Financial
Statements).

Other income is composed primarily of net interest income of $1,487 and a loss
on disposal of fixed assets of $112. Net interest income increased $2,230 from
net interest expense of $743 in 1999 as a result of $1,084 of imputed interest
income recorded on a note receivable (see AmeriServe Bankruptcy) and to
additional interest income earned on the cash proceeds received from the
issuance of preferred stock. (see Issuance of Preferred Stock).

The effective tax rate changed in 2000 to 56.0% from 39.5% in 1999. This
increase was due to the write-off of non-deductible goodwill related to
Corinthian.

Net income decreased $4,072, or 43.3%, to $5,342 in 2000 (2.3% of revenues)
from $9,414 (4.2% of revenues) primarily due to the $8,504 write-off of
unamortized goodwill and other intangibles recorded in connection with the 1998
acquisition of Corinthian and the AmeriServe bankruptcy bad debt expense,
partially offset by greater gross profits earned on increased revenues and a
restructuring gain in 2000. Excluding the impact of the restructuring gain,
AmeriServe bad debt expense and the impairment of assets, the Company would
have reported net income of approximately $12,828 or $1.69 per diluted share in
2000.

EBITDA in 2000 increased $3,343, or 18.4%, to $21,505 from $18,162 in 1999
primarily due to greater gross profits earned on increased revenues in 2000,
partially offset by the increase in salaries, wages and benefits and selling,
general and administrative for the year ended December 31, 2000.

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Financial Condition and Liquidity

The Companys financial position remained strong in 2001 primarily due to its
profitable operating results. At December 31, 2001, the Company had no debt
and its cash and marketable securities were $29,135, compared to $37,505 as of
the prior year.

As of December 31, 2001, the Companys net accounts receivable decreased $7,442
to $22,695 from $30,137 in 2000. This was primarily due to the reduced sales
volume levels in 2001 as compared to 2000. At December 31, 2001, inventory
decreased $2,407 to $9,337 from $11,744 in 2000. This was primarily due to a
reduction in Burger King inventory partially offset by Logistix inventory as
compared to the same period in 2000.

At December 31, 2001, accounts payable increased $3,693 to $22,114 from $18,421
in 2000. Due to customer decreased $7,797 to $3,928 from $11,725 in 2000. At
December 31, 2001, accrued liabilities, including accrued payroll and payroll
related costs, decreased $4,662 to $5,588 from $10,250 in 2000. The increase
in accounts payable was primarily due to additional payables subsequent to the
acquisition of Logistix. This increase was partially offset by a reduction in
accounts payable to vendors for Burger King product as a result of reduced
sales volume levels. The decrease in due to customer was primarily due to the
payment in 2001 of royalty and administrative fees collected from distribution
centers in the fourth quarter of 2000 (for large promotional programs in that
quarter) on behalf of promotional customers. The decrease in accrued
liabilities was primarily attributable to the payment of employee bonuses
related to 2000 and the payment of federal and state income taxes related to
2000 net income.

At December 31, 2001, working capital was $36,620 compared to $52,140 at
December 31, 2000. The decrease in working capital was primarily due to the
cash used in the acquisition of Logistix and cash used to repurchase the
Companys common stock (see Stock Repurchase), partially offset by cash
generated by operating activities for the year ended December 31, 2001.

The Companys current strategy and business plan calls for the consummation of
additional acquisitions as well as the continued repurchase of the Companys
common stock. The Company plans to continue to evaluate the level of such
expenditures in the context of the capital available to it and changing market
conditions.

The Company believes that its cash from operations, cash on hand at December
31, 2001 and its credit facility will be sufficient to fund its working capital
needs for at least the next twelve months. The statements set forth herein are
forward-looking and actual results may differ materially. (see Credit
Facilities and Note 6 of the accompanying Notes to Consolidated Financial
Statements).

Future minimum annual commitments for guaranteed minimum royalty payments under
license agreements, non-cancelable operating leases, employment agreements,
guaranteed royalty commitments, minimum advertising commitments and letters of
credit as of December 31, 2001 are as follows:

|                        |  |      |       |      |  |      |       |      |  |      |       |            |  |       |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|----------------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---------- |  | ----- | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|                        |  | 2002 |       | 2003 |  | 2004 |       | 2005 |  | 2006 |       | Thereafter |  | Total
|                        |  |      |       |      |  |      |       |      |  |      |       |            |  |      
|Operating Leases        |  | $    | 1,801 |      |  | $    | 1,851 |      |  | $    | 1,952 |            |  | $     | 1,197 |  |  | $ | 1,061 |  |  | $ | 2,267 |  |  | $ | 10,129 | 
|Guaranteed Royalties    |  |      | 1,235 |      |  |      | 3,037 |      |  |      | 9     |            |  |       |      |  |  |   |      |  |  |   |      |  |  |   | 4,281  | 
|Advertising Commitments |  |      | 1,000 |      |  |      | 1,846 |      |  |      |      |            |  |       |      |  |  |   |      |  |  |   |      |  |  |   | 2,846  | 
|Employment Agreements   |  |      | 405   |      |  |      |      |      |  |      |      |            |  |       |      |  |  |   |      |  |  |   |      |  |  |   | 405    | 
|                        |  |      |       |      |  |      |       |      |  |      |       |            |  |       |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|Total                   |  | $    | 4,441 |      |  | $    | 6,734 |      |  | $    | 1,961 |            |  | $     | 1,197 |  |  | $ | 1,061 |  |  | $ | 2,267 |  |  | $ | 17,661 | 
|                        |  |      |       |      |  |      |       |      |  |      |       |            |  |       |       |  |  |   |       |  |  |   |       |  |  |   |        | 

The Company had no material commitments for capital expenditures at December
31, 2001. Letters of credit outstanding as of December 31, 2000 and 2001
totaled $414 and $551, respectively.

Credit Facilities

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

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Acquisition

On July 31, 2001, the Company acquired 100% of the common stock of Logistix in
exchange for 8,500 British pounds ($12,144 as of July 31, 2001) in cash plus
related transaction costs of $1,011. Potential additional cash consideration
may be paid based upon the results of operations of Logistix during each year
through July 31, 2004. The acquisition was financed through the Companys
existing cash reserves.

Issuance of Preferred Stock

On March 29, 2000, Crown EMAK Partners, LLC, a Delaware limited liability
company (Crown), invested $11,900 in the Company in exchange for preferred
stock and warrants to purchase additional preferred stock. Under the terms of
the investment, Crown acquired 11,900 shares of Series A mandatory redeemable
senior cumulative participating convertible preferred stock, par value $.001
per share, of the Company (the Series A Stock) with a conversion price of
$14.75 per share. In connection with such purchase, the Company granted to
Crown five year warrants (collectively, the Warrants) to purchase 5,712
shares of Series B senior cumulative participating convertible preferred stock,
par value $.001 per share, of the Company (the Series B Stock) at an exercise
price of $1,000 per share, and 1,428 shares of Series C senior cumulative
participating convertible preferred stock, par value $.001 per share, of the
Company (the Series C Stock) at an exercise price of $1,000 per share. The
Warrants are immediately exercisable. The conversion prices of the Series B
Stock and the Series C Stock are $16.00 and $18.00, respectively. On June 20,
2000, Crown paid an additional $13,100 to the Company in exchange for an
additional 13,100 shares of Series A Stock with a conversion price of $14.75
per share. In connection with such purchase, the Company granted to Crown
Warrants to purchase an additional 6,288 shares of Series B Stock and an
additional 1,572 shares of Series C Stock. Each share of Series A Stock is
convertible into 67.7966 shares of Common Stock, representing 1,694,915 shares
of Common Stock in aggregate. Each share of Series B Stock and Series C Stock
is convertible into 62.5 and 55.5556 shares of Common Stock, respectively,
representing 916,666 shares of Common Stock in aggregate. Also in connection
with such purchase, the Company agreed to pay Crown a commitment fee in the
aggregate amount of $1,250, paid in equal quarterly installments of $62.5
commencing on June 30, 2000 and ending on March 31, 2005. The Company paid
$250 in fees for the year ended December 31, 2001.

Upon any voluntary or involuntary liquidation, dissolution or winding-up of the
affairs of the Company, Crown, as holder of the preferred stock, will be
entitled to payment out of the assets of the Company available for distribution
of an amount equal to the greater of (a) the liquidation preference of $1,000
per share (the Liquidation Preference) plus all accrued and unpaid dividends
or (b) the aggregate amount of payment that the outstanding preferred stock
holder would have received assuming conversion to Common Stock immediately
prior to the date of liquidation of capital stock, before any payment is made
to other stockholders.

The Series A Stock, Series B Stock and Series C Stock are subject to mandatory
redemption at 101% of the aggregate Liquidation Preference plus accrued and
unpaid dividends if a change in control of the Company occurs.

Crown has voting rights equivalent to the number of shares of Common Stock into
which their preferred stock is convertible on the relevant record date. Crown
is also entitled to receive a quarterly dividend equal to 6% of the Liquidation
Preference per share outstanding, payable in cash. Total dividend for the year
ended December 31, 2001 amounted to $1,500, of which $375 was paid in January
2002 and recorded in accounts payable in the accompanying consolidated balance
sheet as of December 31, 2001.

Crown currently holds 100% of the outstanding shares of Series A Stock, and
consequently, has designated two individuals to the Board of Directors of the
Company.

The Series A Stock is recorded in the accompanying consolidated balance sheets
at its Liquidation Preference net of issuance costs. The issuance costs total
approximately $1,951 and include an accrual of approximately $1,000 for the
present value of the commitment fee discussed above.

Stock Repurchase

The Companys Board of Directors has authorized up to $10,000 for the
repurchase of the Companys Common Stock over a twelve month period. The
repurchase program commenced on July 21, 2000 and expired July 21, 2001.
During this period, the Company spent $6,430 to purchase an aggregate of
523,594 shares at an average price of $12.28 per share including commissions.
On July 24, 2001, the Companys Board of Directors authorized up to an
additional $10,000 for the repurchase of the Companys Common Stock over a
twelve month period. In the period from August 2, 2001 through December 31,
2001 the Company spent $5,196 to purchase 423,400 shares at an average price of
$12.27 per share including commissions. Since initiating the overall buyback
program on July 20, 2000, the Company has spent $11,644 to purchase a total of
948,494 shares at an average price of $12.28 per share including commissions.
Purchases will be conducted in the open market at prevailing prices, based on
market conditions when the Company is not in a quiet period. The Company may
also transact purchases effected as block trades, as well as certain
negotiated, off-exchange purchases not in the open market. This repurchase
program is being funded through a combination of working capital and bank debt.

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Inflation

The effect of inflation on the Companys operations during 2001 was
insignificant. The Company will continue its policy of controlling costs and
adjusting prices to the extent permitted by competitive factors.

AmeriServe Bankruptcy

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

Restaurant Services, Inc. (RSI), a not-for-profit purchasing cooperative that
has as its members Burger King franchisees and Burger King, is the exclusive
purchasing agent for the Burger King system of franchisee-owned and
company-owned restaurants located in the United States. Subsequent to January
31, 2000, the Company reached an agreement with RSI in which RSI purchased all
pre-petition trade receivables owed to the Company by AmeriServe in exchange
for a two-year non-interest-bearing note valued at $15,970 and satisfaction of
certain contractual obligations owed by the Company to RSI. This agreement
resulted in a net pre-tax charge of $1,014 for the quarter ended December 31,
1999. A note receivable of $10,515 was recorded on the consolidated balance
sheet as of December 31, 1999. $6,642 of the $28,774 pre-petition trade
receivables related to sales made in January 2000. Accordingly, the remaining
$5,455 portion of the note receivable was recorded in January 2000, and
resulted in a net pre-tax charge of $482 for the year ended December 31, 2000.
This charge was offset by $1,084 of imputed interest income, at 9% per annum,
recorded on the note receivable for 2000. The balance of the note receivable
as of December 31, 2001 was $2,183, which was recorded as a current asset as
the note is due on March 29, 2002. For the year ended December 31, 2001, the
Company recorded $411 of imputed interest income on the note receivable.

As of July 2000, the Burger King system completed a transition to alternative
distributors. The largest distribution company accounted for approximately
20.8% of the products purchased from the Company by the Burger King system for
the year ended December 31, 2001. As of December 31, 2001, one distribution
company which serves the international distribution channel for the Burger King
system accounted for 11.5% of total net accounts receivable.

Pokémon Recall

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

Related Party Transactions

Stephen P. Robeck, formerly Chairman of the Board and Co-Chief Executive
Officer, entered into a consulting agreement with the Company commencing on
January 1, 1999 and ending on December 31, 2001. The agreement provided that
Mr. Robeck would serve as a financial and business consultant to the Company
and be available to fulfill his obligations thereunder no less than twenty
hours per month. The agreement contained provisions restricting Mr. Robecks
ability to compete with the Company while providing services as a consultant
and to solicit the Companys employees through the first anniversary of the end
of the consulting period. Under the agreement, Mr. Robeck received a consulting
fee of $210 per year, a car allowance of $18 per year and certain medical,
disability and life insurance benefits.

In April 2001, the Company contracted to purchase print management services
from ISG, a company controlled by Jeffrey S. Deutschman, Jason Ackerman and
affiliates. In 2001, the Company paid ISG approximately $460 in print
management fees. The Company believes that such services were negotiated on an
arms length basis. Mr. Deutschman, a director of the Company, is a manager of
Crown. Mr. Ackerman, a director of the Company, is a manager of Crown.

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Recent Accounting Pronouncements

SFAS No. 141 Business Combinations and SFAS No. 142 Goodwill and Other
Intangible Assets were approved by the Financial Accounting Standards Board
(FASB) effective June 30, 2001 for business combinations which are
consummated after July 1, 2001. SFAS No. 141 eliminates the
pooling-of-interests method for business combinations and requires use of the
purchase method. SFAS No. 142 changes the accounting for goodwill from an
amortization approach to a non-amortization (impairment) approach. The
statement requires amortization of goodwill recorded in connection with
previous business combinations to cease upon adoption of the statement by
calendar year companies on January 1, 2002. The Company has adopted the
provisions of these statements for the acquisition of Logistix (see Note 4).
Management believes that the adoption of SFAS No. 142 in 2002 will result in a
significant decrease in amortization of goodwill on the consolidated statement
of operations, and is in the process of assessing other impacts from SFAS No.
142. The total after tax amount of goodwill amortization was $485 for the
year ended December 31, 2001.

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

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 requires that long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
SFAS 144 is effective for 2002 and generally is to be applied prospectively.
The Company is currently reviewing the requirements of SFAS 144 and has not yet
determined its impact, if any, on the Companys financial position and results
of operations.

Selected Significant Accounting Policies

Revenue Recognition

For product related sales, the Company records
revenues when title and risk of loss pass to the
customer. When a right of return exists, the Companys practice is to estimate
and provide for any future returns at the time of sale, in accordance with SFAS
No. 48, Revenue Recognition When Right of Return Exists. Accruals for
customer discounts and rebates and defective returns are recorded as the
related revenues are recognized.

Service revenues include all amounts that are billable to clients under service
contracts. Service related revenues are recognized on a time and materials basis, or on a
straight-line basis, depending on the contract. Revenue from time and material
service contracts is recognized as the services are rendered. Revenue from
fixed price retainer contracts is recognized on a straight-line basis over the
contract term. Losses on contracts are recognized during the period in which
the loss first becomes probable and reasonably estimable. Reimbursements,
including those relating to travel and other out-of-pocket expenses, and other
similar third-party costs, such as printing costs, are included in revenues,
and an equivalent amount of reimbursable expenses are included in cost of
sales. Service revenues for the years ended December 31, 1999, 2000 and 2001
totaled $0, $347 and $3,215, respectively.

The Companys revenue recognition policies are
in compliance with the Securities and Exchange Commissions Staff Accounting
Bulletin No. 101: Revenue Recognition in Financial Statements.

Goodwill and Other Intangibles

The Company accounts for goodwill and other intangible assets acquired prior to
July 1, 2001 under the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of. This
statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The carrying value of existing assets are
reviewed when events or changes in circumstances indicate that an impairment
test is necessary in order to determine if an impairment has occurred. When
factors indicate that such assets should be evaluated for possible impairment,
the Company will estimate undiscounted future cash flows before interest
expected to result from the use of the assets over their remaining amortization
period and their eventual disposition, and compare the amounts to the carrying
value of the assets to determine if an impairment loss has occurred. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying value of the assets exceeds their
estimated fair value.

The Company accounts for goodwill and other intangible assets acquired after
July 1, 2001 in accordance with SFAS No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets. (see Recent Accounting
Pronouncements). Under the provisions of SFAS No. 142, the carrying value of
assets acquired, including goodwill, are reviewed annually. During such a
review the Company will estimate the fair value of the reporting unit to which
the assets were assigned by discounting the reporting units estimated future
cash flows before interest. The Company will compare the discounted flows to
the carrying value of the acquired net assets to determine if an impairment loss
has occurred. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying value of the
assets exceeds their estimated fair values.

Royalties

The Company enters into agreements to license intellectual properties such as
trademarks, copyrights, and patents. The agreements may call for minimum
amounts of royalties to be paid in advance and throughout the term of the
agreement, which are non-refundable in the event that product sales fail to
meet certain minimum levels. Advance royalties resulting from such
transactions are stated at the lower of the amounts paid or the amounts
estimated to be recoverable from future sales of the related products.
Furthermore, minimum guaranteed royalty commitments are reviewed on a periodic basis to
ensure that amounts are recoverable based on estimates of future sales of the
products under license. A loss provision will be recorded in the consolidated
statements of operations to the extent that future minimum royalty guarantee
commitments are not recoverable. Estimated future sales are projected based on
historical experience, including that of similar products, and anticipated
advertising and marketing support by the licensor.

Cautionary Statements and Risk Factors

This section is written to be responsive to the Securities and Exchange
Commissions Plain English guidelines. In this section the words we, our,
ours and us refer only to Equity Marketing, Inc. and its subsidiaries and
not any other person. Set forth below and elsewhere in this Form 10-K and in
other documents we file with the Securities and Exchange Commission are
important risks and uncertainties that could cause our actual results of
operations, business and financial condition to differ materially from the
results contemplated by the forward looking statements contained in this Form
10-K.

We Depend Significantly on One Key Customer

Our success is largely dependent on a single customer, Burger King, which
accounted for approximately 80%, 80% and 66% of our revenues for the years
ended December 31, 1999, 2000 and 2001, respectively. Burger King has no
contractual commitment to do business with us. There can be no assurance that
Burger King will do business with us in the future. The termination or a
significant reduction by Burger King of its business with us would adversely
affect our business. The Burger King business is also subject to significant
year-to-year variability. For instance, the Companys revenues generated by
its business with Burger King dropped from $186,349 in 2000 to $95,405 in 2001.
The success of our business with Burger King is also partially dependent on
the overall success of the Burger King system, which sales could be negatively
impacted by such factors as increased competition, a change in ownership,
product recalls or bovine spongiform encephalopathy, commonly known as mad cow
disease. (see Business Equity Promotions and Note 11 of Notes to
Consolidated Financial Statements).

