UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2004
OR
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________

Commission File No. 0-7843

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

Registrant’s telephone number, including area code:  (212) 758-7666

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to the Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)

FORM 10-K REPORT INDEX

10-K Part
and Item No.

PART I

Item 1

Item 2

Item 3

Item 4

PART II

Item 5

Item 6

Item 7

Item 7A

Item 8

Item 9

Item 9A

Item 9B

PART III

Item 10

Item 11

Item 12

Item 13

Item 14

PART IV

Item 15

PART I

Throughout this 10-K report we “incorporate by reference” certain information in parts of other documents filed with the Securities and Exchange Commission (the “SEC”). The SEC allows us to disclose important information by referring to it in that manner. Please refer to such information.

We are making forward-looking statements in this report. Beginning on page 16, we discuss some of the business risks and factors that could cause actual results to differ materially from those stated in the forward-looking statements.

Item 1. Business

       (a)   General Development and Narrative Description of Business — 4Kids Entertainment, Inc. (the “Company”), together with the subsidiaries through which the Company’s businesses are conducted, is a diversified entertainment and media company specializing in the children’s entertainment market with operations in the following business segments: (i) Licensing, (ii) Advertising Media and Broadcasting, and (iii) Television and Film Production/Distribution. The Company was organized as a New York Corporation in 1970.

Licensing — The Company’s wholly-owned subsidiary, 4Kids Entertainment Licensing, Inc. (“4Kids Licensing”), is engaged in the business of licensing the merchandising rights to popular children’s television series, properties and product concepts (collectively the “Properties”). 4Kids Licensing typically acts as exclusive merchandising agent in connection with the grant to third parties of licenses to manufacture and sell all types of merchandise, including toys, videogames, trading cards, apparel, housewares, footwear, books and other published materials, based on such Properties. 4Kids Entertainment International, Ltd. (“4Kids International”), the Company’s wholly-owned subsidiary based in London, manages the Properties represented by the Company in the United Kingdom and European marketplaces. Licensing revenues accounted for approximately 49%, 54% and 54% of consolidated net revenues for the years ended December 31, 2004, 2003 and 2002, respectively.

The following Properties are among those represented exclusively by 4Kids Licensing:

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Company-Owned Properties — The Company developed and owns WMAC Masters, a live action television series in which skilled martial arts professionals compete for supremacy. The Company also owns “Charlie Chan”, the fictional Asian detective who has been the subject of numerous films based on the character created by Earl Derr Biggers. In March 2001, the Company optioned the film rights to “Charlie Chan” to Twentieth Century Fox Film Corporation and in 2004 that option was extended by Twentieth Century Fox Film Corporation for an additional two years. As previously noted, the Company is a co-owner of the new “Teenage Mutant Ninja Turtles” television series and the twenty-six episodes of the “Cubix” animated television series.

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

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Advertising Media and Broadcasting — The Company, through a multi-year agreement with Fox leases Fox’s Saturday morning programming block from 8am to 12pm eastern/pacific time (7am to 11am central time). In January, 2005, the Company changed the name of the Saturday morning programming block from Fox Box to 4Kids TV. The Company provides substantially all programming content to be broadcast on 4Kids TV. 4Kids Ad Sales, Inc., a wholly-owned subsidiary of the Company, retains all of the revenue from its sale of network advertising time for the four-hour time period.

The Company’s wholly-owned subsidiary, The Summit Media Group, Inc. (“Summit Media”), provides print and broadcast media planning and buying services for clients which are principally in the children’s toy and game business. Summit Media is compensated by receiving a percentage of the cost of the media it places.

The Advertising Media and Broadcasting segment accounted for 23%, 22% and 21% of consolidated net revenues for the years ended December 31, 2004, 2003 and 2002, respectively.

Television and Film Production/Distribution — The Company’s wholly-owned subsidiary, 4Kids Productions, Inc. (“4Kids Productions”), produces and acquires animated and live-action television programs and theatrical motion pictures for distribution to the television, home video and theatrical markets. 4Kids Productions also adapts foreign programming for the U.S. market and produces original animated television programming for domestic and international broadcast. Additionally, 4Kids Productions produces original music compositions for use with its television and film production activities.

4Kids Entertainment Music, Inc. (“4Kids Music”), a wholly-owned subsidiary, markets and manages the musical operations for the Company on certain existing and newly created music associated with its television programming. 4Kids Entertainment Home Video, Inc. (“4Kids Home Video”), a wholly-owned subsidiary, distributes home videos associated with television programming produced by 4Kids Productions.

The Television and Film Production/Distribution segment accounted for 28%, 24%, and 25% of consolidated net revenues for the years ended December 31, 2004, 2003 and 2002, respectively.

       (b)   Financial Information About Industry Segments — Financial information regarding industry segments can be found in Note 13 of the Notes to the Company’s consolidated financial statements.

       (c)   Dependence on a Few Sources of Revenues — The Company typically derives a substantial portion of its revenues from a small number of Properties, which Properties usually generate revenues only for a limited period of time. Since the Company’s revenues are highly subject to changing trends in the toy, game and entertainment businesses, the Company’s revenues from year to year from particular properties are subject to dramatic increases and decreases. It is not possible to accurately predict the length of time a property will be commercially successful or if a property will be commercially successful at all. Popularity of Properties can vary from months to years. In addition, the Company’s control over the timing of payments made by licensees of various rights to the properties is limited, as some payments are made upon the execution and delivery of license agreements and some payments are made in quarterly royalty payments reported by the licensees. Due to these factors, the Company must continually seek new Properties from which it can derive revenues.

Two Properties, “Yu-Gi-Oh!” and “Teenage Mutant Ninja Turtles” represented 55% of consolidated net revenues for fiscal 2004. One licensee, Konami Corporation, represented 18% of consolidated net revenues for fiscal 2004. For more information on Revenues/Major Customers, please see Note 7 of the Notes to the Company’s consolidated financial statements.

       (d)   Trademarks and Copyrights — The Company generally does not own any trademarks or copyrights in properties which the Company represents as merchandising agent. The trademarks and copyrights are typically owned by the creator of the Property or by the entity, such as a television producer, which may expend substantial amounts of resources in developing or promoting the property. However, the Company does own the copyrights and trademarks to “Charlie Chan” and “WMAC Masters” and is a joint copyright holder of “Cubix” and the new “Teenage Mutant Ninja Turtles” television series.

       (e)   Seasonal Aspects — A substantial portion of the Company’s revenues and net income are subject to the seasonal and trend variations of the toy and game industry. Typically, a majority of toy orders are shipped in the third and fourth calendar quarters. Historically, the Company’s net income from toy and game royalties during the second half of the year has generally been greater than during the first half of the year. Additionally, advertising revenues derived from the sale of commercial time on 4Kids TV is generally higher in the fourth quarter in view of the higher advertising rates derived from children’s advertisers for advertising during the holiday season.