We Rely on a Limited Number of Nonrenewable Product Orders

A large portion of our revenues come from a relatively limited number of
promotional programs by Burger King, which promotions are in effect for only a
limited period of time and generally are not repeated. We must continually
develop and sell new products and services for utilization in new promotional
programs as part of Burger Kings annual promotions calendar (see
Business Equity Promotions). Many consumer products are successfully
marketed for only one or two years as a result of changing consumer
preferences. Accordingly, our consumer products business depends on the ability
to develop and market new products associated with new entertainment properties
or proprietary concepts. There can be no assurance that any new retail product
line will be successful (see Business Equity Consumer Products). The
cancellation or premature termination of one or more retail product lines or
promotional programs, because of our inability to renew or extend licenses
(which typically have terms of three years or less) on favorable terms or
otherwise, or a significant change in promotional practices within the quick
service restaurant industry, could have a material adverse effect on us. In
addition, there can be no assurance that we or our customers will be able to
secure licenses for additional entertainment properties on which to base our
promotional and consumer products or that, if secured, such licenses will
result in successful products.

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We Face the Risk of Product Liability Claims

Products that we develop or sell may expose us to liability from claims by
users of such products for damages including, but not limited to, bodily injury
or property damage. We currently maintain product liability insurance coverage
in amounts that we believe are adequate. There can be no assurance that we will
be able to maintain such coverage or obtain additional coverage on acceptable
terms in the future, or that such insurance will provide adequate coverage
against all potential claims.

We Face the Risk of Product Recalls

Products that we develop or sell may expose us to liability for the costs
related to product recalls. These costs can include legal expenses,
advertising, collection and destruction of product, and free goods. Our
product liability insurance coverage generally excludes such costs and damages
resulting from product recall.

We Face Credit Risk

We regularly extend credit to several distribution companies in connection with
our business with Burger King. Failure by one or more distribution companies
to honor their payment obligations to us could have a material adverse effect
on our operations.

Our Future Operating Results are Difficult to Predict

We experience significant quarter-to-quarter variability in our revenues and
net income. The promotions business tends to include larger promotions in the
summer and during the winter holiday season. Major movie and television release
schedules also vary year-to-year, influencing the promotional schedules of our
customers, as well as the particular promotions for which we are retained. The
motion picture or television characters on which the promotions business is
often based may only be popular for short periods of time or not at all. There
may not be comparable popular characters or similar promotional campaigns in
the future. Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. It is likely that in some future quarter our operating results may
fall below the expectations of securities analysts and investors. In this
event, the trading price of our Common Stock may fall significantly.

The Success of Our Products Depends on the Popularity of Licensed Materials

Our promotional and consumer products are typically based on entertainment
properties, such as characters from current motion pictures or television
programs. The success of these products depends on the popularity of the
entertainment properties on which they are based. Each motion picture and
television program is an individual artistic work, and its commercial success
is dependent on unpredictable consumer preferences. Often we spend substantial
resources in securing licenses and developing and manufacturing products prior
to a release of the motion picture or television program upon which the
products are based. Our customers, such as Burger King, typically require
delivery schedules that coincide with the release of the underlying
entertainment properties. Our results of operations may be adversely affected
if the entertainment properties upon which our products are based turn out to
be less popular than we anticipate. Also, delays in the release of motion
pictures or television programs could result in delays or cancellations of our
promotions. (see Business Equity Promotions).

Our Markets Are Highly Competitive

The markets in which our businesses operate are highly competitive. Our
competitors, and in many cases their parent companies, include companies which
have far more extensive sales and development staffs and significantly greater
financial, marketing and other resources than we do. There can be no assurance
that we will be able to compete effectively against such companies.

We Rely on Foreign Manufacturers

During 2001, approximately 95% of our products were manufactured in China.
Foreign manufacturing is subject to a number of risks, including transportation
delays and interruptions, political and economic disruptions, the imposition of
tariffs, quotas and other import or export controls, and changes in
governmental policies.

We Face Foreign Currency Risk

As part of our business, we enter into contracts for the purchase and sale of
products with entities in foreign countries. While the vast majority of our
contracts are denominated in U.S. dollars, significant fluctuations in the
local currencies of the entities with whom we transact business may adversely
affect these entities abilities to fulfill their obligations under their
contracts.

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Logistix enters into contracts denominated primarily in U.S. dollars, British
pounds sterling and Euros. Although the Company attempts to reduce its
exposure to changes in foreign currency exchange rates through the use of
certain hedging techniques, changes in such exchange rates may result in
changes in the value of the Companys commitments and anticipated foreign
currency cash flows.

There Are Risks Associated with Acquisitions

If we are presented with appropriate opportunities, we intend to make
investments in complementary companies, products or technologies. We may not
realize the anticipated benefits of any acquisitions or investment. If we buy a
company, we could have difficulty in assimilating that companys personnel and
operations. In addition, the key personnel of the acquired company may decide
not to work for us. If we make other types of acquisitions, we could have
difficulty in assimilating the acquired technology or products into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. Future acquisitions could
result in potentially dilutive issuances of equity securities, the incurrence
of debt, contingent liabilities and/or amortization expenses related to
goodwill and other intangible assets, which could adversely affect our results
of operations and financial condition.

A Significant Portion of our Common Stock is Controlled by our Officers and
Directors

Donald A. Kurz and Stephen P. Robeck beneficially own approximately 28% and
16%, respectively, of our outstanding Common Stock. Mr. Kurz is our Chairman of
the Board and Chief Executive Officer. Mr. Robeck is a member of the Board of
Directors. Crown owns 100% of the outstanding shares of the Companys Series A
senior cumulative participating convertible preferred stock, representing
1,694,915 shares of Common Stock on an as converted basis. These stockholders,
either individually or acting together, would be able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business combination
transactions.

We May Issue Preferred Stock

The Board of Directors has authority to issue up to one million shares of
preferred stock, and to fix the rights, preferences, privileges and
restrictions of those shares without any further vote or action by our
stockholders. The potential issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of the Company, may
discourage bids for the Common Stock at a premium over the market price of the
Common Stock and may adversely affect the market price of, and the voting and
other rights of, the holders of Common Stock.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Impact of Interest Rate Changes

The amounts borrowed under the Companys credit facility are at variable
interest rates, and the Company is subject to market risk resulting from
interest rate fluctuations. No amounts were outstanding under the facility as
of December 31, 2001.

Impact of Foreign Currency Fluctuation

Approximately 7% of the Companys revenues are denominated in foreign
currencies, and the Company is subject to market risks resulting from
fluctuations in foreign currency exchange rates. In certain instances, the
Company enters into foreign currency exchange contracts in order to reduce
exposure to changes in foreign currency exchange rates that affect the value of
its firm commitments and certain anticipated foreign currency cash flows. The
Company currently intends to continue to enter into such contracts to hedge
against future material foreign currency exchange rate risks.

In September 2001, the Companys Logistix subsidiary entered into a foreign
currency forward contract to sell Euros in exchange for pound sterling
aggregating GBP 979 at an average rate of 1.587, which expires in May 2002. At
December 31, 2001, this foreign currency forward contract had a balance of GBP
747 and an estimated fair value of $29.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the Financial Statements referred to in the accompanying
Index setting forth the consolidated financial statements of the Company,
together with the reports of independent public accountants dated February 27,
2002.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table provides information with respect to the executive officers
and directors of the Company.

|                        |  |     |    |          |  |                                                                      
|----------------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------------
|Name                    |  | Age |    | Position
|                        |  |     |    |         
|Donald A. Kurz          |  |     | 46 |          |  | Chairman of the Board and Chief Executive Officer                    
|Kim H. Thomsen          |  |     | 49 |          |  | President, Marketing and Interactive Services, Chief Creative Officer
|Bret R. Hadley          |  |     | 42 |          |  | Executive Vice President, Consumer Products and
Worldwide Operations 
|Gaetano A. Mastropasqua |  |     | 38 |          |  | Executive Vice President, Client Services                            
|Lawrence J. Madden      |  |     | 37 |          |  | Senior Vice President and Chief Financial Officer                    
|Leland P. Smith         |  |     | 38 |          |  | Senior Vice President, General Counsel and Secretary                 
|Sanford R. Climan       |  |     | 46 |          |  | Director                                                             
|Jonathan D. Kaufelt     |  |     | 50 |          |  | Director                                                             
|Mitchell H. Kurz        |  |     | 50 |          |  | Director                                                             
|Alfred E. Osborne, Jr.  |  |     | 57 |          |  | Director                                                             
|Bruce Raben             |  |     | 48 |          |  | Director                                                             
|Stephen P. Robeck       |  |     | 53 |          |  | Director                                                             
|Jason Ackerman          |  |     | 34 |          |  | Director                                                             
|Jeffrey S. Deutschman   |  |     | 45 |          |  | Director                                                             

Donald A. Kurzbecame Chairman and Chief Executive Officer of Equity Marketing
in January 1999, after serving as President and Co-CEO from 1991 through 1998.
He has also served as a director since 1990, when he joined Equity Marketing
as Executive Vice President. Mr. Kurz was previously a management consultant
with the general management consulting division of Towers Perrin, where he was
a vice president and senior partner and eventually headed the firms New York
office. Mr. Kurz earned a bachelors degree from Johns Hopkins University and
a masters in business administration from Columbia University Graduate School
of Business.

Kim H. Thomsenjoined Equity Marketing in 1991 and is currently responsible
for the creative direction for all of the companys promotions and consumer
products. She was promoted to her current post in early 2000. Prior to
joining Equity Marketing, she operated her own business as a creative
consultant. Ms. Thomsen earned her bachelors degree from Cornell University.

Bret R. Hadleyjoined Equity Marketing in July 2001 and is responsible for the
Companys Consumer Products division as well as all product realization,
including manufacturing, quality control and distribution. From November 1999
to May 2001, he was President and CEO of Frank Schaeffer Publications, Inc.,
an educational products firm. From November 1997 to November 1999, he was
President of Wham-O, Inc., a toy and sporting goods manufacturer. From
December 1985 to November 1997, he served in various senior leadership
positions for Mattel, Inc., including most recently Senior Vice President 
International Marketing. He holds a bachelors degree from the University of
Minnesota and a masters in business administration from UCLAs Anderson
Graduate School of Management.

Gaetano A. Mastropasquajoined Equity Marketing in 1997 as a Senior Director
responsible for the companys Burger King account. Mr. Mastropasqua oversees
the companys Burger King business. He was promoted to his current post in
July 2000, and has added oversight of the companys client services division
to his responsibilities. His prior experience includes approximately seven
years with American Express, where he ultimately became a vice president of
business development, and more than three years with Andersen Consulting in
Europe. He holds a bachelors degree from McGill University and a masters in
business administration from the Kellogg Graduate School of Management,
Northwestern University.

Lawrence J. Maddenjoined Equity Marketing in November 2000 as Senior Vice
President and Chief Financial Officer. He is responsible for the Companys
finance, treasury, accounting, management information systems and corporate
development functions. From October 1999 to October 2000, he served as
Executive Vice President and Chief Financial Officer for Atomic Pop, an online
music company. From November 1997 to October 1999, Mr. Madden was the Senior
Vice President and Chief Financial Officer for the recorded music and music
publishing investments of Wasserstein & Co., Inc. From April 1994 to November
1997, he worked at PolyGram, a major entertainment company based in New York,
serving first as the top audit officer for the corporations North American
operations and later as the Vice President, Finance and Administration for Def
Jam Records, a PolyGram subsidiary. Mr. Madden began his career with Ernst &
Young in New York, where he worked for eight years, from September 1986 to
April 1994. Mr. Madden received his masters in business administration from
New York University and his bachelors degree from Albany State University.

Leland P. Smithjoined Equity Marketing in 1998 as Senior Vice President,
General Counsel and Secretary. He is responsible for the companys legal,
human resources and board administration functions. Mr. Smith was previously
Assistant General Counsel for Mattel,

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Inc., and an associate in the corporate
department with Riordan & McKinzie. He holds a bachelors degree from Amherst
College and a juris doctor and a masters in business administration from the
University of Southern California.

Sanford R. Climanis Managing Director of Entertainment Media Ventures, a Los
Angeles-based venture capital fund focused on investment in the areas of
technology and media. He has been an Equity Marketing director since 1998.
From June 1997 through February 1999, he was a senior executive with Creative
Artists Agency (CAA). From October 1995 through May 1998, he was an
Executive Vice President for Universal Studios and, from June 1986 through
September 1995, he was a senior executive with CAA. Mr. Climan holds a
bachelors degree from Harvard College, a masters of science in health policy
and management from Harvard School of Public Health and a masters in business
administration from Harvard Business School.

Jonathan D. Kaufelt, a prominent tax and business attorney, has been an Equity
Marketing director since November 2000. Mr. Kaufelt most recently led the
business and tax department at Armstrong, Hirsch, Jackoway, Tyerman &
Wertheimer, P.C., a leading entertainment law firm in Los Angeles. He joined
the firm in 1986, after nine years at two New York law firms  Kay, Collyer &
Boose from 1982 to 1986 and Simpson, Thacher & Bartlett from 1977 to 1982.
Mr. Kaufelt earned a juris doctor from Georgetown University, a master of laws
in taxation from New York University and a bachelors degree from the
University of Pennsylvania. He serves on the board of Planned Parenthood of
Los Angeles and as a trustee of Rutgers Preparatory School in Somerset, New
Jersey.

Mitchell H. Kurzis the Chairman and founder of Kurz and Friends, a consulting
company to the global advertising and marketing services business. He has
been an Equity Marketing director since March 1999. Mr. Kurz retired from
Young & Rubicam Inc. in December 1998, following a 24-year career during which
he held numerous executive positions. His most recent position at Young &
Rubicam was Chairman of client services, where he oversaw key global client
relationships representing approximately 50% of the companys annual revenues.
From 1996 to 1998, he was President and Chief Operating Officer of Young &
Rubicam Advertising, and from 1992 to 1996, he was Worldwide Chief Executive
Officer of Wunderman Cato Johnson, a Young & Rubicam operating unit. Mr. Kurz
received his masters in business administration from Harvard Business School
and his bachelors degree from Dartmouth College. Mr. Kurz is the brother of
Donald A. Kurz, the Companys Chairman and Chief Executive Officer.

Alfred E. Osborne, Jr.is the founder and director of the Harold Price Center
for Entrepreneurial Studies at UCLAs Anderson Graduate School of Management.
He has been an Equity Marketing director since December 2000. Dr. Osborne
joined UCLA in 1972, serves as a management professor, and has served as an
Associate Dean and the Director of the MBA program before founding the Harold
Price Center for Entrepreneurial Studies in 1987. During that time, he was
also the Brookings Institution Economic Policy Fellow at the Securities and
Exchange Commission. He is currently on the Boards of Directors of Nordstrom,
Inc. and K2, Inc., and is an individual general partner of Technology Funding
Venture Partners V and a trustee of the WM Group of Funds. Dr. Osborne holds
a doctorate in business-economics, a masters in business administration, a
masters in economics and a bachelors degree all from Stanford University.

Bruce Rabenis a managing director with CIBC World Markets, an investment
banking firm. He has been an Equity Marketing director since 1993. From 1990
through 1995, he was an Executive Vice President with Jeffries & Company, an
investment-banking firm. Mr. Raben received a bachelors degree from Vassar
College and a masters in business administration from Columbia University
Graduate School of Business.

Stephen P. Robeckhas been an Equity Marketing director since 1989 and is
currently pursuing other business interests. From January 1999 through
December 2001, he served as a consultant to the Company. He was elected
Chairman and Co-Chief Executive officer in September 1991 and served in that
role through December 1998. Between 1987 and September 1991, he served as
Chief Operating Officer. Mr. Robeck received his bachelors degree from Lake
Forest College.

Jason Ackermanhas been a Managing Director of Crown Capital Group since 1997.
He has been an Equity Marketing director since September 2001. Prior to
joining Crown Capital Group, he was a Senior Vice President in the Corporate
Finance Department of Donaldson Lufkin & Jenrette (DLJ), in the Los Angeles
office. At DLJ, he specialized in high yield financings and financial
restructurings for corporate clients, primarily in the supermarket and
specialty retail industries. Before joining DLJ in 1990, he served one year
at Drexel Burnham Lambert as a financial analyst in the Corporate Finance
Department. Mr. Ackerman received his bachelors degree from Boston
University.

Jeffrey S. Deutschmanhas been a Managing Director of Crown Capital Group
since 1997. He has been an Equity Marketing director since March 2000. Prior
to joining Crown, he was a Partner at Aurora Capital Partners, a leveraged
buyout fund, from 1992 through 1995, a Partner at Deutschman, Clayton &
Company, an investment firm engaged in management buyout transactions, from
1987 through 1991 and a Principal at Spectrum Group, Inc., which specialized
in leveraged acquisitions, from 1981 through 1986. Mr. Deutschman received a
masters in business administration from UCLAs Anderson Graduate School of
Management and his bachelors degree from Columbia University.

20



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Additional information relating to this item appears under the caption
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE in the Companys
Proxy Statement relating to the Companys 2002 Annual Meeting of Stockholders,
which is incorporated herein by reference.




ITEM 11. EXECUTIVE COMPENSATION

Information relating to this item appears under the captions ELECTION OF
DIRECTORS, EXECUTIVE COMPENSATION AND RELATED MATTERS and REPORT OF THE
COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION in the Companys Proxy
Statement relating to the Companys 2002 Annual Meeting of Stockholders, which
are incorporated herein by reference.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information relating to this item appears under the caption SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in the Companys Proxy
Statement relating to the Companys 2002 Annual Meeting of Stockholders, which
is incorporated herein by reference.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information relating to this item appears under the caption ELECTION OF
DIRECTORS in the Companys Proxy Statement relating to the Companys 2002
Annual Meeting of Stockholders, which is incorporated herein by reference.

21



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PART IV




ITEM 14. EXHIBITS, FINANCIAL
STATEMENTS, SCHEDULE AND REPORTS ON FORM 8-K

(A).List of documents filed as part of this Report.

Financial Statements:

EQUITY MARKETING, INC.