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       (f)   Competition — The Company’s principal competitors in the area of merchandise licensing are the large media companies with theatrical distribution and television broadcast distribution (e.g., Disney, Time-Warner, Viacom), toy companies, other licensing companies, and numerous individuals who act as merchandising agents. There are also many independent product development firms with which the Company competes. Many of these companies have substantially greater resources than the Company and represent properties which have been commercially successful for longer periods than the Properties represented by the Company. The Company believes it would be relatively easy for a potential competitor to enter its market in light of the relatively small investment required to commence operations as a merchandising agent. However, the ultimate success of a new entrant in the field would depend on its access to toy and other manufacturers, access to distribution of television based properties, access to properties to be licensed, retail market acceptance of properties and its know-how in the negotiation and subsequent administration of licenses.

The Company’s Advertising Media and Broadcasting segment also operates in a highly competitive marketplace against companies with substantially greater resources and distribution networks than the Company.

The Company’s Television and Film Production/Distribution segment competes with all forms of entertainment directed at children. There are a significant number of companies that produce and/or broadcast television programming and distribute theatrical motion pictures and home videos for the children’s audience. The Company also competes with these companies to obtain creative talent to write adapt, score, provide voice-overs and produce the television programs and theatrical motion pictures produced by the Company and its subsidiaries.

The Company’s ability to derive advertising revenue from the sale of commercial time on 4Kids TV depends, in substantial part, on the popularity of the television shows that the Company broadcasts on 4Kids TV. The Company also faces significant competition from other television broadcasters and cable networks, including competition from successful television programs that the Company produces (“Pokémon” and “Yu-Gi-Oh!”), which are broadcast on Saturday mornings on a competing network.

       (g)   Employees — As of March 15, 2005, the Company had a total of 240 full-time employees in its domestic and international operations. Of the total, approximately 85 employees were primarily rendering services for the Licensing segment, approximately 44 were primarily rendering services for the Advertising Media and Broadcasting segment and approximately 111 were primarily rendering services for the Television and Film Production/Distribution segment. The Company also hires additional employees on a program-by-program basis which are typically allocated to the capitalized cost of the related programming.

       (h)   Available Information — The Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for its Annual Meeting of Stockholders are made available, free of charge, through its Web site http://www.4kidsentertainment.com, as soon as reasonably practicable after such reports have been filed with or furnished to the Securities and Exchange Commission (the “SEC”).

Item 2. Properties

The following table sets forth, with respect to properties leased (none are owned) by the Company at December 31, 2004, the location of the property, the date on which the lease expires and the use which the Company makes of such facilities:

The Company’s lease of its former international sales office in London expired on January 6, 2005. The executive, marketing, sales and administrative office is utilized by the Licensing and by the Advertising Media and Broadcast segments. The international sales office is utilized primarily by the Licensing Segment. The production facility is utilized by the Television and Film Production/Distribution segment. The Company considers that, in general, its physical properties are well maintained, in good operating condition and adequate for its purposes.

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Item 3. Legal Proceedings

       (i)   DSI Toys. During 2003, the Company’s subsidiary, Summit Media served as the media buying agency for DSI Toys, Inc. (“DSI”). On October 17, 2003, DSI filed a voluntary petition under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas. In January 2004, the Trustee for the bankruptcy estate of DSI (the “Trustee”) sent a letter to Summit Media alleging that DSI made payments to Summit Media totaling $1,159 (the “Amount”) during the ninety (90) day period prior to DSI’s bankruptcy filing and asserting that such payments constituted avoidable preference payments, and the Trustee formally demanded that Summit Media repay the Amount. The Company and the Trustee have entered into a settlement agreement pertaining to this matter which provides for the payment by the Company of $5 and a full release in favor of the Company, which has been approved by the Bankruptcy Court. A motion by the Trustee to dismiss the formal action against the Company is pending in the Bankruptcy Court.

       (ii)   Telamerica Cable Connect. During 2002, Summit Media entered into three (3) agreements with Telamerica Cable Connect (“TCC”) for the purchase of certain advertising units for broadcast use on the ABC Family, Cartoon Network and Nickelodeon cable stations. The agreements between Summit Media and TCC provided for a “ratings and Cost per Thousand (“CPM”) guarantee” for the media buys and required TCC to provide Summit Media with a summary affidavit analysis of the media buys. Summit Media paid TCC for the advertising units with respect to which TCC has provided confirmation of the delivery of the ratings and CPM guarantee set forth in the agreements. To date, TCC has been unable to provide Summit Media with appropriate documentation confirming the delivery of the ratings and CPM guarantee for the remainder of advertising units purchased by Summit Media. Summit Media has, therefore, refused to pay TCC for the advertising units with respect to which TCC has not provided confirmation of the ratings and CPM guarantee.

On September 27, 2004, TCC filed a Demand for Arbitration claiming that Summit Media owes approximately $234 plus interest for advertising purchased by Summit Media from TCC. Summit Media has denied the claim by TCC and asserted a counterclaim against TCC for up to $150. The Company believes that it has meritorious defenses to the claim asserted by TCC. The arbitration hearing has been scheduled for May 2005.

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

Item 4. Submission of Matters to a Vote of Security Holders

During the Company’s fiscal quarterly period ended December 31, 2004, there were no matters submitted to a vote of security holders.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

       (a)   The Company’s Common Stock is listed for trading on the New York Stock Exchange under the symbol “KDE”. The following table indicates high and low sales quotations for the periods indicated based upon information supplied by the New York Stock Exchange.

       (b)   Number of Holders of Common Stock — The number of holders of record of the Company’s Common Stock on March 15, 2005 was 355, which does not include individual participants in security position listings.

       (c)   Dividends — There were no dividends or other distributions made by the Company during 2004 or 2003. Future dividend policy will be determined by the Board of Directors based on the Company’s earnings, financial condition, capital requirements and other existing conditions. It is anticipated that cash dividends will not be paid to the holders of the Company’s Common Stock in the foreseeable future.

       (d)   Equity Compensation Plans — Information regarding the Company’s equity compensation plans is incorporated by reference to Item 12 in Part III of this Form 10-K.

       (e)   Purchases of Equity Securities by the Issuer and Affiliated Purchasers

ISSUER PURCHASES OF EQUITY SECURITIES

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Item 6. Selected Consolidated Financial Data (in thousands of dollars, except per share data)

Our selected consolidated financial data presented below has been derived from our audited consolidated financial statements and should be read in conjunction with the related Notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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The Company did not declare or pay any cash dividends during the five-year period ended December 31, 2004.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands of dollars unless otherwise specified)

The following is a discussion and analysis of our financial position and results of operations for each of the three years in the period ended December 31, 2004. This commentary should be read in conjunction with our consolidated financial statements and the notes thereto which appear beginning on page F-1 under “Item 8: Financial Statements and Supplementary Data”.

Overview

The Company’s results for the year ended December 31, 2004 reflect continued strong consumer demand for “Yu-Gi-Oh!” and to a lesser extent “Teenage Mutant Ninja Turtles” and “Cabbage Patch Kids” licensed merchandise and an increase in revenue in the Company's Television and Film Production/Distribution and Advertising Media and Broadcast segments. However, our consolidated revenue for 2004 reflects a decrease from our higher margin Licensing segment when compared to 2003, resulting in reduced income from operations. The Company’s selling, general and administrative costs for 2004 were higher than the previous year primarily due to substantial increases in accounting and consulting fees incurred in connection with the Company’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”). In addition, there was an increase in the amount of the 4Kids TV Broadcast fee amortized in 2004 as compared with 2003, which was partially offset by decreased amortization of television and film costs.