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

|                                         |                                                                                                                                  |  |      |    | 
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                         |                                                                                                                                  |  | Page
|                                         |                                                                                                                                  |  |     
|Report of Independent Public Accountants |                                                                                                                                  |  | 23   |   
|CONSOLIDATED FINANCIAL STATEMENTS:       |                                                                                                                                  |  |      |   
|                                         | Balance Sheets as of December 31, 2000 and 2001                                                                                  |  |      | 24 | 
|                                         | Statements of Operations for the Years Ended December 31, 1999, 2000 and 2001                                                    |  |      | 25 | 
|                                         | Statements of Stockholders Equity and Mandatory Redeemable Preferred Stock for the Years Ended
December 31, 1999, 2000 and 2001 |  |      | 26 | 
|                                         | Statements of Comprehensive Income for the Years Ended December 31, 1999, 2000 and 2001                                          |  |      | 27 | 
|                                         | Statements of Cash Flows for the Years Ended December 31, 1999, 2000 and 2001                                                    |  |      | 28 | 
|                                         | Notes to Consolidated Financial Statements                                                                                       |  |      | 29 | 
|Supplemental Schedule                    |                                                                                                                                  |  |      |   
|                                         | Report of Independent Public Accountants on Schedule II                                                                          |  |      | 48 | 
|                                         | Schedule II Valuation and Qualifying Accounts                                                                                    |  |      | 49 | 



|Note: |  | All other supplementary schedules are omitted since they are not
applicable or the required information can be obtained from the
consolidated financial statements.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | (B).Reports on Form 8-K                                                                                  
| |  | ---------------------------------------------------------------------------------------------------------
|
| |  | Report on Form 8-K filed with the Securities and Exchange Commission on
March 5, 2001 (Item 5 and 7).    
|
| |  | Report on Form 8-K filed with the Securities and Exchange Commission on
April 27, 2001 (Item 5 and 7).   
|
| |  | Report on Form 8-K filed with the Securities and Exchange Commission on
August 6, 2001 (Item 5 and 7).   
|
| |  | Report on Form 8-K filed with the Securities and Exchange Commission on
November 13, 2001 (Item 5 and 7).
|
| |  | Report on Form 8-K filed with the Securities and Exchange Commission on
November 16, 2001 (Item 7).      

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Report of Independent Public Accountants

To Equity Marketing, Inc.:

We have audited the accompanying consolidated balance sheets of Equity
Marketing, Inc. (a Delaware corporation) and subsidiaries as of December 31,
2000 and 2001, and the related consolidated statements of operations,
stockholders equity and mandatory redeemable preferred stock,
comprehensive income, and cash flows
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Equity Marketing,
Inc. and subsidiaries as of December 31, 2000 and 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.

/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP

Los Angeles, California
February 27, 2002

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EQUITY MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |              |         |  |        |         |        | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------------ | ------- |  | ------ | ------- | ------ | 
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        | December 31,
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |             
|ASSETS                                                                                                                                                                                                                            |                                                                                                                                                                  | 2000                                       |        | 2001        
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |             
|CURRENT ASSETS:                                                                                                                                                                                                                   |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|                                                                                                                                                                                                                                  | Cash and cash equivalents                                                                                                                                        |                                            | $      | 32,405       |         |  | $      | 21,935  |       
|                                                                                                                                                                                                                                  | Marketable securities                                                                                                                                            |                                            |        | 5,100        |         |  |        | 7,200   |       
|                                                                                                                                                                                                                                  | Accounts receivable (net of allowances of $3,090 and $2,336
as of December 31, 2000 and 2001, respectively)                                                      |                                            |        | 30,137       |         |  |        | 22,695  |       
|                                                                                                                                                                                                                                  | Note receivable                                                                                                                                                  |                                            |        | 8,322        |         |  |        | 2,183   |       
|                                                                                                                                                                                                                                  | Inventories                                                                                                                                                      |                                            |        | 11,744       |         |  |        | 9,337   |       
|                                                                                                                                                                                                                                  | Deferred income taxes                                                                                                                                            |                                            |        | 3,176        |         |  |        | 2,436   |       
|                                                                                                                                                                                                                                  | Prepaid expenses and other current assets                                                                                                                        |                                            |        | 1,652        |         |  |        | 2,464   |       
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|                                                                                                                                                                                                                                  |                                                                                                                                                                  | Total current assets                       |        |              | 92,536  |  |        |         | 68,250 | 
|Fixed Assets, net                                                                                                                                                                                                                 |                                                                                                                                                                  |                                            | 4,263  |              |         |  | 4,178  |        
|Goodwill, net                                                                                                                                                                                                                     |                                                                                                                                                                  |                                            | 12,419 |              |         |  | 24,690 |        
|Other Intangibles, net                                                                                                                                                                                                            |                                                                                                                                                                  |                                            | 40     |              |         |  | 749    |        
|Other Assets                                                                                                                                                                                                                      |                                                                                                                                                                  |                                            | 1,284  |              |         |  | 1,620  |        
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|                                                                                                                                                                                                                                  |                                                                                                                                                                  | Total assets                               |        | $            | 110,542 |  |        | $       | 99,487 | 
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                              |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|CURRENT LIABILITIES:                                                                                                                                                                                                              |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|                                                                                                                                                                                                                                  | Short-term debt                                                                                                                                                  |                                            | $      |             |         |  | $      |        |       
|                                                                                                                                                                                                                                  | Accounts payable                                                                                                                                                 |                                            |        | 18,421       |         |  |        | 22,114  |       
|                                                                                                                                                                                                                                  | Due to customer                                                                                                                                                  |                                            |        | 11,725       |         |  |        | 3,928   |       
|                                                                                                                                                                                                                                  | Accrued payroll and payroll related costs                                                                                                                        |                                            |        | 3,378        |         |  |        | 464     |       
|                                                                                                                                                                                                                                  | Accrued liabilities                                                                                                                                              |                                            |        | 6,872        |         |  |        | 5,124   |       
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|                                                                                                                                                                                                                                  |                                                                                                                                                                  | Total current liabilities                  |        |              | 40,396  |  |        |         | 31,630 | 
|Deferred Income Taxes                                                                                                                                                                                                             |                                                                                                                                                                  |                                            | 454    |              |         |  | 590    |        
|Long-Term Liabilities                                                                                                                                                                                                             |                                                                                                                                                                  |                                            | 1,402  |              |         |  | 1,745  |        
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|                                                                                                                                                                                                                                  |                                                                                                                                                                  | Total liabilities                          |        |              | 42,252  |  |        |         | 33,965 | 
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|COMMITMENTS AND CONTINGENCIES (Note 10)                                                                                                                                                                                           |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|Mandatory redeemable preferred stock, Series A senior cumulative participating
convertible, $.001 par value, 25,000 issued and outstanding, stated at liquidation
preference of $1,000 per share ($25,000), net of issuance costs |                                                                                                                                                                  |                                            | 23,049 |              |         |  | 23,049 |        
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|STOCKHOLDERS EQUITY:                                                                                                                                                                                                             |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|                                                                                                                                                                                                                                  | Preferred stock, $.001 par value per share, 1,000,000 shares
authorized, 25,000 Series A issued and outstanding                                                  |                                            |        |             |         |  |        |        |       
|                                                                                                                                                                                                                                  | Common stock, par value $.001 per share, 20,000,000
shares authorized, 6,141,396 and 5,715,293 shares
outstanding as of December 31, 2000 and
2001, respectively |                                            |        |             |         |  |        |        |       
|                                                                                                                                                                                                                                  | Additional paid-in capital                                                                                                                                       |                                            |        | 18,209       |         |  |        | 20,050  |       
|                                                                                                                                                                                                                                  | Retained earnings                                                                                                                                                |                                            |        | 32,863       |         |  |        | 35,964  |       
|                                                                                                                                                                                                                                  | Accumulated other comprehensive income                                                                                                                           |                                            |        |             |         |  |        | 242     |       
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            | 51,072 |              |         |  | 56,256 |        
|Less                                                                                                                                                                                                                             |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|                                                                                                                                                                                                                                  | Treasury stock, 2,207,083 and 2,869,793 shares at cost as of December 31, 2000
and 2001, respectively                                                            |                                            |        | (5,777       | )       |  |        | (13,773 | )     
|                                                                                                                                                                                                                                  | Stock subscription receivable                                                                                                                                    |                                            |        | (11          | )       |  |        |        |       
|                                                                                                                                                                                                                                  | Unearned compensation                                                                                                                                            |                                            |        | (43          | )       |  |        | (10     | )     
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|                                                                                                                                                                                                                                  |                                                                                                                                                                  | Total stockholders equity                 |        |              | 45,241  |  |        |         | 42,473 | 
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |              |         |  |        |        
|                                                                                                                                                                                                                                  |                                                                                                                                                                  | Total liabilities and stockholders equity |        | $            | 110,542 |  |        | $       | 99,487 | 
|                                                                                                                                                                                                                                  |                                                                                                                                                                  |                                            |        |              |         |  |        |        

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

24



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##### Table of Contents



EQUITY MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)

|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |           |        |        | 
|------------------------------------------- | ------------------------------------------- | -------------------------------------- | ------------------------ | --------- | ------------------------ | ------ | ------- | --------- | ------ | ------ | ------- | --------- | ------ | ------ | 
|                                            |                                             |                                        |                          |           | Years Ended December 31,
|                                            |                                             |                                        |                          |           |                         
|                                            |                                             |                                        |                          |           | 1999                     |        | 2000    |           | 2001  
|                                            |                                             |                                        |                          |           |                          |        |         |           |       
|REVENUES                                    |                                             | $                                      | 227,063                  |           |                          | $      | 232,287 |           |        | $      | 144,316 |          
|Cost of sales                               |                                             |                                        | 170,416                  |           |                          |        | 172,270 |           |        |        | 104,129 |          
|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|Gross Profit                                |                                             |                                        | 56,647                   |           |                          |        | 60,017  |           |        |        | 40,187  |          
|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|OPERATING EXPENSES:                         |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|                                            |                                             | Salaries, wages and benefits           |                          |           | 17,350                   |        |         |           | 17,610 |        |         |           | 15,924 |       
|                                            |                                             | Selling, general and administrative    |                          |           | 22,829                   |        |         |           | 23,075 |        |         |           | 18,323 |       
|                                            |                                             | AmeriServe bankruptcy bad debt expense |                          |           | 1,014                    |        |         |           | 482    |        |         |           |       |       
|                                            |                                             | Impairment of assets                   |                          |           |                         |        |         |           | 8,504  |        |         |           |       |       
|                                            |                                             | Logistix integration costs             |                          |           |                         |        |         |           |       |        |         |           | 192    |       
|                                            |                                             | Restructuring gains                    |                          |           | (604                     | )      |         |           | (418   | )      |         |           |       |       
|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|                                            |                                             |                                        | Total operating expenses |           |                          | 40,589 |         |           |        | 49,253 |         |           |        | 34,439 | 
|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|                                            |                                             |                                        | Income from operations   |           |                          | 16,058 |         |           |        | 10,764 |         |           |        | 5,748  | 
|OTHER (EXPENSE) INCOME:                     |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|                                            |                                             | Interest expense                       |                          |           | (881                     | )      |         |           | (405   | )      |         |           | (249   | )     
|                                            |                                             | Interest income                        |                          |           | 138                      |        |         |           | 1,892  |        |         |           | 1,695  |       
|                                            |                                             | Other income (expense)                 |                          |           | 233                      |        |         |           | (112   | )      |         |           | (76    | )     
|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|Income before provision for income taxes    |                                             |                                        | 15,548                   |           |                          |        | 12,139  |           |        |        | 7,118   |          
|PROVISION FOR INCOME TAXES                  |                                             |                                        | 6,134                    |           |                          |        | 6,797   |           |        |        | 2,517   |          
|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|                                            | Net income                                  |                                        | $                        | 9,414     |                          |        | $       | 5,342     |        |        | $       | 4,601     |       
|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|PREFERRED STOCK DIVIDENDS                   |                                             | $                                      |                         |           |                          | $      | 956     |           |        | $      | 1,500   |          
|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|NET INCOME AVAILABLE TO COMMON STOCKHOLDERS |                                             | $                                      | 9,414                    |           |                          | $      | 4,386   |           |        | $      | 3,101   |          
|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|BASIC INCOME PER SHARE:                     |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|                                            | INCOME PER SHARE                            |                                        | $                        | 1.51      |                          |        | $       | 0.70      |        |        | $       | 0.52      |       
|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|                                            | BASIC WEIGHTED AVERAGE SHARES OUTSTANDING   |                                        |                          | 6,227,842 |                          |        |         | 6,275,590 |        |        |         | 5,996,662 |       
|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|DILUTED INCOME PER SHARE:                   |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|                                            | INCOME PER SHARE                            |                                        | $                        | 1.46      |                          |        | $       | 0.68      |        |        | $       | 0.50      |       
|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          
|                                            | DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING |                                        |                          | 6,440,738 |                          |        |         | 6,460,557 |        |        |         | 6,164,154 |       
|                                            |                                             |                                        |                          |           |                          |        |         |           |        |        |         |          

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

25



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##### Table of Contents



EQUITY MARKETING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND MANDATORY REDEEMABLE PREFERRED STOCK
(in thousands, except share data)



|                           |                                                            |  |           |              |   |                 |   |         |            |          |        |         |  |          |        |        |  |   |        |       |   |   |        |        |   | 
|-------------------------- | ---------------------------------------------------------- |  | --------- | ------------ | - | --------------- | - | ------- | ---------- | -------- | ------ | ------- |  | -------- | ------ | ------ |  | - | ------ | ----- | - | - | ------ | ------ | - | 
|                           |                                                            |  |           | Common Stock |   | Preferred Stock |   |         | Additional |          |        |         |  |         
|                           |                                                            |  |           |              |   |                 |   | Paid-in |            | Retained
|                           |                                                            |  |           | Shares       |   | Amount          |   | Shares  |            | Amount   |        | Capital |  | Earnings
|                           |                                                            |  |           |              |   |                 |   |         |            |          |        |         |  |         
|Balance, December 31, 1998 |                                                            |  | 6,227,718 |              |   | $               |  |         |            |          |       |         |  | $        |       |        |  | $ | 15,343 |       |   | $ | 19,063 |       
|                           | Net income                                                 |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        | 9,414  |  
|                           | Cancellation of shares
pursuant to restricted stock plan   |  |           | (33,450      | ) |                 |   |        |            |          |        |        |  |          |        |       |  |   |        | (202  | ) |   |        |       |  
|                           | Amortization of restricted stock grants                    |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        |       |  
|                           | Exercise of stock options                                  |  |           | 54,290       |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        | 263   |   |   |        |       |  
|                           | Issuance of stock to 401(k) Tax
Deferred Savings Plan      |  |           | 21,542       |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        | 183   |   |   |        |       |  
|                           | Consulting services rendered
in exchange for stock options |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        | 172   |   |   |        |       |  
|                           | Tax benefit from exercise of stock options                 |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        | 183   |   |   |        |       |  
|                           | Purchase of treasury stock                                 |  |           | (50,000      | ) |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        |       |  
|                           | Loan forgiveness                                           |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        |       |  
|                           |                                                            |  |           |              |   |                 |   |         |            |          |        |         |  |          |        |        |  |   |        |       |   |   |        |       
|Balance, December 31, 1999 |                                                            |  | 6,220,100 |              |   |                 |  |         |            |          |       |         |  |          |       |        |  |   | 15,942 |       |   |   | 28,477 |       
|                           | Net income                                                 |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        | 5,342  |  
|                           | Issuance of preferred stock and warrants                   |  |           |             |   |                 |   |        |            |          |        | 25,000  |  |          |        | 23,049 |  |   |        | 359   |   |   |        |       |  
|                           | Cancellation of shares pursuant to restricted
stock plan   |  |           | (2,905       | ) |                 |   |        |            |          |        |        |  |          |        |       |  |   |        | (48   | ) |   |        |       |  
|                           | Amortization of restricted stock grants                    |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        |       |  
|                           | Exercise of stock options                                  |  |           | 209,985      |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        | 1,448 |   |   |        |       |  
|                           | Consulting services rendered in exchange
for stock options |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        | 106   |   |   |        |       |  
|                           | Tax benefit from exercise of stock options                 |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        | 402   |   |   |        |       |  
|                           | Preferred stock dividends                                  |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        | (956   | )
|                           | Purchase of treasury stock                                 |  |           | (285,784     | ) |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        |       |  
|                           | Loan forgiveness                                           |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        |       |  
|                           |                                                            |  |           |              |   |                 |   |         |            |          |        |         |  |          |        |        |  |   |        |       |   |   |        |       
|Balance, December 31, 2000 |                                                            |  | 6,141,396 |              |   |                 |  |         |            |          | 25,000 |         |  |          | 23,049 |        |  |   | 18,209 |       |   |   | 32,863 |       
|                           | Net income                                                 |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        | 4,601  |  
|                           | Amortization of restricted stock grants                    |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        |       |  
|                           | Exercise of stock options                                  |  |           | 236,607      |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        | 1,284 |   |   |        |       |  
|                           | Tax benefit from exercise of stock options                 |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        | 557   |   |   |        |       |  
|                           | Preferred stock dividends                                  |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        | (1,500 | )
|                           | Foreign currency translation adjustments                   |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        |       |  
|                           | Unrealized gain on foreign currency forward contract       |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        |       |  
|                           | Purchase of treasury stock                                 |  |           | (662,710     | ) |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        |       |  
|                           | Loan forgiveness                                           |  |           |             |   |                 |   |        |            |          |        |        |  |          |        |       |  |   |        |      |   |   |        |       |  
|                           |                                                            |  |           |              |   |                 |   |         |            |          |        |         |  |          |        |        |  |   |        |       |   |   |        |       
|Balance, December 31, 2001 |                                                            |  | 5,715,293 |              |   | $               |  |         |            |          | 25,000 |         |  | $        | 23,049 |        |  | $ | 20,050 |       |   | $ | 35,964 |       
|                           |                                                            |  |           |              |   |                 |   |         |            |          |        |         |  |          |        |        |  |   |        |       |   |   |        |       

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                           |                                                            |   |     |               |  |          |         |              |   |              |     |       |  |   |      |     |  |   |        |        |   | 
|-------------------------- | ---------------------------------------------------------- | - | --- | ------------- |  | -------- | ------- | ------------ | - | ------------ | --- | ----- |  | - | ---- | --- |  | - | ------ | ------ | - | 
|                           |                                                            |   |     | Accumulated   |  |          |         |              |   |              |     |       |  |   |      |     |  |   |        |       
|                           |                                                            |   |     | Other         |  |          |         |              |   | Stock        |     |       |  |   |      |     |  |  
|                           |                                                            |   |     | Comprehensive |  | Treasury |         | Subscription |   | Unearned     |     |       |  |  
|                           |                                                            |   |     | Income        |  | Stock    |         | Receivable   |   | Compensation |     | Total
|                           |                                                            |   |     |               |  |          |         |              |   |              |     |      
|Balance, December 31, 1998 |                                                            | $ |    |               |  | $        | (1,279  | )            |   | $            | (32 | )     |  | $ | (688 | )   |  | $ | 32,407 |       
|                           | Net income                                                 |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 9,414  |  
|                           | Cancellation of shares
pursuant to restricted stock plan   |   |     |              |  |          |         |             |   |              |     |      |  |   |      | 202 |  |   |        |       |  
|                           | Amortization of restricted stock grants                    |   |     |              |  |          |         |             |   |              |     |      |  |   |      | 242 |  |   |        | 242    |  
|                           | Exercise of stock options                                  |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 263    |  
|                           | Issuance of stock to 401(k) Tax
Deferred Savings Plan      |   |     |              |  |          |         | 11           |   |              |     |      |  |   |      |    |  |   |        | 194    |  
|                           | Consulting services rendered
in exchange for stock options |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 172    |  
|                           | Tax benefit from exercise of stock options                 |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 183    |  
|                           | Purchase of treasury stock                                 |   |     |              |  |          |         | (861         | ) |              |     |      |  |   |      |    |  |   |        | (861   | )
|                           | Loan forgiveness                                           |   |     |              |  |          |         |             |   |              |     | 11    |  |   |      |    |  |   |        | 11     |  
|                           |                                                            |   |     |               |  |          |         |              |   |              |     |       |  |   |      |     |  |   |        |       
|Balance, December 31, 1999 |                                                            |   |    |               |  |          | (2,129  | )            |   |              | (21 | )     |  |   | (244 | )   |  |   | 42,025 |       
|                           | Net income                                                 |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 5,342  |  
|                           | Issuance of preferred stock and warrants                   |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 23,408 |  
|                           | Cancellation of shares pursuant to restricted
stock plan   |   |     |              |  |          |         |             |   |              |     |      |  |   |      | 48  |  |   |        |       |  
|                           | Amortization of restricted stock grants                    |   |     |              |  |          |         |             |   |              |     |      |  |   |      | 153 |  |   |        | 153    |  
|                           | Exercise of stock options                                  |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 1,448  |  
|                           | Consulting services rendered in exchange
for stock options |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 106    |  
|                           | Tax benefit from exercise of stock options                 |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 402    |  
|                           | Preferred stock dividends                                  |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | (956   | )
|                           | Purchase of treasury stock                                 |   |     |              |  |          |         | (3,648       | ) |              |     |      |  |   |      |    |  |   |        | (3,648 | )
|                           | Loan forgiveness                                           |   |     |              |  |          |         |             |   |              |     | 10    |  |   |      |    |  |   |        | 10     |  
|                           |                                                            |   |     |               |  |          |         |              |   |              |     |       |  |   |      |     |  |   |        |       
|Balance, December 31, 2000 |                                                            |   |    |               |  |          | (5,777  | )            |   |              | (11 | )     |  |   | (43  | )   |  |   | 68,290 |       
|                           | Net income                                                 |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 4,601  |  
|                           | Amortization of restricted stock grants                    |   |     |              |  |          |         |             |   |              |     |      |  |   |      | 33  |  |   |        | 33     |  
|                           | Exercise of stock options                                  |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 1,284  |  
|                           | Tax benefit from exercise of stock options                 |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 557    |  
|                           | Preferred stock dividends                                  |   |     |              |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | (1,500 | )
|                           | Foreign currency translation adjustments                   |   |     | 213           |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 213    |  
|                           | Unrealized gain on foreign currency forward contract       |   |     | 29            |  |          |         |             |   |              |     |      |  |   |      |    |  |   |        | 29     |  
|                           | Purchase of treasury stock                                 |   |     |              |  |          |         | (7,996       | ) |              |     |      |  |   |      |    |  |   |        | (7,996 | )
|                           | Loan forgiveness                                           |   |     |              |  |          |         |             |   |              |     | 11    |  |   |      |    |  |   |        | 11     |  
|                           |                                                            |   |     |               |  |          |         |              |   |              |     |       |  |   |      |     |  |   |        |       
|Balance, December 31, 2001 |                                                            | $ | 242 |               |  | $        | (13,773 | )            |   | $            |    |       |  | $ | (10  | )   |  | $ | 65,522 |       
|                           |                                                            |   |     |               |  |          |         |              |   |              |     |       |  |   |      |     |  |   |        |       

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

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##### Table of Contents



EQUITY MARKETING, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

|                            |                                                      |   |                          |       |      |   |       |       |  |   |       |       | 
|--------------------------- | ---------------------------------------------------- | - | ------------------------ | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                            |                                                      |   | Years Ended December 31,
|                            |                                                      |   |                         
|                            |                                                      |   | 1999                     |       | 2000 |   | 2001 
|                            |                                                      |   |                          |       |      |   |      
|NET INCOME                  |                                                      | $ | 9,414                    |       |      | $ | 5,342 |       |  | $ | 4,601 |      
|OTHER COMPREHENSIVE INCOME: |                                                      |   |                          |       |      |   |       |       |  |   |       |      
|                            | Foreign currency translation adjustments             |   |                          |      |      |   |       |      |  |   |       | 213   | 
|                            | Unrealized gain on foreign currency forward contract |   |                          |      |      |   |       |      |  |   |       | 29    | 
|                            |                                                      |   |                          |       |      |   |       |       |  |   |       |      
|                            | COMPREHENSIVE INCOME                                 |   | $                        | 9,414 |      |   | $     | 5,342 |  |   | $     | 4,843 | 
|                            |                                                      |   |                          |       |      |   |       |       |  |   |       |      

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

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##### Table of Contents



EQUITY MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                              |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |         |         |   |         |  
|------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ----- | ---------------------------------------------------- | ------ | ------------------------ | ------- | ------- | ------ | ---- | ------ | ------- | ------- | - | ------- | -
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        | Years Ended December 31,
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        |                         
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        | 1999                     |         | 2000    |        | 2001
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                         |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        
|                                                              | Net income                                                                                                                               |                                                            | $     | 9,414                                                |        |                          | $       | 5,342   |        |      | $      | 4,601   |        
|                                                              | Adjustments to reconcile net income to net cash provided
by operating activities:                                                        |                                                            |       |                                                      |        |                          |         |         |        |      |        |         |        
|                                                              |                                                                                                                                          | Depreciation and amortization                              |       |                                                      | 2,708  |                          |         |         | 2,655  |      |        |         | 2,477   |  
|                                                              |                                                                                                                                          | Provision for bad debts                                    |       |                                                      | 1,585  |                          |         |         | 1,225  |      |        |         | 336     |  
|                                                              |                                                                                                                                          | (Gain) loss on asset disposal                              |       |                                                      | (233   | )                        |         |         | 117    |      |        |         | (3      | )
|                                                              |                                                                                                                                          | Tax benefit from exercise of stock options                 |       |                                                      | 183    |                          |         |         | 402    |      |        |         | 557     |  
|                                                              |                                                                                                                                          | Amortization of restricted stock                           |       |                                                      | 242    |                          |         |         | 153    |      |        |         | 33      |  
|                                                              |                                                                                                                                          | Issuance of stock to 401(k) Tax Deferred Savings Plan      |       |                                                      | 194    |                          |         |         |       |      |        |         |        |  
|                                                              |                                                                                                                                          | Impairment of assets                                       |       |                                                      |       |                          |         |         | 8,504  |      |        |         |        |  
|                                                              |                                                                                                                                          | Consulting services rendered in exchange for stock options |       |                                                      | 172    |                          |         |         | 106    |      |        |         |        |  
|                                                              |                                                                                                                                          | Other                                                      |       |                                                      | 54     |                          |         |         | 10     |      |        |         | 14      |  
|                                                              | Changes in assets and liabilities-                                                                                                       |                                                            |       |                                                      |        |                          |         |         |        |      |        |         |        
|                                                              | Increase (decrease) in cash and cash equivalents:                                                                                        |                                                            |       |                                                      |        |                          |         |         |        |      |        |         |        
|                                                              |                                                                                                                                          | Accounts receivable                                        |       |                                                      | (2,973 | )                        |         |         | 6,023  |      |        |         | 9,733   |  
|                                                              |                                                                                                                                          | Note receivable                                            |       |                                                      |       |                          |         |         | 2,193  |      |        |         | 6,139   |  
|                                                              |                                                                                                                                          | Inventories                                                |       |                                                      | 3,362  |                          |         |         | (3,002 | )    |        |         | 3,442   |  
|                                                              |                                                                                                                                          | Deferred income taxes                                      |       |                                                      | 202    |                          |         |         | 723    |      |        |         | 1,304   |  
|                                                              |                                                                                                                                          | Prepaid expenses and other current assets                  |       |                                                      | 2,885  |                          |         |         | (413   | )    |        |         | (1,674  | )
|                                                              |                                                                                                                                          | Other assets                                               |       |                                                      | (24    | )                        |         |         | (262   | )    |        |         | 851     |  
|                                                              |                                                                                                                                          | Accounts payable                                           |       |                                                      | (6,706 | )                        |         |         | (4,217 | )    |        |         | (447    | )
|                                                              |                                                                                                                                          | Accrued liabilities                                        |       |                                                      | 7,043  |                          |         |         | 2,393  |      |        |         | (14,608 | )
|                                                              |                                                                                                                                          | Long-term liabilities                                      |       |                                                      | 322    |                          |         |         | 128    |      |        |         | 128     |  
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        
|                                                              |                                                                                                                                          |                                                            |       | Net cash provided by operating activities            |        |                          | 18,430  |         |        |      | 22,080 |         |         |   | 12,883  |  
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                         |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        
|                                                              | Payment for purchase of Contract Marketing, Inc. and U.S. Import &
Promotions Co.                                                        |                                                            |       | (149                                                 | )      |                          |         | (349    | )      |      |        | (656    | )      
|                                                              | Payment
for purchase of Logistix Limited, net of cash acquired of $1,750                                                                 |                                                            |       |                                                     |        |                          |         |        |        |      |        | (11,405 | )      
|                                                              | Proceeds from sales of fixed assets                                                                                                      |                                                            |       | 545                                                  |        |                          |         | 25      |        |      |        | 36      |        
|                                                              | Purchases of fixed assets                                                                                                                |                                                            |       | (847                                                 | )      |                          |         | (921    | )      |      |        | (1,044  | )      
|                                                              | Purchase
of marketable securities, net                                                                                                   |                                                            |       |                                                     |        |                          |         | (5,100  | )      |      |        | (2,100  | )      
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        
|                                                              |                                                                                                                                          |                                                            |       | Net cash used in investing activities                |        |                          | (451    | )       |        |      | (6,345 | )       |         |   | (15,169 | )
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                         |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        
|                                                              | Repayments on line of credit                                                                                                             |                                                            |       | (17,500                                              | )      |                          |         | (12,500 | )      |      |        |        |        
|                                                              | Preferred stock dividends paid                                                                                                           |                                                            |       |                                                     |        |                          |         | (581    | )      |      |        | (1,500  | )      
|                                                              | Net proceeds from issuance of preferred stock and warrants including $875 of accrued offering costs not yet paid as of December 31, 2000 |                                                            |       |                                                     |        |                          |         | 24,283  |        |      |        |        |        
|                                                              | Purchase of treasury stock                                                                                                               |                                                            |       | (861                                                 | )      |                          |         | (3,111  | )      |      |        | (7,996  | )      
|                                                              | Proceeds from exercise of stock options                                                                                                  |                                                            |       | 263                                                  |        |                          |         | 1,448   |        |      |        | 1,284   |        
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        
|                                                              |                                                                                                                                          |                                                            |       | Net cash provided by (used in) financing activities  |        |                          | (18,098 | )       |        |      | 9,539  |         |         |   | (8,212  | )
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        
|                                                              |                                                                                                                                          |                                                            |       | Net increase (decrease) in cash and cash equivalents |        |                          | (119    | )       |        |      | 25,274 |         |         |   | (10,498 | )
|Effects of exchange rate changes on cash and cash equivalents |                                                                                                                                          |                                                            |      |                                                      |        |                          |        |         |        |      | 28     |        
|CASH AND CASH EQUIVALENTS, beginning of year                  |                                                                                                                                          |                                                            | 7,250 |                                                      |        |                          | 7,131   |         |        |      | 32,405 |        
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        
|CASH AND CASH EQUIVALENTS, end of year                        |                                                                                                                                          | $                                                          | 7,131 |                                                      |        | $                        | 32,405  |         |        | $    | 21,935 |        
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        
|CASH PAYMENTS DURING YEAR FOR:                                |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        
|                                                              | Interest                                                                                                                                 |                                                            | $     | 869                                                  |        |                          | $       | 518     |        |      | $      | 189     |        
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        
|                                                              | Taxes                                                                                                                                    |                                                            | $     | 3,141                                                |        |                          | $       | 7,828   |        |      | $      | 2,906   |        
|                                                              |                                                                                                                                          |                                                            |       |                                                      |        |                          |         |         |        |      |        |        

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

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EQUITY MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

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

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

On July 31, 2001, the Company acquired 100% of the common stock of Logistix
Limited, a United Kingdom corporation (Logistix), in exchange for 8,500
British pounds ($12,144 as of July 31, 2001) in cash plus potential additional
cash consideration based upon the results of operations of Logistix during each
year through July 31, 2004. Logistix is a marketing services agency that
focuses primarily on assisting consumer packaged goods companies in their
efforts to market to children between the ages of seven and fourteen by
developing and executing premium-based promotions and by providing marketing
consulting services. Logistix also derives a portion of its revenues from a
consumer products business which holds the licenses for Robot Wars® entertainment properties, among others.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant accounts and transactions
between the Company and its subsidiaries have been eliminated in consolidation.

Use of Estimates

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

Cash and Cash Equivalents

The Company considers all short-term investments with a maturity at the date of
purchase of three months or less to be cash equivalents. Short-term
investments included in cash and cash equivalents are valued at amortized cost,
which approximates fair value as of December 31, 2000 and 2001.

Marketable Securities

In accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities, the Company determines the appropriate classification of
marketable securities at the time of purchase and re-evaluates such designation
at each balance sheet date. Marketable securities have been classified as
available-for-sale and are carried at fair value. As of December 31, 2001, the
cost of marketable securities held approximates fair value.

The cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization, interest income,
realized gains and losses and declines in value judged to be other than
temporary are included in interest income and expense. The cost of securities
sold is based on specific identification.

Marketable securities represent state and municipal debt securities with
maturity dates between 2002 and 2025. The Company intends to hold such
securities only for the near term.

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Revenue Recognition

For product related sales, the Company records
revenues when title and risk of loss pass to the customer.
When a right of return exists, the Companys practice is to estimate and
provide for any future returns at the time of sale, in accordance with SFAS No.
48, Revenue Recognition When Right of Return Exists.
Accruals for customer discounts and rebates and defective returns are
recorded as the related revenues are recognized.

Service revenues include all amounts that are
billable to clients under service contracts. Service related revenues are recognized
on a time and materials basis, or on a straight-line basis, depending
on the contract. Revenue from time and material service contracts is
recognized as the services are rendered. Revenue from fixed price
retainer contracts is recognized on a straight-line basis over the
contract term. Losses on contracts are recognized during the period
in which the loss first becomes probable and reasonably estimable.
Reimbursements, including those relating to travel and other
out-of-pocket expenses, and other similar third-party costs, such as
printing costs, are included in revenues, and an equivalent amount of
reimbursable expenses are included in cost of sales. Service
revenues for the years ended December 31, 1999, 2000 and 2001
totaled $0, $347 and $3,215, respectively.

The Companys revenue
recognition policies are in compliance with the Securities and Exchange
Commissions Staff Accounting Bulletin No. 101: Revenue Recognition in
Financial Statements.

Inventories

Inventories consist of production-in-process, which primarily represents
tooling costs that are deferred and amortized over the life of the products,
purchased finished products held for sale to customers, and purchased finished
products in transit to customers distribution centers. Inventories are stated
at the lower of average cost or market. As of December 31, 2000 and 2001,
inventories consisted of the following:

|                      |  |              |        |      |  |   |       | 
|--------------------- |  | ------------ | ------ | ---- |  | - | ----- | 
|                      |  | December 31,
|                      |  |             
|                      |  | 2000         |        | 2001
|                      |  |              |        |     
|Production-in-process |  | $            | 1,742  |      |  | $ | 3,991 | 
|Finished goods        |  |              | 10,002 |      |  |   | 5,346 | 
|                      |  |              |        |      |  |   |       | 
|                      |  | $            | 11,744 |      |  | $ | 9,337 | 
|                      |  |              |        |      |  |   |       | 

Fixed Assets

Fixed assets are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided on
a straight-line basis over estimated useful lives as follows:



| |  |  | Leasehold improvements  lesser of lease term or life of related asset
Furniture, fixtures, equipment, hardware and software  3-7 years
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------

Betterments, which extend the life or add value to fixed assets are capitalized
and depreciated over their remaining useful life. Repairs and maintenance are
expensed as incurred.

Goodwill and Other Intangibles

Goodwill represents the excess of the purchase price of acquisitions over the estimated
fair values of the net assets acquired. Goodwill arising from acquisitions
consummated prior to July 1, 2001 is being amortized using the straight-line
method over estimated useful lives of primarily 20 years. Accumulated
amortization for goodwill at December 31, 2000 and 2001 was $1,796 and $2,555,
respectively. For the years ended December 31, 1999, 2000 and 2001,
amortization expense for goodwill amounted to $1,111, $1,091 and $759,
respectively. Goodwill relating to acquisitions consummated on or after July
1, 2001 is not amortized. (see Recent Accounting Pronouncements).

Other intangibles are summarized as follows:

|                                                      |          |   |                          |    |      |   |      |     | 
|----------------------------------------------------- | -------- | - | ------------------------ | -- | ---- | - | ---- | --- | 
|                                                      |          |   | Years Ended December 31,
|                                                      |          |   |                         
|                                                      |          |   | 2000                     |    | 2001
|                                                      |          |   |                          |    |     
|Amortized Intangible Assets                           |          |   |                          |    |      |   |      |    
|Equity Marketing, Inc. trademark                      |          | $ | 52                       |    |      | $ | 52   |    
|Licensing, royalty and standstill agreements          |          |   |                         |    |      |   | 123  |    
|Customer contracts and related customer relationships |          |   |                         |    |      |   | 99   |    
|Sales order backlog                                   |          |   |                         |    |      |   | 144  |    
|                                                      |          |   |                          |    |      |   |      |    
|                                                      | Subtotal |   |                          | 52 |      |   |      | 418 | 
|Less: Accumulated amortization                        |          |   | (12                      | )  |      |   | (200 | )  
|                                                      |          |   |                          |    |      |   |      |    
|                                                      |          |   | 40                       |    |      |   | 218  |    
|Unamortized Intangible Assets                         |          |   |                          |    |      |   |      |    
|Logistix trademark                                    |          |   |                         |    |      |   | 531  |    
|                                                      |          |   |                          |    |      |   |      |    
|Total Other Intangibles                               |          | $ | 40                       |    |      | $ | 749  |    
|                                                      |          |   |                          |    |      |   |      |    

The Equity Marketing, Inc. trademark is being amortized over an estimated
useful life of 10 years. The Logistix trademark is not subject to amortization
under the provisions of SFAS No. 142. (see Recent Accounting Pronouncements and
Note 4). The licensing, royalty and standstill agreements along with the
customer contracts and related customer relationships were acquired in the

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purchase of Logistix and are amortized over the lives of the respective
agreements which range from 2 to 3 years. The sales order backlog was also
acquired in the purchase of Logistix and was fully amortized as of December 31,
2001. (See Note 4). For the years ended December 31, 1999, 2000 and 2001,
amortization expense related to other intangibles amounted to $141, $141 and
$186, respectively.

The Company accounts for goodwill and other intangible assets acquired prior to
July 1, 2001 under the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of. This
statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The carrying value of existing assets are
reviewed when events or changes in circumstances indicate that an impairment
test is necessary in order to determine if an impairment has occurred. When
factors indicate that such assets should be evaluated for possible impairment,
the Company will estimate undiscounted future cash flows before interest
expected to result from the use of the assets over their remaining amortization
period and their eventual disposition, and compare the amounts to the carrying
value of the assets to determine if an impairment loss has occurred.
(see Note 3). If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying value of the assets
exceeds their estimated fair value.