General

The Company receives revenues from its three business segments; (i) Licensing, (ii) Advertising Media and Broadcasting and (iii) Television and Film Production/Distribution. The Company typically derives a substantial portion of its licensing revenues from a small number of Properties, which Properties usually generate revenues only for a limited period of time. Since the Company’s licensing revenues are highly subject to changing trends in the toy, game and entertainment businesses, the Company’s licensing revenues from year-to-year from particular properties are subject to dramatic increases and decreases. It is not possible to accurately predict the length of time a property will be commercially successful or if a property will be commercially successful at all. Popularity of Properties can vary from months to years. As a result, the Company’s revenues from particular Properties may fluctuate significantly between comparable periods.

The Company’s licensing revenues have historically been derived primarily from the license of toy and game concepts. Thus, a substantial portion of the Company’s revenues and net income are subject to the seasonal variations of the toy and game industry. Typically, a majority of toy orders are shipped in the third and fourth calendar quarters resulting in increased royalties earned by the Company during such calendar quarters. In addition, the Company’s media buying subsidiary, Summit Media, provides media services to a significant number of toy and video game companies which place a substantial portion of their overall annual advertising in the fourth quarter. The Company recognizes revenue from the sale of advertising time on 4Kids TV as more fully described in Note 12 to the Company’s consolidated financial statements. The Company’s advertising sales subsidiary, 4Kids Ad Sales, sells advertising time on 4Kids TV at higher rates in the fourth quarter due to the increased demand for commercial time by children’s advertisers during the holiday season. As a result, much of the revenues of Summit Media and 4Kids Ad Sales are earned in the fourth quarter when the majority of toy and video game advertising occurs. As a result of the foregoing, the Company has historically experienced greater revenues during the second half of the year than during the first half of the year.

The Company’s revenues in its most recent fiscal years have been influenced by the release schedule of products based on the “Yu-Gi-Oh!", “Teenage Mutant Ninja Turtles” and “Pokémon” Properties, and the release of theatrical motion pictures and home videos based on the “Yu-Gi-Oh!” and “Pokémon” Properties. Further, revenue fluctuations result from guarantee and minimum royalty payments occurring throughout the year, some of which are recognized immediately as revenue upon the execution and delivery of license agreements.

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Critical Accounting Policies

Accounting for Film and Television Costs.    In accordance with accounting principles generally accepted in the United States and industry practice, we amortize the costs of production for film and television programming using the individual-film-forecast method under which such costs are amortized for each film or television program in the ratio that revenue earned in the current period for such title bears to management’s estimate of the total revenues to be realized from all media and markets for such title. All exploitation costs, including advertising and marketing costs, are expensed as incurred.

Management regularly reviews, and revises when necessary, its total revenue estimates on a title-by-title basis, which may result in a change in the rate of amortization and/or a write-down of the film or television asset to estimated fair value. The Company determines the estimated fair value for individual film and television properties based on the estimated future ultimate revenues and costs in accordance with Statement of Position (“SOP”) No. 00-2, Accounting by Producers and Distributors of Films. These ultimate revenues are also used to amortize the capitalized film costs in accordance with SOP No. 00-2.

Any revisions to ultimate revenues can result in significant quarter-to-quarter and year-to-year fluctuations in film and television write-downs and amortization. A typical film or television series recognizes a substantial portion of its ultimate revenues within the first three years of release. By then, the film or television series has been exploited in the domestic and international television (network and cable) and home video markets. In addition, a significant portion of licensing revenues associated with the film or television series will have been realized. A similar portion of the film’s or television series’ capitalized costs should be expected to be amortized accordingly, assuming the film or television series is profitable.

The commercial potential of individual films and television programming varies dramatically, and is not directly correlated with production or acquisition costs. Therefore, it is difficult to predict or project the impact that individual films or television programming will have on the Company’s results of operations. However, the likelihood that we report losses, particularly in the year of a television series initial release, is increased as the applicable accounting literature requires the immediate recognition of all of the production or acquisition costs (through increased amortization) in instances where it is estimated that the ultimate revenues of a film or television series will not recover those costs. Conversely, the profit from a film or television series must be deferred and recognized over the entire revenue stream generated by that film or television series. As a result, significant fluctuations in reported income or loss can occur, particularly on a quarterly basis, depending on release schedules and broadcast dates, the timing of advertising campaigns and the relative performance of individual film or television series.

Other Estimates -   The Company estimates reserves for future returns of product in the home video markets as well as provisions for uncollectible receivables. In determining the estimate of home video product sales that will be returned, the Company performs an analysis that considers historical returns, changes in customer demand and current economic trends. Based on this information, a percentage of each sale is reserved provided that the customer has the right of return. The Company estimates the amount of uncollectible receivables for licensing and advertising by monitoring delinquent accounts and estimating a reserve based on contractual terms and other customer specific issues.

Revenue Recognition — The Company’s revenue recognition policies for its three business segments are appropriate to the circumstances of each segment’s business. See Note 2 of the Notes to the Company’s consolidated financial statements for a discussion of these revenue recognition policies.

4Kids TV Broadcast Agreement — The Company broadcasts certain of its Properties on 4Kids TV, the Saturday morning programming block that the Company leases from Fox. The cost of 4Kids TV has been and will continue to be capitalized and amortized over each broadcast year based on estimated advertising revenue. In developing future estimated revenues, the Company has made certain assumptions with regard to the anticipated popularity of the television series the Company broadcasts on 4Kids TV and the general market demand and pricing of advertising time for Saturday morning children’s broadcast television. The popularity of such series impacts audience levels and the level of the network advertising rates that the Company can charge. These estimates are based on historical trends, as well as the Company’s subjective judgment of future customer demand and acceptance of its television programming. Differences may result in the amount and timing of revenue for any period if actual performance varies from the Company’s estimates. See Note 12 of the Notes to the Company’s consolidated financial statements for a detailed discussion of the 4Kids TV Broadcast Agreement.

Recently Issued Accounting Pronouncements — Consolidation of Variable Interest Entities — On January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities. In December 2003, the FASB issued FIN No. 46 (Revised) (“FIN No. 46-R”) to address certain FIN implementation issues. This interpretation clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements for companies that have interests in entities that are Variable Interest Entities (“VIE”) as defined under FIN No. 46. According to this interpretation, if a company has an interest in a VIE and is at risk for a majority of the VIE’s losses or

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receives a majority of the VIE’s expected gains it shall consolidate the VIE. FIN No. 46-R also requires additional disclosures by primary beneficiaries and other significant variable interest holders. For entities acquired or created before February 1, 2003, this interpretation was effective no later than the end of the first interim or reporting period ended March 31, 2004, except for those VIE’s that are considered to be special purpose entities, for which the effective date is no later than the end of the first interim period or reporting period ended after December 15, 2003. As of December 31, 2004, the Company did not have an interest in any VIE’s, and accordingly, the adoption of the provisions of this interpretation by the Company did not have a material effect on its consolidated financial position or results of operations.

In December 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123-R”). SFAS No.123-R is a revision of SFAS No. 123, as amended, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No.123-R eliminates the alternative to use the intrinsic value method of accounting that was provided in SFAS No. 123, which generally resulted in no compensation expense recorded in the financial statements related to the issuance of equity awards to employees. SFAS No. 123-R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. SFAS No. 123-R establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all companies to apply a fair-value-based measurement method in accounting for generally all share-based payment transactions with employees.

The Company will adopt SFAS No. 123-R, effective with the beginning of its 2005 third quarter, using a modified prospective application. This application will require the Company to record compensation expense for all awards granted after the required effective date and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. The provisions of SFAS No. 123-R are effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005, but early adoption is encouraged. The Company currently expects that the adoption of SFAS No. 123-R will not result in the recording of compensation expense in 2005 related to unvested stock options outstanding on July 1, 2005.

Results of Operations

The following table sets forth our results of operations expressed as a percentage of total net revenues for the three years ended December 31, 2004.

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Year Ended December 31, 2004 as compared to Year Ended December 31, 2003

Revenues

Revenues for the years ended December 31, 2004 and 2003, by reportable segment and for the Company as a whole, were as follows:

The increase in consolidated net revenues during 2004, was due to a number of factors. Increased revenue from the Company’s Advertising, Media & Broadcast and Television and Film Production/Distribution segments were partially offset by a decrease in the Company’s Licensing segment. In the Licensing segment, decreased revenues were primarily attributable to:

(i)       reduced domestic and international licensing revenue and marketing fees on “Yu-Gi-Oh!” card and video           game sales;
(ii)      increased revenue attributable to the “Teenage Mutant Ninja Turtles”, “Cabbage Patch Kids”,
          “The American Kennel Club” and “The Dog” properties; and
(iii)     comparably lower revenue for 2004 as 2003 reflected the recognition of the third and final installment of
          $2,500 of minimum guaranteed royalties under the master toy license on the “Pokémon” Property.

Despite lower licensing revenues, the “Yu-Gi-Oh!” Property continues to be the largest contributor in this business segment. In the Advertising Media and Broadcasting segment, revenue from the sale of advertising time on the Company’s 4Kids TV television programming block increased during 2004 as compared to 2003 as a result of:

(i)       higher advertising rates; and
(ii)      increased advertising sales on the Company’s 4Kids TV websites and on home videos distributed by            4Kids Home Video.

In the Television and Film Production/Distribution segment, the revenue increase for 2004 primarily resulted from:

(i)       the theatrical release of the “Yu-Gi-Oh!” movie in August 2004;
(ii)      increased home video and international broadcast agreements for the “Yu-Gi-Oh!” and “Teenage Mutant           Ninja Turtles” television series; and
(iii)     increased production service revenue of $2,624 in 2004 when compared to 2003 as a result of work            performed on producing the “Teenage Mutant Ninja Turtles”, “Pokémon”, “Mew Mew Power”,
          “F-Zero” and “One Piece” television series and the “Yu-Gi-Oh!" movie.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 8%, or $3,012 to $36,755 for the year ended December 31, 2004, when compared to 2003. The increase was primarily due to the following:

(i)       increased accounting and consulting fees of $1,175 incurred by the Company to comply with Section 404           of the Sarbanes-Oxley Act of 2002; and
(ii)      increased costs of $1,001 associated with the Company’s international television broadcast operations;           and
(iii)     increased costs associated with the technological development of the toy concept and other production            related costs of $2,049.

These increased costs were partially offset by a reduction in advertising and promotional costs to support the launch of the third 4Kids TV broadcast year when compared to the prior broadcast year.

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Production Service and Capitalized Film Costs

The increase in production service costs during 2004 was attributable to television production costs related to the “Teenage Mutant Ninja Turtles”, “Pokémon”, “Mew Mew Power”, “F-Zero”, and “One Piece” television programs, as well as the film production costs related to the Yu-Gi-Oh! feature film released in August 2004, for which the Company incurred production costs that were billed to the property owners. When the Company expects to be reimbursed for its television production costs a corresponding amount is recorded as Production Service Revenue for the amount billed back to the property owners to offset the costs incurred. This gross-up of revenue and costs is in accordance with the applicable accounting literature.

As of December 31, 2004, there was $10,518 of capitalized film production costs in the accompanying consolidated balance sheets relating primarily to various stages of production on 340 episodes of animated programming. The decrease in amortization of capitalized film costs during 2004 was primarily due to decreased amortization of television series broadcast on 4Kids TV and the “Yu-Gi-Oh!” television series. Based on management’s ultimate revenue estimates as of December 31, 2004, approximately 69% of the total completed and unamortized film and television costs are expected to be amortized during 2005, and over 90% of the total completed and unamortized film and television costs are expected to be amortized during the next three years.

4Kids TV Broadcast Fee

The annual fee paid to Fox Broadcasting and certain Fox affiliates is capitalized and amortized during each broadcast year, which commences in September, based on estimated advertising revenues for the applicable broadcast year. During 2004, the Company paid Fox and certain Fox affiliates $6,934 and $19,228 attributable to the second and third year’s broadcast fees, respectively, and during 2003, the Company paid Fox and certain affiliates $6,328 and $19,506 attributable to the first and second year’s broadcast fee, respectively. The unamortized portion of these fees of $6,991 and $8,688, are included in “Prepaid 4Kids TV broadcast fee” on the accompanying consolidated balance sheets as of December 31, 2004 and 2003, respectively.

As a result of the broadcast year (ending each year in September) being different than the Company’s fiscal year (ending each year in December), the amount of the amortization recognized from period to period will vary based upon (i) the amount of advertising revenue recognized during the period; and (ii) the amount of advertising revenue already recognized for the broadcast year as a percentage of the total amount expected to be recognized for the broadcast year. Based on the increased advertising revenue recognized by the Company during the fourth quarter of 2004 as compared to 2003 and the greater percentage of the total advertising revenues already recognized, the Company’s amortization of the 4Kids TV broadcast fee increased $1,421 to $12,238 for the fourth quarter of 2004 and increased $856 to $27,859 for the year ended December 31, 2004. Through December 31, 2004 and 2003, the Company had amortized 47% and 41%, respectively for the 4Kids TV broadcast fee for the third and second broadcast year, an increase of 6%.

In addition to advertising revenues, the operating costs of 4Kids Ad Sales, Inc. and the amortization of the 4Kids TV broadcast fee, the overall impact of 4Kids TV on the Company’s results of operations includes:

       (i)     revenues generated from merchandise licensing, home videos and music publishing of 4Kids TV
               properties, and

       (ii)    production and acquisition costs associated with the television programs broadcast on 4Kids TV.

The ability of the Company to further develop its merchandising, and to a lesser extent, home video and music publishing revenue streams were significant components of its evaluation process which resulted in the decision to lease the 4Kids TV Saturday morning programming block.