The Company accounts for goodwill and other intangible assets acquired after
July 1, 2001 in accordance with SFAS No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets. (see Recent Accounting
Pronouncements). Under the provisions of SFAS No. 142, the
carrying value of assets acquired, including goodwill, are reviewed
annually. During such a review the Company will estimate the fair
value of the reporting unit to which the assets are assigned by
discounting the reporting units estimated future cash flows
before interest. The Company will compare the discounted flows to the
carrying value of the acquired net assets to determine if an impairment
loss has occurred. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying value of the assets exceeds their estimated fair values.

Due to Customer

Pursuant to the terms of certain contracts between the Company and a promotions customer, the Company collects fees from the customers
distribution companies on behalf of that customer. Once these fees are
collected from the distribution companies, the Company remits the fees to the
customer. As of December 31, 2000 and 2001, the amounts due to customer were
$11,725 and $3,928, respectively.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns, but
not both. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statements and tax basis of assets and
liabilities using the tax rates in effect for the years in which the
differences are expected to reverse. (see Note 9).

Net Income Per Share

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

Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue Common Stock (as defined below) were exercised or converted into Common
Stock. Diluted EPS includes in-the-money options and warrants using the
treasury stock method and also includes the assumed conversion of preferred
stock using the if-converted method. Options and warrants to purchase 280,000,
1,327,666 and 1,579,666 shares of the Companys common stock (Common Stock),
for the years ended December 31, 1999, 2000 and 2001, respectively, were
excluded from the computation of diluted EPS as they would have been
anti-dilutive. For the years ended December 31, 2000 and 2001, preferred stock convertible into 1,083,560
and 1,694,915, respectively, shares of Common Stock was excluded from the
computation of diluted EPS as it would have been anti-dilutive.

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

For the years ended December 31,

|                               |                                                                    |                      |   |             |   |               |   |           |         |             |   |               |  |           |   |             |   |               |   |           |         |  |   |      |  |  |   |       |   |  |   |           |         |  |   |      |  | 
|------------------------------ | ------------------------------------------------------------------ | -------------------- | - | ----------- | - | ------------- | - | --------- | ------- | ----------- | - | ------------- |  | --------- | - | ----------- | - | ------------- | - | --------- | ------- |  | - | ---- |  |  | - | ----- | - |  | - | --------- | ------- |  | - | ---- |  | 
|                               |                                                                    |                      |   | 1999        |   | 2000          |   | 2001     
|                               |                                                                    |                      |   |             |   |               |   |          
|                               |                                                                    |                      |   | Income      |   | Shares        |   | Per Share |         | Income      |   | Shares        |  | Per Share |   | Income      |   | Shares        |   | Per Share
|                               |                                                                    |                      |   | (Numerator) |   | (Denominator) |   | Amount    |         | (Numerator) |   | (Denominator) |  | Amount    |   | (Numerator) |   | (Denominator) |   | Amount   
|                               |                                                                    |                      |   |             |   |               |   |           |         |             |   |               |  |           |   |             |   |               |   |          
|Basic EPS:                     |                                                                    |                      |   |             |   |               |   |           |         |             |   |               |  |           |   |             |   |               |   |           |         |  |   |      |  |  |   |       |   |  |   |           |         |  |   |     
|                               | Net income available to common
stockholders                        |                      | $ | 9,414       |   |               |   | 6,227,842 |         |             | $ | 1.51          |  |           | $ | 4,386       |   |               |   | 6,275,590 |         |  | $ | 0.70 |  |  | $ | 3,101 |   |  |   | 5,996,662 |         |  | $ | 0.52 | 
|                               |                                                                    |                      |   |             |   |               |   |           |         |             |   |               |  |           |   |             |   |               |   |           |         |  |   |      |  |  |   |       |   |  |   |           |         |  |   |     
|Preferred stock dividends      |                                                                    |                      |  |             |   |               |  |           |         |             |   |               |  |           |  |             |   |               |  |           |         |  |   |      |  |  |  |       |   |  |  |           |         |  |   |     
|Effect of Dilutive Securities: |                                                                    |                      |   |             |   |               |   |           |         |             |   |               |  |           |   |             |   |               |   |           |         |  |   |      |  |  |   |       |   |  |   |           |         |  |   |     
|                               |                                                                    | Options and warrants |   |             |  |               |   |           | 212,896 |             |   |               |  |           |   |             |  |               |   |           | 184,967 |  |   |      |  |  |   |       |  |  |   |           | 167,492 |  |   |      |  | 
|Convertible preferred stock    |                                                                    |                      |  |             |   |               |  |           |         |             |   |               |  |           |  |             |   |               |  |           |         |  |   |      |  |  |  |       |   |  |  |           |         |  |   |     
|                               |                                                                    |                      |   |             |   |               |   |           |         |             |   |               |  |           |   |             |   |               |   |           |         |  |   |      |  |  |   |       |   |  |   |           |         |  |   |     
|Dilutive EPS:                  |                                                                    |                      |   |             |   |               |   |           |         |             |   |               |  |           |   |             |   |               |   |           |         |  |   |      |  |  |   |       |   |  |   |           |         |  |   |     
|                               | Net income available to common
stockholders and assumed conversion |                      | $ | 9,414       |   |               |   | 6,440,738 |         |             | $ | 1.46          |  |           | $ | 4,386       |   |               |   | 6,460,557 |         |  | $ | 0.68 |  |  | $ | 3,101 |   |  |   | 6,164,154 |         |  | $ | 0.50 | 
|                               |                                                                    |                      |   |             |   |               |   |           |         |             |   |               |  |           |   |             |   |               |   |           |         |  |   |      |  |  |   |       |   |  |   |           |         |  |   |     

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Royalties

The Company enters into agreements to license intellectual properties such as
trademarks, copyrights, and patents. The agreements may call for minimum
amounts of royalties to be paid in advance and throughout the term of the
agreement, which are non-refundable in the event that product sales fail to
meet certain minimum levels. Advance royalties resulting from such transactions
are stated at the lower of the amounts paid or the amounts estimated to be
recoverable from future sales of the related products. Furthermore,
minimum guaranteed royalty commitments are reviewed on a periodic
basis to ensure that amounts are recoverable based on estimates of
future sales of the products under license. A loss provision will be
recorded in the consolidated statements of operations to the extent
that future minimum royalty guarantee commitments are not
recoverable. Estimated future sales are projected based on historical
experience, including that of similar products, and anticipated
advertising and marketing support by the licensor.

Concentration of Risk

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

Restaurant Services, Inc. (RSI), a not-for-profit purchasing cooperative that
has as its members Burger King franchisees and Burger King, is the exclusive
purchasing agent for the Burger King system of franchisee-owned and
company-owned restaurants located in the United States. Subsequent to January
31, 2000, the Company reached an agreement with RSI in which RSI purchased all
pre-petition trade receivables owed to the Company by AmeriServe in exchange
for a two-year non-interest-bearing note valued at $15,970 and satisfaction of
certain contractual obligations owed by the Company to RSI. This agreement
resulted in a net pre-tax charge of $1,014 for the quarter ended December 31,
1999. A note receivable of $10,515 was recorded on the accompanying
consolidated balance sheets as of December 31, 1999. $6,642 of the $28,774
pre-petition trade receivables related to sales made in January 2000.
Accordingly, the remaining $5,455 portion of the note receivable was recorded
in January 2000, and resulted in a net pre-tax charge of $482 for the year
ended December 31, 2000. This charge was offset by $1,084 of imputed interest
income, at 9% per annum, recorded on the note receivable for 2000. In
December 2001, the due date for the final payment on the note was extended from
December 1, 2001 to March 29, 2002 due to ongoing discussions between the
Company and RSI which could result in an expansion of the contractual and
business relationship between the two companies. The balance of the note
receivable as of December 31, 2001 was $2,183.

Burger King, accounted for approximately 80%, 80% and 66% of the Companys
total revenues for the years ended December 31, 1999, 2000 and 2001,
respectively. As of July 2000, the Burger King system completed a transition to
alternative distributors. The largest distribution company accounted for
approximately 18.4% and 20.8% of the products purchased from the Company by the
Burger King system for the years ended December 31, 2000 and 2001,
respectively. As of December 31, 2000 and 2001, one distribution company which
serves the international distribution channel for the Burger King system
accounted for 33% and 12%, respectively, of total net accounts receivable.

The Company purchases 95% of its manufactured products from suppliers located
in China. China currently enjoys normal trade relations (NTR) status under
US tariff laws, which provides a favorable category of US import duties.
Chinas NTR status became permanent on January 1, 2002, following enactment of
a bill authorizing such status upon Chinas accession to the World Trade
Organization, which occurred in December 2001. This substantially reduces the
possibility of China losing its NTR status, which would result in increased
costs for the Company. The impact of such an event on the Company could be
somewhat mitigated by the Companys ability to source product for the US market
from countries other than China. However, there can be no assurance that the
Company would be able to obtain manufactured products under acceptable terms.

Supplemental Cash Flow Information

During 1999, the Company sold a portion of its excess inventory to a customer
in exchange for credits toward future purchases of advertising media. The
credits were valued at $1,011 and can be used over a period of five years.
During 1999, 2000 and 2001, the Company utilized $225, $223 and $383,
respectively, of these credits. The remaining balance of the credits, $180, is
recorded in prepaid expenses and other current assets in the accompanying
consolidated balance sheets.

Comprehensive Income

The Company computes comprehensive income pursuant to SFAS No. 130, Reporting
Comprehensive Income. This statement establishes standards for the reporting
and display of comprehensive income and its components in financial statements
and thereby reports a measure of all changes in equity of an enterprise that
result from transactions and other economic events other than transactions with
owners. Total comprehensive income for the Company includes net income and
other comprehensive income items, including unrealized gains or losses on foreign exchange
forward contracts and cumulative foreign currency translation adjustments.

Shipping and Handling Costs

In accordance with the Emerging Issues Task Force Issue 00-10, Accounting for
Shipping and Handling Fees and Costs, the Company classifies all amounts
billed to customers related to shipping and handling as revenues. Shipping and
handling costs are recorded in selling, general and administrative expenses.
For the years ended December 31, 1999, 2000 and 2001 such costs totaled $4,553,
$3,526, and $2,441, respectively.

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Foreign Currency Translation

Net foreign exchange gains or losses resulting from the translation of assets
and liabilities of foreign subsidiaries whose functional currency is not the
United States dollar are recognized as a component of accumulated other
comprehensive income in stockholders equity. For subsidiaries with
transactions denominated in currencies other than their functional currency,
net foreign exchange transaction gains or losses are included in determining
net income. For the year ended December 31, 2001, the net transaction
loss on foreign exchange of $76 was recorded in other expense in the
accompanying consolidated statements of operations.

In accordance with the SFAS No. 52, Foreign Currency Translation, the
financial statements of Logistix are translated into U.S. dollars as follows:
assets and liabilities at year-end exchange rates; income and expenses at
average exchange rates; and shareholders equity at historical exchange rates.
Since the functional currency of Logistix is the British Pound, the resulting
translation adjustment is recorded as a component of accumulated other
comprehensive income in the accompanying consolidated balance sheet.
Translation adjustments are not tax-effected since they relate to investments
which are permanent in nature.

Derivative Instruments

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

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

The Company uses derivatives to manage exposures to foreign currency. The
Companys objective for holding derivatives is to decrease the volatility of
earnings and cash flows associated with changes in foreign currency. The
Company enters into foreign exchange forward contracts to minimize the
short-term impact of foreign currency fluctuations on foreign currency
receivables, investments, and payables. The gains and losses on the foreign
exchange forward contracts offset the transaction gains and losses on the
foreign currency receivables, investments, and payables recognized in earnings.
The Company does not enter into foreign exchange forward contracts for trading
purposes. Gains and losses on the contracts are included in other income
(expense) in the consolidated statement of operations and offset foreign
exchange gains or losses from the revaluation of intercompany balances or other
current assets, investments, and liabilities denominated in currencies other
than the functional currency of the reporting entity. The Companys foreign
exchange forward contracts related to current assets and liabilities generally
range from one to three months in original maturity.

In September 2001, the Companys Logistix
subsidiary entered into a foreign
currency forward contract to sell Euros in exchange for pound sterling
aggregating GBP 979 at an average rate of 1.587, which expires in May 2002. At
December 31, 2001, this foreign currency forward contract had a balance of GBP
747 and an estimated fair value of $29. The fair value of the foreign currency
forward contract is recorded in prepaid expenses and other current assets in
the accompanying consolidated balance sheet as of December 31, 2001. The
unrealized gain on this contract is reflected in accumulated other
comprehensive income.

Recent Accounting Pronouncements

SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other
Intangible Assets, were approved by the Financial Accounting Standards Board
(FASB) effective June 30, 2001 for business combinations which are
consummated after July 1, 2001. SFAS No. 141 eliminates the
pooling-of-interests method for business combinations and requires use of the
purchase method. SFAS No. 142 changes the accounting for goodwill from an
amortization approach to a non-amortization (impairment) approach. The
statement requires amortization of goodwill recorded in connection with
previous business combinations to cease upon adoption of the statement by
calendar year companies on January 1, 2002. The Company has adopted the
provisions of these statements for the acquisition of Logistix (see Note 4).
Management believes that the adoption of SFAS No. 142 in 2002 will result in a
significant decrease in amortization of goodwill on the consolidated statement
of operations, and is in the process of assessing other impacts from SFAS No.
142. The total after tax amount of goodwill amortization was $485 for the
year ended December 31, 2001.

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

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In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 requires that long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
SFAS 144 is effective for 2002 and generally is to be applied prospectively.
The Company is currently reviewing the requirements of SFAS 144 and has not yet
determined its impact, if any, on the Companys financial position and results
of operations.

Reclassifications

Certain reclassifications have been made to the 1999 and 2000 consolidated
financial statements to conform them with the 2001 presentation.

2. RESTRUCTURING CHARGE

On December 21, 1998, the Company announced its decision to exit the
event-based-licensed consumer products business along with its retail pin
business. In connection with this decision, the Company recorded a
restructuring charge of $4,121 in 1998. The restructuring charge includes a
provision for projected minimum royalty guarantee shortfalls associated with
long-term licenses, which the Company has decided to discontinue, severance for
workforce reductions of 30 employees, of which 15 were terminated as of
December 31, 1998 and the remainder in 1999, a provision for outstanding
inventory purchase commitments on purchase orders the Company has cancelled,
and a provision for costs associated with the planned closure of the Companys
warehouse facility. The workforce reductions included employees from the
consumer products business, retail pin business, warehouse and other support
services. Excluding the warehouse employees, the workforce reductions were
completed by the end of the first quarter of 1999. The warehouse closed in the
second quarter of 1999. As of December 31, 1998 and the remainder in 1999, the
Company was in the process of negotiating settlements on remaining minimum
royalty guarantees with licensors. During 1999, the Company reversed a portion
of the restructuring reserves for projected royalty guarantee shortfalls as a
result of negotiated settlements with certain licensors. These reversals
totaled $641 and are reflected net of a $37 charge as a restructuring gain in
the accompanying statements of operations for the year ended December 31, 1999.
During 2000, the Company reversed a portion of the restructuring reserves for
inventory purchase commitments and lease commitment for the warehouse facility
as a result of negotiated settlements with certain vendors and as a result of
the dismissal of a lawsuit from the landlord of the warehouse facility. These
reversals totaled $418 and are reflected as a restructuring gain in the
accompanying statements of operations for the year ended December 31, 2000.
Details of the restructuring charge are as follows:

|                                                             |  |          |       |          |  |          |      |          |  |         |        |          |  |          |      |          |  |          |    |  |  |   |        |   |  |   |      |   |  |   |    |   |  |   |     | 
|------------------------------------------------------------ |  | -------- | ----- | -------- |  | -------- | ---- | -------- |  | ------- | ------ | -------- |  | -------- | ---- | -------- |  | -------- | -- |  |  | - | ------ | - |  | - | ---- | - |  | - | -- | - |  | - | --- | 
|                                                             |  | Original |       | Utilized |  | Utilized |      | Reversed |  | Charged |        | Utilized |  | Reversed |      | Utilized |  | To Be   
|                                                             |  | Charge   |       | 1998     |  | 1999     |      | 1999     |  | 1999    |        | 2000     |  | 2000     |      | 2001     |  | Utilized
|                                                             |  |          |       |          |  |          |      |          |  |         |        |          |  |          |      |          |  |         
|Provision for projected
minimum royalty
guarantee shortfalls |  | $        | 2,187 |          |  | $        |     |          |  | $       | (267   | )        |  | $        | (641 | )        |  | $        |   |  |  | $ | (1,084 | ) |  | $ |     |   |  | $ | (5 | ) |  | $ | 190 | 
|Employee severance and
termination benefits                  |  |          | 738   |          |  |          | (127 | )        |  |         | (648   | )        |  |          |     |          |  |          | 37 |  |  |   |       |   |  |   |     |   |  |   |   |   |  |   |    | 
|Outstanding inventory
purchase commitments                   |  |          | 800   |          |  |          |     |          |  |         | (716   | )        |  |          |     |          |  |          |   |  |  |   |       |   |  |   | (84  | ) |  |   |   |   |  |   |    | 
|Lease commitment for
warehouse facility                      |  |          | 396   |          |  |          |     |          |  |         | (31    | )        |  |          |     |          |  |          |   |  |  |   | (31    | ) |  |   | (334 | ) |  |   |   |   |  |   |    | 
|                                                             |  |          |       |          |  |          |      |          |  |         |        |          |  |          |      |          |  |          |    |  |  |   |        |   |  |   |      |   |  |   |    |   |  |   |     | 
|                                                             |  | $        | 4,121 |          |  | $        | (127 | )        |  | $       | (1,662 | )        |  | $        | (641 | )        |  | $        | 37 |  |  | $ | (1,115 | ) |  | $ | (418 | ) |  | $ | (5 | ) |  | $ | 190 | 
|                                                             |  |          |       |          |  |          |      |          |  |         |        |          |  |          |      |          |  |          |    |  |  |   |        |   |  |   |      |   |  |   |    |   |  |   |     | 

3. IMPAIRMENT OF ASSETS

As of December 31, 2000, as a result of continued weakness in the sports
collectible market and as a result of disappointing fourth quarter sales of
Headliners®, the Company decided to decrease the marketing of the Headliners®
brand and decided not to pursue new Headliners® licenses or renew existing
licenses. This decision triggered an impairment review of Corinthians
long-lived assets, which consisted primarily of goodwill and the Headliners®
trademark. Based on revised projections of Corinthians ongoing business, the
Company calculated the present value of expected cash flows (before interest)
to determine the fair value of the assets. Accordingly, the Company recorded an
impairment charge of $8,504 for a write-off of the goodwill and trademark
associated with the Corinthian purchase. This charge is reflected in impairment
of assets in the accompanying consolidated statement of operations for the year
ended December 31, 2000 and is reflected in the corporate
segment. (see Note
11).