Interest Income

Interest income increased 32%, or $357 to $1,469 for the year ended December 31, 2004, as compared to 2003, as a result of the increasing interest rate environment, and marginally higher average cash balances invested.

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Income Tax Expense

Income tax expense decreased 13%, or $1,292 to $8,592 for the year ended December 31, 2004, as compared to 2003, due to decreased income before income taxes. The Company’s effective tax rate remained relatively consistent at approximately 40% for both 2004 and 2003.

Net Income

As a result of the above, the Company had net income for the year ended December 31, 2004 of $12,730, as compared to net income in 2003 of $14,799.

Year Ended December 31, 2003 as compared to Year Ended December 31, 2002

Revenues

Revenues for the years ended December 31, 2003 and 2002, by reportable segment and for the Company as a whole, were as follows:

The increase in consolidated net revenues during 2003 was due to a number of factors. In the Licensing segment, licensing and fee revenue, primarily from the “Yu-Gi-Oh!” and “Teenage Mutant Ninja Turtles” properties, increased significantly in 2003 as compared to 2002. In the Advertising Media and Broadcast segment, the increase in net revenues was primarily due to sales of advertising time on 4Kids TV which began broadcast operations in September 2002. In the Television and Film Production/Distribution segment, increased production service revenue was earned for work performed on the “Teenage Mutant Ninja Turtles”, “Kirby”, and “Pokémon” television programs in 2003 compared to 2002. Additionally, revenue for the year ended December 31, 2003 in this segment increased primarily from the “Pokémon” movies and international broadcast agreements for the “Yu-Gi-Oh!", “Teenage Mutant Ninja Turtles” and “Pokémon” television programs. “Pokémon” and “Yu-Gi-Oh!” ranked among the most popular children’s television programs during 2003.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 33%, or $8,369 to $33,743 for the year ended December 31, 2003, when compared to the same period in 2002, primarily due to increased marketing and advertising costs for the expanded property line-up and home video operations, payroll and employee benefits resulting from higher staffing levels in advertising sales, the operation of, and marketing and promotion relating to, 4Kids TV and the Company’s 4Kids.TV website both of which commenced significant operations in September 2002. These increased payroll and employee benefits costs include bonus accruals which are based on pre-tax earnings. In addition, the Company continued to incur additional infrastructure costs to support the aforementioned new operations. For the year ended December 31, 2003, the Chairman and CEO of the Company received bonus compensation under the Bonus Plan of $1,275, as compared to $0 for the year ended December 31, 2002. Additionally, other bonuses were granted under the Bonus Plan of $1,466 for the year ended December 31, 2003, as compared to $0 for the year ended December 31, 2002.

Production Service and Capitalized Film Costs

The increase in production service costs during 2003 was attributable to certain television production costs related to the “Teenage Mutant Ninja Turtles”, “Kirby”, and “Pokémon” television programs for which the Company incurs production costs that are billed to the property owners. When the Company expects to be reimbursed for production costs, the Company categorizes them as production service costs and reflects a corresponding amount in revenue for the amount billed back to the property owners.

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As of December 31, 2003, there was $8,183 of capitalized film production costs in the accompanying consolidated balance sheets relating primarily to various stages of production on 257 episodes of animated programming. The increase in amortization of capitalized film costs during 2003 was primarily due to increased amortization of programs broadcast on 4Kids TV and the “Yu-Gi-Oh!" television programs. Based on management’s ultimate revenue estimates as of December 31, 2003, approximately 77% of the total completed and unamortized film and television costs are expected to be amortized during 2004, and over 90% of the total completed and unamortized film and television costs are expected to be amortized during the next three years.

4Kids TV Broadcast Fee

Amortization of the 4Kids TV broadcasting fee increased 186%, or $17,559 to $27,003 for the year ended December 31, 2003, as compared to the same period in 2002. The increase was due to the fact that 2003 reflected a full year of amortization of the 4Kids TV fee, where as 2002 reflected amortization of the 4Kids TV fee from the date 4Kids TV commenced operations in September 2002. The annual fee paid to Fox and certain affiliates is capitalized and amortized during each broadcast year, which commences in September, based on estimated advertising revenue for the applicable broadcast year. During 2003, the Company had paid Fox and certain affiliates $6,328 and $19,506 attributable to the first and second year’s broadcast fee, respectively, and during 2002, the Company had paid $19,301 attributable to the first year’s broadcast fee. The unamortized portion of these fees of $8,688 and $9,857, are included in “Prepaid 4Kids TV broadcast fee” on the accompanying consolidated balance sheets as of December 31, 2003 and 2002, respectively.

In addition to advertising revenues, the operating costs of 4Kids Ad Sales, Inc. and the amortization of the Fox broadcast fee, the overall impact of 4Kids TV on the Company’s results of operations includes:

       (i)    revenues generated from merchandise licensing, home videos and music publishing of Fox Box
              properties, and

       (ii)    production and acquisition costs associated with the television programs broadcast on 4Kids TV.

The ability of the Company to further develop its merchandising, home video and music publishing revenue streams were significant components of its evaluation process which resulted in the decision to lease the 4Kids TV Saturday morning programming block.

Interest Income

Interest income decreased 33%, or $544 to $1,112 for the year ended December 31, 2003, as compared to the same period in 2002, as a result of the decreasing interest rate environment, that was partially offset by higher average cash balances invested.

Income Tax Expense

Income tax expense increased 110%, or $5,182 to $9,884 for the year ended December 31, 2003, as compared to the same period in 2002, due to increased income before income taxes. The Company’s effective tax rate remained relatively consistent at approximately 40% for both 2003 and 2002.

Net Income

As a result of the above, the Company had net income for the year ended December 31, 2003 of $14,799, as compared to net income for the same period in 2002 of $6,990.

Liquidity and Capital Resources

Financial Position

During 2004, the Company’s cash and cash equivalents and short-term investment balances increased by $8,247 to $127,826, primarily as a result of net income, increases in due to licensors and cash and tax benefits derived from option exercises substantially offset by payments incurred for licensing 4Kids TV and repurchases of common stock made under the Company’s repurchase program.

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Sources and Uses of Cash

Cash flows for the three years ended December 31, 2004 were as follows:

Working capital, consisting of current assets less current liabilities, was $139,699 as of December 31, 2004 and $137,929 as of December 31, 2003.

As of December 31, 2004, the Company had $16,067 invested primarily in short-term government obligations. During 2004, the Company purchased property and equipment of $856, which was comprised primarily of computer and television production equipment and leasehold improvements, as compared to purchases of property and equipment of $749 in 2003. Funds required for the purchase of property and equipment in 2005 are expected to be similar to that of 2004.

Cash flows used in financing activities were the result of the Company’s purchase of shares of its common stock of $14,944, partially offset by proceeds from the exercise of stock options by the Company’s employees of $2,299.

During 2004, the Company’s cash flow from operations was directly the result of strong consumer demand for a limited number of its licensed Properties.  While the Company strives to further diversify its revenue streams, management remains cognizant of changing trends in the toy, game and entertainment business and the difficulty in predicting the length of time a property will be commercially successful.  As a result, the Company’s revenues, operating results and cash flow from operations may fluctuate significantly from year to year and present operating results are not necessarily indicative of future performance.

4Kids TV Broadcast Agreement

The Company, through a multi-year agreement with Fox, leases Fox’s four hour Saturday morning children’s programming block. The agreement, which commenced in September 2002, requires the Company to pay annual fees of $25,312 through 2006. Under the terms of the agreement, during 2004, the Company paid Fox and certain affiliates a total of $6,934 and $19,228 attributable to the second and third year’s broadcast fees, respectively, with two additional payments for the third broadcast season of $3,162 each due in February and April 2005. Fees for each subsequent broadcast year are payable 50% in the June preceding the beginning of the broadcast year (which begins in September) with the balance of the fee for the broadcast year payable in four equal installments in September, December, February and April. Additionally, the Agreement requires the Company to establish a $25,000 Letter of Credit for the benefit of Fox, which Letter of Credit may be reduced by the Company as installments of the final year’s license fee are paid. As of December 31, 2004, the Company had received a commitment for the letter of credit, but the letter of credit had not been issued pending completion of the long form agreement with Fox. Upon the issuance of the letter of credit, the Company will grant a security interest in its cash balances to the issuing bank to secure the amount of such letter of credit and will appropriately disclose these amounts as restricted cash in its financial statements.

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

Contractual Commitments

The Company has commitments under certain firm contractual arrangements (“firm commitments”) to make future payments for goods and services. These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. The following table summarizes the Company’s material firm commitments as of December 31, 2004 and the impact that such obligations are expected to have on the Company’s liquidity and cash flows in future periods. The Company expects to fund these commitments primarily with operating cash flows generated in the normal course of business.

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In addition to the above-noted contractual obligations under the 4Kids TV Broadcast Agreement, the Company has the option to extend the term through 2008, which represents up to two additional broadcast seasons. If such option is exercised, the Company would incur additional obligations of $47,509 in 2006-2007 and $6,976 in 2008-2009. See Note 12 of the Notes to the Company’s consolidated financial statements for additional information on the 4Kids TV Broadcast Agreement and operating leases.

Forward Looking Information and Risk Factors That May Affect Future Results

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. We may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the Securities and Exchange Commission and in reports to our stockholders. These “forward-looking” statements may relate to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities, liquidity, and similar matters or to developments beyond our control, including changes in domestic or global economic conditions. Forward-looking statements are inherently subject to risks and uncertainties and are made on the basis of management’s views and assumptions as of the time the statements are made. There can be no assurance, however, that our expectations will necessarily come to pass. A variety of factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed or anticipated in our forward-looking statements. The factors listed below are illustrative and other risks and uncertainties may arise as are or may be detailed from time to time in our public announcements and filings with the Securities and Exchange Commission.

Sarbanes-Oxley Act of 2002 Section 404 compliance.

Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in this Annual Report on Form 10-K (i) a report from our management regarding the Company’s internal controls over financial reporting, which report is required to include, among other things, an assessment and statement as to the effectiveness of our internal controls over financial reporting as of December 31, 2004 and (ii) an attestation report of our independent registered public accounting firm on management’s assessment of such internal controls.

On November 30, 2004, the SEC issued an exemptive order (SEC Release No. 50754) which provides a 45-day extension for the filing of the management report and the related attestation report by eligible companies. We have elected to rely on this 45-day extension, and therefore, this Annual Report on Form 10-K does not include such reports. We intend to include such reports in an amendment to this Annual Report on Form 10-K in accordance with the SEC’s exemptive order.

During 2004, we spent considerable time and internal and external resources analyzing, documenting and testing our system of internal controls over financing reporting and have substantially completed our internal evaluation. In addition, our management has provided our independent registered public accounting firm with a draft of its report and we are not currently aware of any material weaknesses in our internal controls over financial reporting.

There can be no assurance, however, that one or more material weaknesses in our internal controls over financial reporting will not be identified during the 45-day extension period, that management will be able to assert that our internal controls over financial reporting are effective as of December 31, 2004, or that our independent registered public accounting firm will be able to attest that management’s report is fairly stated or express an unqualified opinion on the effectiveness of our internal controls. If such weaknesses are identified or if our independent registered public accounting firm does not deliver an unqualified attestation, it could result in a loss of investor confidence in our financial reports, adversely affect our stock price and/or subject us to sanctions or investigation by regulatory authorities.

The Company’s revenues are subject to the high volatility of consumer preferences with respect to entertainment.

The Company’s business and operating results ultimately depend upon the appeal of its Properties, product concepts and programming to consumers. A decline in the popularity of our existing Properties or the failure of new Properties and product concepts to achieve and sustain market acceptance could result in reduced overall revenues, which could have a material adverse effect on our business, financial condition and results of operations. Consumer preferences with respect to entertainment are continuously changing and are difficult to

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predict and can vary from months to years. Entertainment properties often have short life cycles. There can be no assurances that:

(1)     any of our current Properties, product concepts or programming will continue to be popular for any significant period of time;

(2)     any new Properties, product concepts or programming we represent or produce will achieve an adequate degree of popularity; or

(3)     any Property’s life cycle will be sufficient to permit us to profitably recover advance payments, guarantees, development, marketing, royalties and other costs.

Our failure to successfully anticipate, identify and react to consumer preferences could have a material adverse effect on our revenues, profitability and results of operations. In addition, the volatility of consumer preferences may cause our revenues and net income to vary significantly between comparable periods.

A substantial portion of our licensing revenue typically derives from a small number of properties.

We typically derive a substantial portion of our licensing revenues from a small number of properties, which properties usually generate revenues only for a limited period of time. Because our licensing revenues are highly subject to the changing trends in the toy, game and entertainment business, our licensing revenues from year to year from particular sources are subject to dramatic increases and decreases.

Our business is typically seasonal and therefore our annual operating results will depend significantly on our performance during the holiday season.

Sales of our licensed toy and game concepts are seasonal, with a majority of retail sales occurring during the third and fourth calendar quarters. The revenues of Summit Media, which provides media services to a significant number of toy and video game companies, and 4Kids Ad Sales, which sells advertising time on 4Kids TV, are also seasonal, with a significant portion of the revenue typically generated during the fourth quarter commensurate with the increased demand for commercial time by children’s advertisers during the holiday season. In addition, a failure by us to supply programming on 4Kids TV which attracts viewers during the holiday season could have a material adverse effect on our financial condition and results of operations.

As a result of the seasonal nature of our business, we would be significantly and adversely affected by unforeseen events, such as a terrorist attack or a military engagement, that negatively affect the retail environment or consumer buying patterns, if such events were to impact the key selling season.

We may not be able to successfully protect our intellectual property rights.

We rely on a combination of trade secret, copyright, trademark, patent and other proprietary rights laws to protect the intellectual property we own or license. Third parties may try to challenge the ownership by the Company or its licensors of such intellectual property. In addition, our business is subject to the risk of third parties infringing on the intellectual property rights of the Company or its licensors and producing counterfeit products. We may need to resort to litigation in the future to protect the intellectual property rights of the Company or its licensors, which could result in substantial costs and diversion of resources and could have a material adverse effect on our business and competitive position.