4. ACQUISITIONS

On April 24, 1998, the Company acquired 100% of the common stock of Corinthian
and certain trademarks related to its business, including the Headliners®
trademark (the Trademark), from Corinthian Marketing PLC, for total cash
consideration of $7,892 plus related transaction costs of $544 at the closing.
The total consideration was net of a holdback amount for which the Company
accrued

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approximately $600 as of the acquisition date. In September 1999, this
holdback was settled and the accrual was reversed as a reduction to goodwill.
Corinthian was engaged principally in the design, manufacture, marketing and
distribution of the Headliners® brand of collectible sports figurines.
Subsequent to the impairment write-off discussed above, as of December 31,
2000, the balances of the Corinthian goodwill and trademark were zero.

On July 23, 1998 the Company acquired substantially all of the assets of
Contract Marketing, Inc. (CMI), a Massachusetts corporation, and U.S. Import
and Promotions Co. (USI), a Florida corporation, in exchange for $14,659,
plus related transaction costs of $429, and a commitment to pay additional cash
consideration based upon the results of operations of CMI and USI during each
calendar year through December 31, 2002. In August 1999, March 2000 and May
2001, $149, $349 and $556 respectively, were paid to the stockholders of CMI
and USI and allocated to goodwill. On December 3, 2001, the Company paid an
additional $100 to the stockholders of CMI and USI as additional cash
consideration in settlement of the remaining commitment. This amount was also
allocated to goodwill. As of December 31, 2001, the excess of the purchase
price over the estimated fair value of the net assets acquired was $14,572
which has been recorded as goodwill and is being amortized on a straight line
basis over 20 years.

On July 31, 2001, the Company acquired 100% of the common stock of Logistix in
exchange for 8,500 British pounds ($12,144 as of July 31, 2001) in cash plus
related transaction costs of $1,011. Potential additional cash consideration
may be paid based upon the results of operations of Logistix during each year
through July 31, 2004. The acquisition was financed through the Companys existing cash reserves.

The Logistix acquisition has been accounted under the purchase method of accounting.
The financial statements reflect the preliminary allocation of the purchase
price to the acquired net assets based on their estimated fair values as of the
acquisition date. The Company is in the process of finalizing valuations of
the individual assets and liabilities, which potentially could result
in adjustments to goodwill of 10% or less. The allocation of the purchase price may change based
upon these valuations. The Companys preliminary allocation of purchase price
for the acquisition, based upon estimated fair values is as follows:

|                                          |  |   |        |  
|----------------------------------------- |  | - | ------ | -
|Net current assets                        |  | $ | 6,280  |  
|Property, plant and equipment             |  |   | 430    |  
|Other
non-current assets                  |  |   | 11     |  
|Net current liabilities                   |  |   | (6,225 | )
|Non-current liabilities                   |  |   | (400   | )
|                                          |  |   |        |  
|Estimated fair value, net assets acquired |  |   | 96     |  
|Goodwill                                  |  |   | 12,177 |  
|Other intangible assets                   |  |   | 882    |  
|                                          |  |   |        |  
|Total Purchase Price                      |  | $ | 13,155 |  
|                                          |  |   |        |  

The above amounts are reported using the exchange
rate in effect as of July 31, 2001. $522 of the $882 of acquired intangible assets was assigned to the Logistix
trademark, which is not subject to amortization. The remaining $360 of
intangible assets are being amortized over their estimated useful lives ranging
from 0.4 to 3 years. (See Note 1). Intangible assets associated with the
Logistix acquisition are accounted for in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets. Goodwill has an indefinite life and is
not amortized.

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

|                                                      |  |                          |           |      |  |   |           | 
|----------------------------------------------------- |  | ------------------------ | --------- | ---- |  | - | --------- | 
|                                                      |  | Years Ended December 31,
|                                                      |  |                         
|                                                      |  | 2000                     |           | 2001
|                                                      |  |                          |           |     
|Revenues                                              |  | $                        | 255,483   |      |  | $ | 153,582   | 
|Net income                                            |  | $                        | 4,984     |      |  | $ | 4,087     | 
|Pro forma basic income per share                      |  | $                        | 0.64      |      |  | $ | 0.43      | 
|Pro forma diluted income per share                    |  | $                        | 0.62      |      |  | $ | 0.42      | 
|Pro forma basic weighted average
shares outstanding   |  |                          | 6,275,590 |      |  |   | 5,996,662 | 
|Pro forma diluted weighted average
shares outstanding |  |                          | 6,460,557 |      |  |   | 6,164,154 | 

Refer to Note 1 for further discussion of the method of computation of earnings
per share.

5. FIXED ASSETS, NET

Fixed assets, net is summarized as follows:

|                                          |                       |   |              |       |      |   |        |        | 
|----------------------------------------- | --------------------- | - | ------------ | ----- | ---- | - | ------ | ------ | 
|                                          |                       |   | December 31,
|                                          |                       |   |             
|                                          |                       |   | 2000         |       | 2001
|                                          |                       |   |              |       |     
|Furniture, fixtures and equipment         |                       | $ | 2,269        |       |      | $ | 2,830  |       
|Computer software                         |                       |   | 2,625        |       |      |   | 3,215  |       
|Computer hardware                         |                       |   | 3,210        |       |      |   | 3,440  |       
|Leasehold improvements                    |                       |   | 1,413        |       |      |   | 1,480  |       
|                                          |                       |   |              |       |      |   |        |       
|                                          | Fixed assets, at cost |   |              | 9,517 |      |   |        | 10,965 | 
|Accumulated depreciation and amortization |                       |   | (5,254       | )     |      |   | (6,787 | )     
|                                          |                       |   |              |       |      |   |        |       
|                                          | Fixed assets, net     |   | $            | 4,263 |      |   | $      | 4,178  | 
|                                          |                       |   |              |       |      |   |        |       

For the years ended December 31, 1999, 2000 and 2001, depreciation expense
related to fixed assets was $1,456, $1,423 and $1,532, respectively.

6. LINE OF CREDIT

At December 31, 2000, the Company was party to a credit agreement with two
commercial banks which was utilized to finance the seasonal working capital
requirements of its operations. The credit facility was secured by
substantially all of the Companys assets. The agreement, as amended on July
27, 2000, provided for a line of credit of $25,000 through June 30, 2001 with
borrowing availability determined by a formula based on qualified assets. There
were no amounts outstanding under the credit facility as of December 31, 2000.
The Credit Agreement required the Company to comply with certain restrictions
and financial covenants as defined in the agreement. The credit agreement also
placed restrictions on, among other things, the Companys capital expenditures,
payment of dividends, stock repurchases, acquisitions, investments and
transactions with affiliates.

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

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As of December 31, 2000 and 2001, the marginal interest rate on available
borrowings under the respective credit agreements was 9.2% and 5.3%,
respectively. Letters of credit outstanding as of December 31, 2000 and 2001
totaled $414 and $551, respectively.

7. DEFINED CONTRIBUTION PLAN

The Company has a 401(k) Tax Deferred Savings Plan (the 401(k) Plan), which
became effective on January 1, 1992. The 401(k) Plan covers substantially all
of its eligible employees, as defined under the 401(k) Plan. The Company makes
annual contributions to the 401(k) Plan consisting of a discretionary matching
contribution equal to a determined percentage of the employees contribution.
Costs related to contributions to the 401(k) Plan for the years ended December
31, 1999, 2000, and 2001 were $235, $145 and $241, respectively.

8. STOCKHOLDERS EQUITY

Stock Options

The Company has three stock option plans, the 1996 Equity Marketing, Inc. Stock
Option Plan (the 1996 Employee Plan), the 2000 Equity Marketing, Inc. Stock
Option Plan (the 2000 Employee Plan and collectively with the 1996 Employee
Plan, the Employee Plans) and the Non-Employee Director Stock Option Plan
(the Director Plan, and collectively with the Employee Plans referred to as
the Option Plans). A total of 3,490,000 shares of Common Stock are reserved
for issuance pursuant to options granted and to be granted under the Option Plans.
426,600 shares are available for grant under the option plans as of December 31, 2001.
Options granted pursuant to the Employee Plans typically vest over three to five years and
expire ten years from the date of grant. The 1996 Employee Plan expired in
2001. The 2000 Employee Plan expires in 2010. Options pursuant to the
Director Plan vest over six months to three years and expire ten years from the
date of grant. The Director Plan expires in 2003.

The Option Plans provide for option grants at exercise prices not less than the
fair market value on the date of grant in the case of qualified incentive stock
options, and not less than par value in the case of non-qualified options.

Transactions involving the Option Plans are summarized as follows:

|                                 |           |  |           |          |                |   |                  |       |                |  |                            |  |  |   |       |  | 
|-------------------------------- | --------- |  | --------- | -------- | -------------- | - | ---------------- | ----- | -------------- |  | -------------------------- |  |  | - | ----- |  | 
|                                 |           |  |           |          |                |   |                  |       |                |  | Exercisable at End of Year
|                                 |           |  |           |          |                |   | Weighted Average |       |               
|                                 |           |  | Number    |          | Exercise Price |   |                  |       |                |  | Weighted Average          
|                                 |           |  | of Shares |          | Per Share      |   | Shares           |       | Exercise Price
|                                 |           |  |           |          |                |   |                  |       |               
|Outstanding at December 31, 1998 |           |  | 1,115,101 |          |                | $ | 12.23            |       |                |  | 421,114                    |  |  | $ | 11.52 | 
|                                 |           |  |           |          |                |   |                  |       |                |  |                            |  |  |   |       | 
|                                 | Granted   |  |           | 548,000  |                |   |                  | 9.20  |                |  |                            |  |  |   |       |  | 
|                                 | Exercised |  |           | (54,290  | )              |   |                  | 4.84  |                |  |                            |  |  |   |       |  | 
|                                 | Canceled  |  |           | (206,500 | )              |   |                  | 14.86 |                |  |                            |  |  |   |       |  | 
|                                 |           |  |           |          |                |   |                  |       |                |  |                            |  |  |   |       | 
|Outstanding at December 31, 1999 |           |  | 1,402,311 |          |                |   | 10.65            |       |                |  | 660,506                    |  |  | $ | 10.29 | 
|                                 |           |  |           |          |                |   |                  |       |                |  |                            |  |  |   |       | 
|                                 | Granted   |  |           | 722,750  |                |   |                  | 10.46 |                |  |                            |  |  |   |       |  | 
|                                 | Exercised |  |           | (209,985 | )              |   |                  | 11.72 |                |  |                            |  |  |   |       |  | 
|                                 | Canceled  |  |           | (250,256 | )              |   |                  | 11.17 |                |  |                            |  |  |   |       |  | 
|                                 |           |  |           |          |                |   |                  |       |                |  |                            |  |  |   |       | 
|Outstanding at December 31, 2000 |           |  | 1,664,820 |          |                |   | 11.11            |       |                |  | 716,155                    |  |  | $ | 11.63 | 
|                                 |           |  |           |          |                |   |                  |       |                |  |                            |  |  |   |       | 
|                                 | Granted   |  |           | 645,400  |                |   |                  | 11.56 |                |  |                            |  |  |   |       |  | 
|                                 | Exercised |  |           | (236,607 | )              |   |                  | 5.35  |                |  |                            |  |  |   |       |  | 
|                                 | Canceled  |  |           | (114,835 | )              |   |                  | 11.15 |                |  |                            |  |  |   |       |  | 
|                                 |           |  |           |          |                |   |                  |       |                |  |                            |  |  |   |       | 
|Outstanding at December 31, 2001 |           |  | 1,958,778 |          |                | $ | 11.96            |       |                |  | 674,909                    |  |  | $ | 13.83 | 
|                                 |           |  |           |          |                |   |                  |       |                |  |                            |  |  |   |       | 

The following table summarizes information about the Companys stock options
outstanding and exercisable as of December 31, 2001:

|                    |  |                     |           |                  |  |                |      |             |  |                |       |  |  |          |         |  |  |   |       | 
|------------------- |  | ------------------- | --------- | ---------------- |  | -------------- | ---- | ----------- |  | -------------- | ----- |  |  | -------- | ------- |  |  | - | ----- | 
|OPTIONS OUTSTANDING |  | OPTIONS EXERCISABLE
|                    |  |                    
|                    |  |                     |           |                  |  | WEIGHTED       |      |             |  |                |       |  |  |          |         |  |  |  
|                    |  |                     |           |                  |  | AVERAGE        |      | WEIGHTED    |  |                |       |  |  | WEIGHTED
|RANGE OF            |  | NUMBER              |           | REMAINING        |  | AVERAGE        |      | NUMBER      |  | AVERAGE       
|EXERCISE PRICES     |  | OUTSTANDING         |           | CONTRACTUAL LIFE |  | EXERCISE PRICE |      | EXERCISABLE |  | EXERCISE PRICE
|                    |  |                     |           |                  |  |                |      |             |  |               
|$  4.00 - $  9.94   |  |                     | 711,941   |                  |  |                | 7.39 |             |  | $              | 8.81  |  |  |          | 253,959 |  |  | $ | 7.13  | 
|$10.00 - $11.25     |  |                     | 392,937   |                  |  |                | 8.83 |             |  | $              | 10.88 |  |  |          | 54,950  |  |  | $ | 10.93 | 
|$11.31 - $12.70     |  |                     | 425,900   |                  |  |                | 8.95 |             |  | $              | 11.88 |  |  |          | 59,000  |  |  | $ | 12.22 | 
|$12.81 - $28.13     |  |                     | 428,000   |                  |  |                | 7.12 |             |  | $              | 18.28 |  |  |          | 307,000 |  |  | $ | 20.21 | 
|                    |  |                     |           |                  |  |                |      |             |  |                |       |  |  |          |         |  |  |   |       | 
|                    |  |                     | 1,958,778 |                  |  |                | 7.96 |             |  | $              | 11.96 |  |  |          | 674,909 |  |  | $ | 13.83 | 
|                    |  |                     |           |                  |  |                |      |             |  |                |       |  |  |          |         |  |  |   |       | 

The Company has adopted SFAS No. 123, Accounting for Stock-Based
Compensation, issued in October 1995. In accordance with provisions of SFAS
No. 123, the Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plans and, accordingly, does not recognize
compensation cost. If the Company had elected to recognize compensation cost
based on the fair

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value of the options granted at grant date as prescribed by
SFAS No. 123, net income and earnings per share would have been reduced to the
pro forma amounts indicated in the table below (in thousands, except per share
amounts):

|                                                          |  |                          |       |      |  |      |       |  |  |   |       | 
|--------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                          |  | Years Ended December 31,
|                                                          |  |                         
|                                                          |  | 1999                     |       | 2000 |  | 2001
|                                                          |  |                          |       |      |  |     
|Net income available to common stockholders  as reported |  | $                        | 9,414 |      |  | $    | 4,386 |  |  | $ | 3,101 | 
|Net income available to common stockholders  pro forma   |  | $                        | 5,572 |      |  | $    | 3,229 |  |  | $ | 1,749 | 
|Basic earnings per share-as reported                      |  | $                        | 1.51  |      |  | $    | 0.70  |  |  | $ | 0.52  | 
|Basic earnings per share-pro forma                        |  | $                        | 0.89  |      |  | $    | 0.51  |  |  | $ | 0.29  | 
|Diluted earnings per share-as reported                    |  | $                        | 1.46  |      |  | $    | 0.68  |  |  | $ | 0.50  | 
|Diluted earnings per share-pro forma                      |  | $                        | 0.87  |      |  | $    | 0.50  |  |  | $ | 0.28  | 

Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of the cost to be expected in future years.

The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:

|                                |  |                          |       |         |  |         |       |   |  |  |       |  
|------------------------------- |  | ------------------------ | ----- | ------- |  | ------- | ----- | - |  |  | ----- | -
|                                |  | Years Ended December 31,
|                                |  |                         
|                                |  | 1999                     |       | 2000    |  | 2001   
|                                |  |                          |       |         |  |        
|Expected dividend yield         |  |                          | 0.00  | %       |  |         | 0.00  | % |  |  | 0.00  | %
|Expected stock price volatility |  |                          | 70.39 | %       |  |         | 66.60 | % |  |  | 62.65 | %
|Risk free interest rate         |  |                          | 5.09  | %       |  |         | 6.40  | % |  |  | 4.15  | %
|Expected life of options        |  | 3 years                  |       | 5 years |  | 4 years

The weighted average fair value of options granted during 1999, 2000 and
2001 is $4.55, $5.99 and $5.75, respectively.

During 1998, the Company granted options to purchase 60,000 shares of Common
Stock to a member of the Board of Directors in exchange for consulting services
rendered. The securities vested through March 2001. On December 14, 1998 these
options were exchanged for options to purchase 40,000 shares of Common Stock at
an exercise price of $7.50. Options to purchase 33,334 shares of Common Stock
have vested and been exercised as of December 31, 2000. The fair value of
these options was estimated at the date of grant and repricing using the
Black-Scholes option pricing model with assumptions consistent with those shown
above. For the years ended December 31, 1999 and 2000, the Company recorded compensation expense of approximately $172 and $106, respectively,
related to these options.

In March 2000, the Company granted options to purchase 50,000 shares of Common
Stock to a member of the Board of Directors in exchange for services rendered
in connection with the Companys issuance of preferred stock. These shares
vested immediately and have an exercise price of $14.75. The fair value of
these options was estimated at the date of grant using the Black-Scholes option
pricing model with assumptions consistent with those shown above. These were
valued at $359. This amount was recorded as a reduction to mandatory
redeemable preferred stock and as additional paid-in-capital in the
accompanying consolidated balance sheets as of December 31, 2000.

Warrants

On March 29, 2000 and June 20, 2000, the
Company granted Crown 15,000 warrants to purchase additional shares
of preferred stock. (see Preferred
Stock).

Preferred Stock

The Company has authorized 1,000,000 shares of preferred stock, par value $.001
per share (Preferred Stock). The Board of Directors is empowered to issue
Preferred Stock from time to time in one or more series, without stockholder
approval, and to determine the rights, preferences and restrictions, including
dividend, conversion, voting, redemption (including sinking fund provisions),
and other rights, liquidation preferences and the number of shares constituting
any series and the designations of such series.

On March 29, 2000, Crown EMAK Partners, LLC, a Delaware limited liability
company (Crown), invested $11,900 in the Company in exchange for preferred
stock and warrants to purchase additional preferred stock. Under the terms of
the investment, Crown acquired 11,900 shares of Series A mandatory redeemable
senior cumulative participating convertible preferred stock, par value $.001
per share, of the Company (the Series A Stock) with a conversion price of
$14.75 per share. In connection with such purchase, the Company granted to
Crown five year warrants (collectively, the Warrants) to purchase 5,712
shares of Series B senior cumulative participating convertible preferred stock,
par value $.001 per share, of the Company (the Series B Stock) at an exercise
price of $1,000 per share, and 1,428 shares of Series C senior cumulative
participating convertible preferred stock, par value $.001 per share, of the
Company (the Series C Stock) at an exercise price of $1,000 per share. The
Warrants are immediately exercisable. The conversion prices of the Series B
Stock and the Series C Stock are $16.00 and $18.00, respectively. On June 20,
2000, Crown paid an additional $13,100 to the

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Company in exchange for an
additional 13,100 shares of Series A Stock with a conversion price of $14.75
per share. In connection with such purchase, the Company granted to Crown
Warrants to purchase an additional 6,288 shares of Series B Stock and an
additional 1,572 shares of Series C Stock. Each share of Series A Stock is
convertible into 67.7966 shares of Common Stock, representing 1,694,915 shares
of Common Stock in aggregate. Each share of Series B Stock and Series C Stock
is convertible into 62.5 and 55.5556 shares of Common Stock, respectively,
representing 916,666 shares of Common Stock in aggregate. Also in connection
with such purchase, the Company agreed to pay Crown a commitment fee in the
aggregate amount of $1,250, paid in equal quarterly installments of $62.5
commencing on June 30, 2000 and ending on March 31, 2005. The Company paid $250
in fees for the year ended December 31, 2001.