We may be negatively affected by adverse general economic conditions.

Current conditions in the domestic and global economies are extremely uncertain. Adverse changes may occur as a result of softening global economies, wavering consumer confidence caused by the threat or occurrence of terrorist attacks, war or other factors affecting economic conditions generally. Such changes could have a material adverse effect on our business, financial condition and results of operations.

Other factors may affect our performance.

A wide range of factors could materially affect our performance, including the following:

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

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

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

International, political and military developments that may, among other things, result in increases in broadcasting costs or loss of advertising revenue due to pre-emptions of 4Kids TV.

If Alfred Kahn, the Chairman and CEO becomes unavailable due to death, disability or termination and an acceptable replacement for Mr. Kahn is not found within a specified period of time, or there is change of control of the Company resulting in a significant change of duties for Mr. Kahn.

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Rate Fluctuations

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

Item 8. Financial Statements and Supplementary Data

The Report of Registered Public Independent Accounting Firm, our Consolidated Financial Statements and Schedules and Notes thereto appear in a separate section of this Form 10-K (beginning on Page F-1 following Part IV). The index to our Consolidated Financial Statements is included in Item 15.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report (the “Evaluation Date”), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.

Design and Evaluation of Internal Control Over Financial Reporting

Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in this Annual Report on Form 10-K (i) a report from our management regarding the Company’s internal controls over financial reporting, which report is required to include, among other things, an assessment and statement as to the effectiveness of our internal controls over financial reporting as of December 31, 2004 and (ii) an attestation report of our independent registered public accounting firm on management’s assessment of such internal controls.

On November 30, 2004, the SEC issued an exemptive order (SEC Release No. 50754) which provides a 45-day extension for the filing of the management report and the related attestation report by eligible companies. We have elected to rely on this 45-day extension, and therefore, this Annual Report on Form 10-K does not include such reports. We intend to include

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such reports in an amendment to this Annual Report on Form 10-K in accordance with the SEC’s exemptive order.

During 2004, we spent considerable time and internal and external resources analyzing, documenting and testing our system of internal controls over financing reporting and have substantially completed our internal evaluation. In addition, our management has provided our independent registered public accounting firm with a draft of its report and we are not currently aware of any material weaknesses in our internal controls over financial reporting.

There can be no assurance, however, that one or more material weaknesses in our internal controls over financial reporting will not be identified during the 45-day extension period, that management will be able to assert that our internal controls over financial reporting are effective as of December 31, 2004 or that our independent registered public accounting firm will be able to attest that management’s report is fairly stated or express an unqualified opinion on the effectiveness of our internal controls. If such weaknesses are identified or if our independent registered public accounting firm does not deliver an unqualified attestation, it could result in a loss of investor confidence in our financial reports, adversely affect our stock price and/or subject us to sanctions or investigation by regulatory authorities.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal controls over financial reporting during the fiscal quarter ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reports.

Item 9B. Other Information

Not applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant

Information concerning directors and officers of the Company is incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A to be filed with the Securities and Exchange Commission within 120 days after the end of the Company’s fiscal year.

On June 28, 2004, the Company filed with the New York Stock Exchange the Annual CEO Certification regarding the Company’s compliance with the NYSE’s Corporate Governance listing standards as required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.  In addition, the Company has filed as exhibits to this Annual Report on Form 10-K, the certifications of its Chief Executive Officer and its Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002, regarding the quality of the Company’s public disclosures, taking into account the Company’s reliance on the exemptive order issued by the SEC regarding Section 404 of the Sarbanes-Oxley Act.

Item 11. Executive Compensation

Information concerning executive and director compensation is incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A to be filed with the Securities and Exchange Commission within 120 days after the end of the Company’s fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information concerning security ownership of each person known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock, of each director of the Company and all officers and directors as a group and of the Company’s equity compensation plans is incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A to be filed with the Securities and Exchange Commission within 120 days after the end of the Company’s fiscal year.

Item 13. Certain Relationships and Related Transactions

Information concerning certain relationships and related transactions is incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A to be filed with the Securities and Exchange Commission within 120 days after the end of the Company’s fiscal year.

Item 14. Principal Accountant Fees and Services

Information concerning principal accountant fees and services is incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A to be filed with the Securities and Exchange Commission within 120 days after the end of the Company’s fiscal year.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(1)     Financial Statements:

The following Consolidated Financial Statements of 4Kids Entertainment, Inc. and Subsidiaries are included in Item 8:

(a)(2)  Financial Statement Schedules

All schedules have been omitted because they are inapplicable, not required, or the information is included in the financial statements or notes thereto.

(a) (3) and (b) Exhibits.

See Index of Exhibits annexed hereto.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS

To the Board of Directors and
Stockholders of 4Kids Entertainment, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of 4Kids Entertainment, Inc. and Subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity and comprehensive income and cash flows for each of the three years in the period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP

New York, NY
March 16, 2005

F-1

Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 and 2003
(In thousands of dollars, except share data)

See notes to consolidated financial statements.

F-2

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of dollars, except share data)

See notes to consolidated financial statements.

F-3

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of dollars and shares)

See notes to consolidated financial statements.

F-4

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of dollars)

See notes to consolidated financial statements.

F-5

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of dollars, except share and per share data)

1. DESCRIPTION OF BUSINESS

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

Licensing — The Company’s wholly-owned subsidiary, 4Kids Entertainment Licensing, Inc. (“4Kids Licensing”), is engaged in the business of licensing the merchandising rights to popular children’s television series, properties and product concepts (collectively the “Properties”). 4Kids Licensing typically acts as exclusive merchandising agent in connection with the grant to third parties of licenses to manufacture and sell all types of merchandise, including toys, videogames, trading cards, apparel, housewares, footwear, books and other published materials, based on such Properties. 4Kids Entertainment International, Ltd. (“4Kids International”), the Company’s wholly-owned subsidiary based in London, manages the Properties represented by the Company in the United Kingdom and European marketplaces. Licensing revenues accounted for approximately 49%, 54% and 54% of consolidated net revenues for the years ended December 31, 2004, 2003 and 2002, respectively.

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

Advertising Media and Broadcast — The Company, through a multi-year agreement with Fox leases Fox’s Saturday morning programming block from 8am to 12pm eastern/pacific time (7am to 11am central time). In January, 2005, the Company changed the name of the Saturday morning programming block from Fox Box to 4Kids TV. The Company provides substantially all programming content to be broadcast on 4Kids TV. 4Kids Ad Sales, Inc., a wholly-owned subsidiary of the Company, retains all of the revenue from its sale of network advertising time for the four-hour time period.

The Company’s wholly-owned subsidiary, The Summit Media Group, Inc. (“Summit Media”), provides print and broadcast media planning and buying services for clients which are principally in the children’s toy and game business. Summit Media is compensated by receiving a percentage of the cost of the media it places.

Television and Film Production/Distribution — The Company’s wholly-owned subsidiary, 4Kids Productions, Inc. (“4Kids Productions”), produces and acquires animated and live-action television programs and theatrical motion pictures for distribution to the television, home video and theatrical markets. 4Kids Productions also adapts foreign programming for the U.S. market and produces original animated television programming for domestic and international broadcast. Additionally, 4Kids Productions produces original music compositions for use with its television and film production activities.

4Kids Entertainment Music, Inc. (“4Kids Music”), a wholly-owned subsidiary, markets and manages the musical operations for the Company on certain existing and newly created music associated with its television programming. 4Kids Entertainment Home Video, Inc. (“4Kids Home Video”), a wholly-owned subsidiary, distributes home videos associated with television programming produced by 4Kids Productions.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation — The accompanying consolidated financial statements include the accounts of 4Kids Entertainment, Inc. and its wholly-owned subsidiaries after elimination of significant intercompany transactions and balances. These consolidated financial statements reflect the use of significant accounting policies, as described below and elsewhere in the notes to the consolidated financial statements. These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America.

F-6

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

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

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

Production and adaptation costs charged to the licensor are included in net revenues and the corresponding costs are included in production service costs in the accompanying consolidated statements of income. Production service costs included in net revenues amounted to $9,629, $7,005 and $3,375 in 2004, 2003 and 2002, respectively.

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

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

Advertising Expense — Advertising costs are expensed as incurred, except for costs related to the development of a property and/or animated or live-action television program commercial or media campaign which are expensed in the period in which the commercial or campaign is first presented. Advertising expenses are included in selling, general and administrative expenses on the accompanying consolidated statements of income.

Property and Equipment — Property and equipment are carried at cost, net of accumulated depreciation and amortization. Depreciation is calculated on the straight-line method based on the estimated useful lives of the assets, which range from 3 to 10 years. Amortization of leasehold improvements is computed using the straight-line method over the estimated useful lives of the related assets or, if shorter, the lease term. Costs associated with the repair and maintenance of property are expensed as incurred.

Impairment Of Long-Lived And Intangible Assets — As required by Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, (which the Company adopted on January 2, 2002), the Company assesses the recoverability of long-lived assets for which an indicator of impairment exists. The recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If an asset is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. Fair value of long-lived assets is determined using the expected cash flows discounted at a rate commensurate with the risk involved. The Company believes that the future cash flows to be received from our long-lived assets will exceed the respective assets’ carrying value, and accordingly has not recorded any impairment losses through December 31, 2004.

Cash and Cash Equivalents — All highly liquid investments with original maturities of three months or less are classified as cash and cash equivalents. The fair value of cash and cash equivalents approximates the amounts shown on the financial statements. Cash and cash equivalents consist of unrestricted cash and short-term investments. Included in cash and cash equivalents are accounts in various banks which maintain balances in excess of the Federal Deposit Insurance Corporation (FDIC) insured limit of $100 per bank. At December 31, 2004 and 2003, the excess cash amounted to a total of $58,913 and $46,177, respectively.

F-7

Prepaid 4Kids TV Broadcast Fee — The Company has capitalized the broadcast fee paid to Fox and amortized the amount over the broadcast season based on estimated advertising revenue. During 2004, the Company had paid Fox and certain affiliates $6,934 and $19,228 attributable to the second and third year’s broadcast fees, respectively, and during 2003, the Company had paid Fox and certain affiliates $6,328 and $19,506 attributable to the first and second year’s broadcast fee, respectively. The unamortized portion of these fees of $6,991 and $8,688, are included in “Prepaid 4Kids TV broadcast fee” on the accompanying consolidated balance sheets as of December 31, 2004 and 2003, respectively.

Investments — Management determines the appropriate classification of its debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities for which the Company has both the intent and ability to hold to maturity are classified as held-to-maturity and are recorded at amortized cost. At December 31, 2004 and 2003, the Company had no investments that qualified as trading or available for sale.

At December 31, 2004 and 2003, the Company’s investments in debt securities were classified as short-term investments. The Company maintains these balances principally in money market funds and commercial paper with various financial institutions. These financial institutions are located in different areas of the U.S. and Company policy is designed to limit exposure to any one institution. The Company performs periodic evaluations of the relative standing of those financial institutions that participate in the Company’s investment strategy.

Investment in Equity Securities — During the quarter ended September 30, 2001, the Company completed its purchase of a 3% equity interest in the Pokémon Company, a closely held Japanese company, which was organized in 1998 by Nintendo Co. Ltd, Creatures, Inc. and Game Freak, Inc., the creators of “Pokémon”, to manage and control all rights to “Pokémon” throughout the world. The Company accounts for this investment on the cost basis and has classified it as a noncurrent asset on the accompanying consolidated balance sheets.

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

Fair Value of Financial Instruments — The carrying amounts of cash and cash equivalents, accounts receivable, investments, prepaid expenses and other current assets, due to licensors, media payable, accounts payable and accrued expenses, and other liabilities approximate their fair values principally because of the short-term maturities of these instruments.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 materially from those estimates.

Translation of Foreign Currency — In accordance with SFAS No. 130, Reporting Comprehensive Income (“SFAS No. 130”), the Company classifies items of other comprehensive income by their nature in the financial statements and displays the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the consolidated balance sheet. The assets and liabilities of the Company’s foreign subsidiary, 4Kids International have been recorded in their local currency and translated to U.S. dollars using period-end exchange rates. Income and expense items have been translated at the average rate of exchange prevailing during the period. Any adjustment resulting from translating the financial statements of the foreign subsidiary is reflected as “other comprehensive income”, net of related tax. Comprehensive income for the years ended December 31, 2004, 2003 and 2002 was $13,161, $15,420 and $7,062 respectively, which included translation adjustments of $431, $621and $72 for the respective periods.

F-8

Concentration Of Credit Risk — Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of temporary cash investments and accounts receivable. The majority of the cash and cash equivalents are maintained with major financial institutions in the United States of America. The counterparties to the agreements relating to investment instruments consist of various United States governmental units and financial institutions of high credit standing. Credit risk on accounts receivable is minimized by the Company by performing ongoing credit evaluations of its customers’ financial condition and monitoring its exposure for credit losses and maintaining allowances for anticipated losses.

Income Taxes — Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using current tax rates. Valuation allowances are established against deferred tax assets whenever circumstances indicate that it is more likely than not that such assets will not be realized in future periods.

Stock-Based Employee Compensation: Stock-based compensation is accounted for using the intrinsic value-based method in accordance with Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees. Under APB No. 25, because the exercise price of a company’s employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized.

SFAS No. 123, Accounting for Stock-Based Compensation, establishes a fair value-based method of accounting for employee stock-based compensation plans and encourages companies to adopt that method. However, it also allows companies to continue to apply the intrinsic value-based method currently prescribed under APB No. 25. The Company has chosen to continue to report stock-based compensation in accordance with APB No. 25, and provides the following pro forma disclosure of the effects of applying the fair value method to all applicable awards granted. Under APB No. 25 and related interpretations, no compensation cost has been recognized for the Company’s stock options. Had compensation cost for the Company’s stock options been determined based on the fair value at the grant date for those awards as permitted (but not required) under the alternative method of SFAS No. 123, the Company’s results of operations and related per share amounts would have been reduced to the pro forma amounts indicated below.