Upon any voluntary or involuntary liquidation, dissolution or winding-up of the
affairs of the Company, Crown, as holder of the preferred stock, will be
entitled to payment out of the assets of the Company available for distribution
of an amount equal to the greater of (a) the liquidation preference of $1,000
per share (the Liquidation Preference) plus all accrued and unpaid dividends
or (b) the aggregate amount of payment that the outstanding preferred stockholder would have received assuming conversion to Common Stock immediately
prior to the date of liquidation of capital stock, before any payment is made
to other stockholders.

The Series A Stock, Series B Stock and Series C Stock are subject to mandatory
redemption at 101% of the aggregate Liquidation Preference plus accrued and
unpaid dividends if a change in control of the Company occurs.

Crown has voting rights equivalent to the number of shares of Common Stock into
which their preferred stock is convertible on the relevant record date. Crown
is also entitled to receive a quarterly dividend equal to 6% of the Liquidation
Preference per share outstanding, payable in cash. Total dividends for the year
ended December 31, 2001 amounted to $1,500, of which $375 was paid in January
2002 and recorded in accounts payable in the accompanying consolidated balance
sheet as of December 31, 2001.

Crown currently holds 100% of the outstanding shares of Series A Stock, and
consequently, has designated two individuals to the Board of Directors of the
Company.

The Series A Stock is recorded in the accompanying consolidated balance sheets
at its Liquidation Preference net of issuance costs. The issuance costs
totaled approximately $1,951 and included an accrual of approximately
$1,000 for
the present value of the commitment fee discussed above.

Stock Repurchase

In July 2000, the Companys Board of Directors authorized up to $10,000 for the
repurchase of the Companys Common Stock over a twelve month period. The
repurchase program commenced on July 21, 2000 and expired July 21, 2001.
During this period, the Company spent $6,430 to purchase an aggregate of
523,594 shares at an average price of $12.28 per share including commissions.
On July 24, 2001, the Companys Board of Directors authorized up to an
additional $10,000 for the repurchase of the Companys Common Stock over a
twelve month period. In the period from August 2, 2001 through December 31,
2001 the Company spent $5,196 to purchase 423,400 shares at an average price of
$12.27 per share including commissions. Since initiating the overall buyback
program on July 21, 2000, the Company has spent $11,644 to purchase a total of
948,494 shares at an average price of $12.28 per share including commissions.
Purchases will be conducted in the open market at prevailing prices, based on
market conditions when the Company is not in a quiet period. The Company may
also transact purchases effected as block trades, as well as certain
negotiated, off-exchange purchases not in the open market. This repurchase
program is being funded through working capital.

Stock Subscription Receivable

On September 27, 1991, a minority stockholder of the Company purchased
1,850,000 shares of the Companys treasury stock for an aggregate purchase
price of $107. Since the stock was sold below cost, the loss on the issuance
of the treasury stock was charged to retained earnings. The purchase price for
these shares was paid with promissory notes, payable in ten years, together
with interest at an annual rate of 8.41% per year on the unpaid principal
balance. The notes were subject to the terms of the Loan Forgiveness Agreements
dated September 27, 1991, pursuant to which the principal amount of the notes
would be forgiven at 10% per year, provided that the stockholder remains
employed by the Company at such time. The stock subscription receivable is
included in the accompanying consolidated balance sheets as a reduction of
stockholders equity. The Company records the annual reduction as compensation
expense. On September 27, 2001, the balance due on these notes
was forgiven.

Restricted Stock

The Company has reserved 100,000 shares of common stock for issuance under the
1995 Stock Award Plan, (the Plan), which covers certain key salaried
employees who are not officers or directors of the Company. For the year ended
December 31, 2001, no shares were issued or canceled under the Plan. No shares were
issued under the Plan for the year ended December 31, 2001. The shares are
subject to restrictions, which lapse over a three to five year period and
continued employment with the Company.

Unearned compensation was charged for the market value of the restricted shares
as these shares were issued in accordance with the Plan. A total of
97,487 shares have been issued under the Plan between 1995 and
1998. The unearned
compensation is shown as a reduction of stockholders equity in the
accompanying consolidated balance sheets and is

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being amortized ratably over
the restricted period. Compensation charged to expense was $242, $153 and $33
in 1999, 2000 and 2001, respectively. At December 31, 2001, 69,690 shares were
available for issuance under the Plan.

9. INCOME TAXES

In accordance with SFAS No. 109, Accounting for Income Taxes, deferred income
taxes reflect the impact of temporary differences between values recorded for
assets and liabilities for financial reporting purposes and the values utilized
for measurement in accordance with current tax laws.

The provision for income taxes consist of:

|                |  |                          |       |      |  |      |       |  |  |   |       | 
|--------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                |  | Years Ended December 31,
|                |  |                         
|                |  | 1999                     |       | 2000 |  | 2001
|                |  |                          |       |      |  |     
|CURRENT:        |  |                          |       |      |  |      |       |  |  |   |       | 
|Federal         |  | $                        | 4,736 |      |  | $    | 4,723 |  |  | $ | 539   | 
|State and local |  |                          | 796   |      |  |      | 804   |  |  |   | 184   | 
|Foreign         |  |                          | 400   |      |  |      | 547   |  |  |   | 692   | 
|                |  |                          |       |      |  |      |       |  |  |   |       | 
|                |  |                          | 5,932 |      |  |      | 6,074 |  |  |   | 1,415 | 
|                |  |                          |       |      |  |      |       |  |  |   |       | 
|DEFERRED:       |  |                          |       |      |  |      |       |  |  |   |       | 
|Federal         |  |                          | 175   |      |  |      | 627   |  |  |   | 982   | 
|State and Local |  |                          | 27    |      |  |      | 96    |  |  |   | 112   | 
|Foreign         |  |                          |      |      |  |      |      |  |  |   | 8     | 
|                |  |                          |       |      |  |      |       |  |  |   |       | 
|                |  |                          | 202   |      |  |      | 723   |  |  |   | 1,102 | 
|                |  |                          |       |      |  |      |       |  |  |   |       | 
|                |  | $                        | 6,134 |      |  | $    | 6,797 |  |  | $ | 2,517 | 
|                |  |                          |       |      |  |      |       |  |  |   |       | 

Income taxes recorded by the Company differ from the amounts computed by
applying the statutory United States Federal income tax rate to income before
income taxes. The following schedule reconciles income tax expense at the
statutory rate and the actual income tax expense as reflected in the
accompanying consolidated statements of operations.

|                                                   |  |                          |       |      |  |      |       |  |  |   |       |  
|-------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | -
|                                                   |  | Years Ended December 31,
|                                                   |  |                         
|                                                   |  | 1999                     |       | 2000 |  | 2001
|                                                   |  |                          |       |      |  |     
|Tax at the Federal statutory rate                  |  | $                        | 5,341 |      |  | $    | 4,176 |  |  | $ | 2,449 |  
|State income taxes, net of the Federal tax benefit |  |                          | 541   |      |  |      | 636   |  |  |   | 240   |  
|Other                                              |  |                          | 252   |      |  |      | 1,985 |  |  |   | (172  | )
|                                                   |  |                          |       |      |  |      |       |  |  |   |       |  
|                                                   |  | $                        | 6,134 |      |  | $    | 6,797 |  |  | $ | 2,517 |  
|                                                   |  |                          |       |      |  |      |       |  |  |   |       |  

Other reflects the effects of permanent differences such as amortization of
goodwill, and the write-off of the Corinthian goodwill in 2000, and tax free
municipal interest income earned in 2001.

The tax effects of the significant temporary differences giving rise to the
Companys deferred tax assets (liabilities) for the years ended December 31,
2000 and 2001 are as follows:

|                                |                   |   |       |       |      |   |       |       |  
|------------------------------- | ----------------- | - | ----- | ----- | ---- | - | ----- | ----- | -
|                                |                   |   | 2000  |       | 2001
|                                |                   |   |       |       |     
|Allowance for doubtful accounts |                   | $ | 1,245 |       |      | $ | 904   |      
|Inventory reserve               |                   |   | 812   |       |      |   | 253   |      
|Accrued expenses                |                   |   | 812   |       |      |   | 539   |      
|Other                           |                   |   | 307   |       |      |   | 740   |      
|                                |                   |   |       |       |      |   |       |      
|                                | Total current     |   |       | 3,176 |      |   |       | 2,436 |  
|                                |                   |   |       |       |      |   |       |      
|Trademark                       |                   |   |      |       |      |   | (212  | )    
|Depreciation and amortization   |                   |   | (184  | )     |      |   | (304  | )    
|Other                           |                   |   | (270  | )     |      |   | (74   | )    
|                                |                   |   |       |       |      |   |       |      
|                                | Total non-current |   |       | (454  | )    |   |       | (590  | )
|                                |                   |   |       |       |      |   |       |      
|Total                           |                   | $ | 2,722 |       |      | $ | 1,846 |      
|                                |                   |   |       |       |      |   |       |      

A deferred U.S. tax liability has not been provided on the unremitted earnings of
Logistix because it is the intent of the Company to permanently reinvest these
earnings. Undistributed earnings of Logistix, which have been or are intended to
be permanently invested in accordance with APB No. 23, Accounting for Income
Taxes  Special Areas, aggregated $42 at December 31, 2001. The determination
of the tax liability upon repatriation is not practicable.

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10. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company has operating leases for its properties, which expire at various
dates through 2011.

Future minimum lease payments under non-cancelable operating leases are as
follows:

|           |  |   |        | 
|---------- |  | - | ------ | 
|Year       |  |  
|           |  |  
|2002       |  | $ | 1,801  | 
|2003       |  |   | 1,851  | 
|2004       |  |   | 1,952  | 
|2005       |  |   | 1,197  | 
|2006       |  |   | 1,061  | 
|Thereafter |  |   | 2,267  | 
|           |  |   |        | 
|Total      |  | $ | 10,129 | 
|           |  |   |        | 

Aggregate rental expenses for operating leases were $1,783, $1,775 and $1,783
for the years ended December 31, 1999, 2000 and 2001, respectively.

Guaranteed Royalties

For the years ended December 31, 1999, 2000, and 2001, the Company incurred
$5,295, $3,758 and $3,691, respectively, in royalty expense. License agreements
for certain copyrights and trademarks require minimum guaranteed royalty
payments over the respective terms of the licenses. As of December 31, 2001,
the Company has committed to pay total minimum guaranteed royalties as follows:

|      |  |   |       | 
|----- |  | - | ----- | 
|Year  |  |  
|      |  |  
|2002  |  | $ | 1,235 | 
|2003  |  |   | 3,037 | 
|2004  |  |   | 9     | 
|      |  |   |       | 
|Total |  | $ | 4,281 | 
|      |  |   |       | 

Advertising Commitments

For the years ended December 31, 1999, 2000, and 2001, the Company incurred
$1,211, $1,295 and $1,657, respectively, in advertising expense. License
agreements for certain copyrights and trademarks require minimum commitments
for advertising over the respective terms of the licenses. As of December 31,
2001, the Company has committed to advertise product as follows:

|      |  |   |       | 
|----- |  | - | ----- | 
|Year  |  |   |       | 
|      |  |   |       | 
|2002  |  | $ | 1,000 | 
|2003  |  |   | 1,846 | 
|      |  |   |       | 
|Total |  | $ | 2,846 | 
|      |  |   |       | 

Employment Agreement

As of December 31, 2001, the Company has an employment agreement with a key
executive. Guaranteed compensation under this agreement is as follows:

|      |  |   |     | 
|----- |  | - | --- | 
|Year  |  |   |     | 
|      |  |   |     | 
|2002  |  | $ | 405 | 
|      |  |   |     | 
|Total |  | $ | 405 | 
|      |  |   |     | 

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Legal Proceedings

The Perper Matter

On February 1, 2002, Alan Perper filed a complaint (No. BC 267 408) against the
Company, Donald A. Kurz (Chairman of the Board and Chief Executive Officer of
the Company) and Gaetano Mastropasqua (Executive Vice President, Client
Services, of the Company) in the Superior Court of the State of California,
County of Los Angeles. The plaintiff is a former employee of the Company who
was terminated in November 2001. The complaint alleges that the plaintiff was
wrongfully terminated and seeks $2,000,000 in compensatory damages plus
punitive damages, interest and attorneys fees for (i) breach of written
contract; (ii) breach of covenant of good faith and fair dealing; (iii)
fraudulent deceit; (iv) intentional infliction of emotional distress; and (v)
negligent infliction of emotional distress. Pursuant to indemnification
agreements between the Company and each of Messrs. Kurz and Mastropasqua, the
Company is obligated to defend and indemnify them in this matter. The Company
believes the allegations of the complaint are without merit and intends to
defend the action vigorously.

General Litigation

The Company is involved in various other legal proceedings generally incidental
to its business. While the result of any litigation contains an element of
uncertainty, management presently believes that the outcome of any other known,
pending or threatened legal proceeding or claim, individually or combined, will
not have a material adverse effect on the Companys financial position or
results of operations.

11. INDUSTRY SEGMENTS, GEOGRAPHICAL INFORMATION AND MAJOR CUSTOMERS

The Companys revenues are highly dependent on obtaining major contracts from a
limited number of customers. Approximately 80%, 80% and 66% of the Companys
revenues for the years ended December 31, 1999, 2000 and 2001, respectively,
were from one customer in the promotional segment.

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

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

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Industry Segments

|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|--------------------------------------------------------- |  | ---------------------------------------------- | ------- | -------- |  | --------- | ------ | ----- |  | - | ------- | - |  | - | ------- | 
|                                                          |  | As of and For the Year Ended December 31, 1999
|                                                          |  |                                               
|                                                          |  |                                                |         |          |  | Consumer  |        |       |  |   |         |   |  |  
|                                                          |  | Promotions                                     |         | Products |  | Corporate |        | Total
|                                                          |  |                                                |         |          |  |           |        |      
|Total revenues                                            |  | $                                              | 202,195 |          |  | $         | 24,868 |       |  | $ |        |   |  | $ | 227,063 | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Income (loss) before provision (benefit)
for income taxes |  | $                                              | 36,192  |          |  | $         | (1,026 | )     |  | $ | (19,618 | ) |  | $ | 15,548  | 
|Provision (benefit) for income taxes                      |  |                                                | 14,278  |          |  |           | (405   | )     |  |   | (7,739  | ) |  |   | 6,134   | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Net income (loss)                                         |  | $                                              | 21,914  |          |  | $         | (621   | )     |  | $ | (11,879 | ) |  | $ | 9,414   | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Fixed asset additions, net                                |  | $                                              |        |          |  | $         |       |       |  | $ | 847     |   |  | $ | 847     | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Depreciation and amortization                             |  | $                                              | 743     |          |  | $         | 504    |       |  | $ | 1,461   |   |  | $ | 2,708   | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Total assets                                              |  | $                                              | 62,910  |          |  | $         | 19,588 |       |  | $ | 14,746  |   |  | $ | 97,244  | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 

|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|--------------------------------------------------------- |  | ---------------------------------------------- | ------- | -------- |  | --------- | ------ | ----- |  | - | ------- | - |  | - | ------- | 
|                                                          |  | As of and For the Year Ended December 31, 2000
|                                                          |  |                                               
|                                                          |  |                                                |         |          |  | Consumer  |        |       |  |   |         |   |  |  
|                                                          |  | Promotions                                     |         | Products |  | Corporate |        | Total
|                                                          |  |                                                |         |          |  |           |        |      
|Total revenues                                            |  | $                                              | 208,607 |          |  | $         | 23,680 |       |  | $ |        |   |  | $ | 232,287 | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Income (loss) before provision (benefit)
for income taxes |  | $                                              | 38,779  |          |  | $         | 490    |       |  | $ | (27,130 | ) |  | $ | 12,139  | 
|Provision (benefit) for income taxes                      |  |                                                | 14,570  |          |  |           | 184    |       |  |   | (7,957  | ) |  |   | 6,797   | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Net income (loss)                                         |  | $                                              | 24,209  |          |  | $         | 306    |       |  | $ | (19,173 | ) |  | $ | 5,342   | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Fixed asset additions, net                                |  | $                                              |        |          |  | $         |       |       |  | $ | 921     |   |  | $ | 921     | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Depreciation and amortization                             |  | $                                              | 751     |          |  | $         | 475    |       |  | $ | 1,429   |   |  | $ | 2,655   | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Total assets                                              |  | $                                              | 57,195  |          |  | $         | 5,427  |       |  | $ | 47,920  |   |  | $ | 110,542 | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 

|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|--------------------------------------------------------- |  | ---------------------------------------------- | ------- | -------- |  | --------- | ------ | ----- |  | - | ------- | - |  | - | ------- | 
|                                                          |  | As of and For the Year Ended December 31, 2001
|                                                          |  |                                               
|                                                          |  |                                                |         |          |  | Consumer  |        |       |  |   |         |   |  |  
|                                                          |  | Promotions                                     |         | Products |  | Corporate |        | Total
|                                                          |  |                                                |         |          |  |           |        |      
|Total revenues                                            |  | $                                              | 117,305 |          |  | $         | 27,011 |       |  | $ |        |   |  | $ | 144,316 | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Income (loss) before provision (benefit)
for income taxes |  | $                                              | 18,688  |          |  | $         | 2,762  |       |  | $ | (14,332 | ) |  | $ | 7,118   | 
|Provision (benefit) for income taxes                      |  |                                                | 6,612   |          |  |           | 977    |       |  |   | (5,072  | ) |  |   | 2,517   | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Net income (loss)                                         |  | $                                              | 12,076  |          |  | $         | 1,785  |       |  | $ | (9,260  | ) |  | $ | 4,601   | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Fixed asset additions, net                                |  | $                                              |        |          |  | $         |       |       |  | $ | 1,041   |   |  | $ | 1,041   | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Depreciation and amortization                             |  | $                                              | 857     |          |  | $         | 23     |       |  | $ | 1,597   |   |  | $ | 2,477   | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 
|Total assets                                              |  | $                                              | 54,290  |          |  | $         | 5,364  |       |  | $ | 39,833  |   |  | $ | 99,487  | 
|                                                          |  |                                                |         |          |  |           |        |       |  |   |         |   |  |   |         | 

43



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Information about the Companys operations by geographical area is as follows:

|                        |               |                              |   |                                            |         |      |   |         |         |  |   |         |         | 
|----------------------- | ------------- | ---------------------------- | - | ------------------------------------------ | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                        |               |                              |   | As of and For the Years Ended December 31,
|                        |               |                              |   |                                           
|                        |               |                              |   | 1999                                       |         | 2000 |   | 2001   
|                        |               |                              |   |                                            |         |      |   |        
|Revenues:               |               |                              |   |                                            |         |      |   |         |         |  |   |        
|                        | United States |                              | $ | 205,182                                    |         |      | $ | 193,420 |         |  | $ | 117,595 |        
|                        | International |                              |   | 21,881                                     |         |      |   | 38,867  |         |  |   | 26,721  |        
|                        |               |                              |   |                                            |         |      |   |         |         |  |   |        
|                        |               | Total revenues               |   | $                                          | 227,063 |      |   | $       | 232,287 |  |   | $       | 144,316 | 
|                        |               |                              |   |                                            |         |      |   |         |         |  |   |        
|Income from operations: |               |                              |   |                                            |         |      |   |         |         |  |   |        
|                        | United States |                              | $ | 14,516                                     |         |      | $ | 8,963   |         |  | $ | 4,997   |        
|                        | International |                              |   | 1,542                                      |         |      |   | 1,801   |         |  |   | 751     |        
|                        |               |                              |   |                                            |         |      |   |         |         |  |   |        
|                        |               | Total income from operations |   | $                                          | 16,058  |      |   | $       | 10,764  |  |   | $       | 5,748   | 
|                        |               |                              |   |                                            |         |      |   |         |         |  |   |        
|Fixed assets, net:      |               |                              |   |                                            |         |      |   |         |         |  |   |        
|                        | United States |                              | $ | 4,586                                      |         |      | $ | 3,979   |         |  | $ | 3,700   |        
|                        | International |                              |   | 321                                        |         |      |   | 284     |         |  |   | 478     |        
|                        |               |                              |   |                                            |         |      |   |         |         |  |   |        
|                        |               | Total fixed assets           |   | $                                          | 4,907   |      |   | $       | 4,263   |  |   | $       | 4,178   | 
|                        |               |                              |   |                                            |         |      |   |         |         |  |   |        

12. Related Party Transactions

Stephen P. Robeck, formerly Chairman of the Board and Co-Chief Executive
Officer, entered into a consulting agreement with the Company commencing on
January 1, 1999 and ending on December 31, 2001. The agreement provided that
Mr. Robeck would serve as a financial and business consultant to the Company
and be available to fulfill his obligations thereunder no less than twenty
hours per month. The agreement contained provisions restricting Mr. Robecks
ability to compete with the Company, while providing services as a
consultant,
and to solicit the Companys employees through the first anniversary of the end
of the consulting period. Under the agreement, Mr. Robeck received a consulting
fee of $210 per year, a car allowance of $18 per year and certain medical,
disability and life insurance benefits.

In April 2001, the Company contracted to purchase print management services
from ISG, a company controlled by Jeffrey S. Deutschman, Jason Ackerman and
affiliates. In 2001, the Company paid ISG approximately $460 in print
management fees. The Company believes that such services were negotiated on an
arms length basis. Mr. Deutschman, a director of the Company, is a manager of
Crown. Mr. Ackerman, a director of the Company, is a manager of Crown.

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13. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)

|                                                   |                                     |   |                    |           |         |   |              |           |             |   |        |           |  |   |        |           |  
|-------------------------------------------------- | ----------------------------------- | - | ------------------ | --------- | ------- | - | ------------ | --------- | ----------- | - | ------ | --------- |  | - | ------ | --------- | -
|                                                   |                                     |   | Three Months Ended
|                                                   |                                     |   |                   
|                                                   |                                     |   | March 31           |           | June 30 |   | September 30 |           | December 31
|                                                   |                                     |   |                    |           |         |   |              |           |            
|2000                                               |                                     |   |                    |           |         |   |              |           |             |   |        |           |  |   |        |          
|Revenues                                           |                                     | $ | 43,477             |           |         | $ | 55,314       |           |             | $ | 56,026 |           |  | $ | 77,470 |          
|Income (loss) from operations                      |                                     | $ | 2,054              |           |         | $ | 4,839        |           |             | $ | 5,474  |           |  | $ | (1,603 | )        
|Net income (loss) available to
common stockholders |                                     | $ | 1,288              |           |         | $ | 2,865        |           |             | $ | 3,144  |           |  | $ | (2,911 | )        
|Basic Income (Loss) Per Share:                     |                                     |   |                    |           |         |   |              |           |             |   |        |           |  |   |        |          
|                                                   | Income (loss) per share             |   | $                  | 0.21      |         |   | $            | 0.46      |             |   | $      | 0.50      |  |   | $      | (0.46     | )
|                                                   | Weighted average shares
outstanding |   |                    | 6,236,718 |         |   |              | 6,291,180 |             |   |        | 6,307,650 |  |   |        | 6,266,811 |  
|Diluted Income (Loss) Per Share:                   |                                     |   |                    |           |         |   |              |           |             |   |        |           |  |   |        |          
|                                                   | Income (loss) per share             |   | $                  | 0.20      |         |   | $            | 0.41      |             |   | $      | 0.42      |  |   | $      | (0.46     | )
|                                                   | Weighted average shares
outstanding |   |                    | 6,473,471 |         |   |              | 7,412,498 |             |   |        | 8,288,741 |  |   |        | 6,266,811 |  

|                                            |                                     |   |                    |           |         |   |              |           |             |   |        |           |  |   |        |           | 
|------------------------------------------- | ----------------------------------- | - | ------------------ | --------- | ------- | - | ------------ | --------- | ----------- | - | ------ | --------- |  | - | ------ | --------- | 
|                                            |                                     |   | Three Months Ended
|                                            |                                     |   |                   
|                                            |                                     |   | March 31           |           | June 30 |   | September 30 |           | December 31
|                                            |                                     |   |                    |           |         |   |              |           |            
|2001                                        |                                     |   |                    |           |         |   |              |           |             |   |        |           |  |   |        |          
|Revenues                                    |                                     | $ | 28,027             |           |         | $ | 28,237       |           |             | $ | 40,828 |           |  | $ | 47,224 |          
|Income from operations                      |                                     | $ | 746                |           |         | $ | 895          |           |             | $ | 2,683  |           |  | $ | 1,424  |          
|Net income available to
common stockholders |                                     | $ | 540                |           |         | $ | 485          |           |             | $ | 1,426  |           |  | $ | 650    |          
|Basic Income Per Share:                     |                                     |   |                    |           |         |   |              |           |             |   |        |           |  |   |        |          
|                                            | Income per share                    |   | $                  | 0.09      |         |   | $            | 0.08      |             |   | $      | 0.24      |  |   | $      | 0.11      | 
|                                            | Weighted average shares
outstanding |   |                    | 6,106,644 |         |   |              | 6,061,811 |             |   |        | 5,978,322 |  |   |        | 5,822,280 | 
|Diluted Income Per Share:                   |                                     |   |                    |           |         |   |              |           |             |   |        |           |  |   |        |          
|                                            | Income per share                    |   | $                  | 0.09      |         |   | $            | 0.08      |             |   | $      | 0.23      |  |   | $      | 0.11      | 
|                                            | Weighted average shares
outstanding |   |                    | 6,310,608 |         |   |              | 6,175,984 |             |   |        | 7,877,538 |  |   |        | 5,969,811 | 

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SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS
ANGELES AND STATE OF CALIFORNIA ON THE 27TH DAY OF MARCH, 2002.

| |                                                                  |                     
| | ---------------------------------------------------------------- | --------------------
| | EQUITY MARKETING, INC.                                          
|
| | By:                                                              | /s/   Donald A. Kurz
| |                                                                 
| | Donald A. Kurz
Chairman of the Board and Chief Executive Officer

POWER OF ATTORNEY

We, the undersigned directors and officers of Equity Marketing, Inc. do hereby
severally constitute and appoint Donald A. Kurz, Leland P. Smith and Lawrence
J. Madden, and each of them, our true and lawful attorneys and agents, to do
any and all acts and things in our name and behalf in our capacities as
directors and officers and to execute any and all instruments for us and in our
names in the capacities indicated below, which said attorneys and agents, or
any of them, may deem necessary or advisable to enable said corporation to
comply with the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with this Annual Report on Form 10-K, including specifically, but
without limitation, power and authority to sign for us or any of us, in our
names in the capacities indicated below, any and all amendments hereto; and we
do each hereby ratify and confirm all said attorneys and agents, or any one of
them, shall do or cause to be done by virtue hereof.

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

|                                               |  |                                                                                                |  |               
|---------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | --------------
|/s/ Donald A. KurzDonald A. Kurz               |  | Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)                |  | March 27, 2002
|                                              
|/s/ Lawrence J. MaddenLawrence J. Madden       |  | Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |  | March 27, 2002
|                                              
|/s/ Jason AckermanJason Ackerman               |  | Director                                                                                       |  | March 27, 2002
|                                              
|/s/ Sanford R. ClimanSanford R. Climan         |  | Director                                                                                       |  | March 27, 2002
|                                              
|/s/ Jeffrey S. DeutschmanJeffrey S. Deutschman |  | Director                                                                                       |  | March 27, 2002
|                                              
|/s/ Jonathan D. KaufeltJonathan D. Kaufelt     |  | Director                                                                                       |  | March 27, 2002
|                                              
|/s/ Mitchell H. KurzMitchell H. Kurz           |  | Director                                                                                       |  | March 27, 2002

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|                                                     |  |          |  |               
|---------------------------------------------------- |  | -------- |  | --------------
|                                                    
|/s/     Alfred E. Osborne, Jr.Alfred E. Osborne, Jr. |  | Director |  | March 27,
2002
|                                                    
|/s/     Bruce RabenBruce Raben                       |  | Director |  | March 27,
2002
|                                                    
|/s/     Stephen P. RobeckStephen P. Robeck           |  | Director |  | March 27,
2002

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Report of Independent Public Accountants

To Equity Marketing, Inc.:

We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Equity Marketing, Inc.
and subsidiaries included in this Form 10-K and have issued our report thereon
dated February 27, 2002. Our audits were made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The
schedule listed in the index in Item 14 is the responsibility of the Companys
management and is presented for purposes of complying with the Securities and
Exchange Commissions rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.

/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP

Los Angeles, California
February 27, 2002

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SCHEDULE II

EQUITY MARKETING, INC.

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

|                             |                                                               |         |              |          |            |          |            |            |     |             |            |       |  |        |   |        |      |       |   |       | 
|---------------------------- | ------------------------------------------------------------- | ------- | ------------ | -------- | ---------- | -------- | ---------- | ---------- | --- | ----------- | ---------- | ----- |  | ------ | - | ------ | ---- | ----- | - | ----- | 
|                             |                                                               |         |              |          |            |          | Additions  |            |     |             |            |       |  |        |   |        |      |       |  
|                             |                                                               |         | Balance at   |          | Charged to |          | Additions  |            |     |             |            |       |  |        |  
|                             |                                                               |         | Beginning of |          | Operating  |          | Charged to |            | Net |             | Balance at
|CLASSIFICATION               |                                                               | of Year |              | Expenses |            | Revenues |            | Deductions |     | End of Year
|                             |                                                               |         |              |          |            |          |            |            |     |            
|Year Ended December 31, 1999 |                                                               |         |              |          |            |          |            |            |     |             |            |       |  |        |   |        |      |       |   |      
|                             | Allowances for doubtful
accounts receivable
and sales returns |         | $            | 3,684    |            |          | $          | 1,585      |     |             | $          | 4,031 |  |        | $ | (3,930 | )(A) |       | $ | 5,370 | 
|Restructuring reserves       |                                                               | 3,994   |              |          |            | (604     | )          |            |     |            |            |       |  | (1,662 | ) |        |      | 1,728 |  
|Year Ended December 31, 2000 |                                                               |         |              |          |            |          |            |            |     |             |            |       |  |        |   |        |      |       |   |      
|                             | Allowances for doubtful
accounts receivable
and sales returns |         | $            | 5,370    |            |          | $          | 1,225      |     |             | $          | 199   |  |        | $ | (3,704 | )(A) |       | $ | 3,090 | 
|Restructuring reserves       |                                                               | 1,728   |              |          |            | (418     | )          |            |     |            |            |       |  | (1,115 | ) |        |      | 195   |  
|Year Ended December 31, 2001 |                                                               |         |              |          |            |          |            |            |     |             |            |       |  |        |   |        |      |       |   |      
|                             | Allowances for doubtful
accounts receivable
and sales returns |         | $            | 3,090    |            |          | $          | 336        |     |             | $          | 766   |  |        | $ | (1,856 | )(A) |       | $ | 2,336 | 
|Restructuring reserves       |                                                               | 195     |              |          |            |         |            |            |     |            |            |       |  | (5     | ) |        |      | 190   |  

(A)  Represents product returns, credits applied and accounts receivable
written off, net of recoveries.

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|                                                             |  |                                                                                                                                                                                                                                                                                            
|------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit                                                      |  | Description                                                                                                                                                                                                                                                                                
|                                                             |  |                                                                                                                                                                                                                                                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|3.1                                                          |  | Certificate of Incorporation. (1)                                                                                                                                                                                                                                                          
|                                                            
|                                                            
|                                                            
|                                                            
|3.2                                                          |  | Amended and Restated Bylaws. (3)                                                                                                                                                                                                                                                           
|                                                            
|                                                            
|                                                            
|                                                            
|3.3                                                          |  | First Amendment to Amended and Restated Bylaws. (4)                                                                                                                                                                                                                                        
|                                                            
|                                                            
|                                                            
|                                                            
|3.4                                                          |  | Certificate of Designation of Series A Senior Cumulative
Participating Convertible Preferred Stock, Series B Senior
Cumulative Participating Convertible Preferred Stock and Series C
Senior Cumulative Participating Convertible Preferred Stock of the
Company, dated March 29, 2000. (6)
|                                                            
|                                                            
|                                                            
|                                                            
|4.0                                                          |  | Form of Warrant to Purchase Shares of Series B Senior Cumulative
Participating Convertible Preferred Stock, dated March 29, 2000. (6)                                                                                                                                                      
|                                                            
|                                                            
|                                                            
|                                                            
|4.1                                                          |  | Form of Warrant to Purchase Shares of Series C Senior Cumulative
Participating Convertible Preferred Stock, dated March 29, 2000. (6)                                                                                                                                                      
|                                                            
|                                                            
|                                                            
|                                                            
|10.0                                                         |  | Securities Purchase Agreement by and between Crown Acquisition Partners,
LLC and Equity Marketing, Inc., dated March 29, 2000. (6)                                                                                                                                                         
|                                                            
|                                                            
|                                                            
|                                                            
|10.1                                                         |  | Registration Rights Agreement by and between Crown Acquisition
Partners, LLC and Equity Marketing, Inc., dated March 29, 2000. (6)                                                                                                                                                         
|                                                            
|                                                            
|                                                            
|                                                            
|10.2                                                         |  | Agreement of Lease dated July 17, 1998 between Miracle Mile, L.L.C.
and Equity Marketing, Inc. (5)                                                                                                                                                                                         
|                                                            
|                                                            
|                                                            
|                                                            
|10.3                                                         |  | Agreement of Lease, dated March 10, 2000, between Wide Harvest
Investment Ltd. and Equity Marketing Hong Kong, Ltd. (5)                                                                                                                                                                    
|                                                            
|                                                            
|                                                            
|                                                            
|10.4                                                         |  | Credit Agreement by and between Bank of America, N.A. and Equity
Marketing, Inc., dated April 24, 2001. (8)                                                                                                                                                                                
|                                                            
|                                                            
|                                                            
|                                                            
|10.5                                                         |  | First Amendment to Credit Agreement by and between Bank of America,
N.A. and Equity Marketing, Inc., dated September 30, 2001. (10)                                                                                                                                                        
|                                                            
|                                                            
|                                                            
|                                                            
|10.6                                                         |  | Second Amendment to Credit Agreement by and between Bank of
America, N.A. and Equity Marketing, Inc., dated February 8, 2002.
(11)                                                                                                                                                         
|                                                            
|Executive
Compensation
Plans and
Arrangements
of the
Company
|                                                            
|10.7                                                         |  | Form of Directors and Officers Indemnification Agreement. (3)                                                                                                                                                                                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|10.8                                                         |  | Equity Marketing, Inc. Amended and Restated Stock Option Plan. (3)                                                                                                                                                                                                                         
|                                                            
|                                                            
|                                                            
|                                                            
|10.9                                                         |  | Equity Marketing Inc. Non-Employee Director Stock Option Plan. (2)                                                                                                                                                                                                                         
|                                                            
|                                                            
|                                                            
|                                                            
|10.10                                                        |  | Employment Agreement dated January 1, 1999 between Equity Marketing, Inc. and Donald A. Kurz. (4)                                                                                                                                                                                          
|                                                            
|                                                            
|                                                            
|                                                            
|10.11                                                        |  | Equity Marketing, Inc. 2000 Stock Option Plan. (7)                                                                                                                                                                                                                                         
|                                                            
|                                                            
|                                                            
|                                                            
|10.12                                                        |  | First Amendment to Equity Marketing, Inc. 2000 Stock Option Plan. (9)                                                                                                                                                                                                                      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|21.                                                          |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|23.                                                          |  | Consent of Arthur Andersen LLP.                                                                                                                                                                                                                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|99.                                                          |  | Letter regarding Arthur Andersen LLP(*)                                                                                                                                                                                                                                                    



---

|(1) |  | Previously filed as an exhibit to the Registrants Statement on Form 10-K
for the year ended December 31, 1995, which is incorporated herein by
reference.    
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Previously filed as an exhibit to the Registrants Statement on Form 10-K
for the year ended December 31, 1997, which is incorporated herein by
reference.    
|   
|   
|   
|   
|(3) |  | Previously filed as an exhibit to the Registrants Statement on Form 10-Q
for the quarter ended September 30, 1998, which is incorporated herein by
reference.
|   
|   
|   
|   
|(4) |  | Previously filed as an exhibit to the Registrants Current Report on Form
8-K dated April 16, 1999, which is incorporated herein by reference.                
|   
|   
|   
|   
|(5) |  | Previously filed as an exhibit to the Registrants Current Report on Form
8-K dated April 11, 2000, which is incorporated herein by reference.                
|   
|   
|   
|   
|(6) |  | Previously filed as an exhibit to the Registrants Statement on Form 10-Q
for the quarter ended March 31, 2000, which is incorporated herein by
reference.    

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|(7)  |  | Previously filed as an exhibit to the Registrants Notice of Annual Meeting
and Proxy Statement dated July 21, 2000, which is incorporated herein by
reference.
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|(8)  |  | Previously filed as an exhibit to the Registrants Statement on Form 10-Q
for the quarter ended March 31, 2001, which is incorporated herein by
reference.     
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|(9)  |  | Previously filed as an exhibit to the Registrants Statement on Form 10-Q
for the quarter ended June 30, 2001, which is incorporated herein by reference.      
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|(10) |  | Previously filed as an exhibit to the Registrants Current Report on Form
8-K dated November 16, 2001, which is incorporated herein by reference.              
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|(11) |  | Previously filed as an exhibit to the Registrants Current Report on Form
8-K dated March 18, 2002, which is incorporated herein by reference.                 
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|(*)  |  | Filed herewith.                                                                                                                                                

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