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For the transition period from _____________ to _____________

Commission file number 0-7843

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

New York (State or other jurisdiction of incorporation or organization)

13-2691380 (I.R.S. Employer Identification No.)

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes |X|    No |_|               Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X|    No |_|       At November 9, 2004, the number of shares outstanding of the Registrant’s common stock, par value $.01 per share, was 13,355,393. 4Kids Entertainment, Inc. and Subsidiaries Table of Contents

Page # Part I--FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2004    (Unaudited) and December 31, 2003	2
	Consolidated Statements of Income for the three and nine    months ended September 30, 2004 and 2003 (Unaudited)	3
	Consolidated Statements of Cash Flows for the nine    months ended September 30, 2004 and 2003 (Unaudited)	4
	Notes to Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial    Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
Item 4.	Controls and Procedures	21
Part II—OTHER INFORMATION
Item 2.	Changes in Securities and Use of Proceeds	22
Item 6.	Exhibits	22

Signatures

23

Part I - FINANCIAL INFORMATION Item 1. Financial Statements 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2004 AND DECEMBER 31, 2003 (In thousands of dollars, except share data)

ASSETS		2004		2003
CURRENT ASSETS:		(Unaudited)
Cash and cash equivalents		$  92,645		$  95,136
Investments		24,127		24,443
Total cash and investments		116,772		119,579
Accounts receivable - net		28,106		37,143
Prepaid Fox broadcast fee, net of accumulated amortization
of $53,851 and $36,447 in 2004 and 2003, respectively		14,377		8,688
Prepaid income taxes		3,123		2,670
Prepaid expenses and other current assets		1,726		1,690
Deferred income taxes		493		--
Total current assets		164,597		169,770
PROPERTY AND EQUIPMENT - NET		2,996		3,350
OTHER ASSETS:
Accounts receivable - noncurrent, net		1,402		2,662
Investment in equity securities		726		726
Film and television costs - net		9,430		8,183
Deferred income taxes - noncurrent		3,660		2,575
Other assets - net		8,529		6,014
TOTAL ASSETS		$191,340		$193,280
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to licensors		$  12,919		$  11,835
Media payable		403		2,178
Accounts payable and accrued expenses		12,714		9,706
Deferred revenue		8,137		8,070
Deferred income taxes		--		52
Total current liabilities		34,173		31,841
DEFERRED RENT		1,055		952
Total liabilities		35,228		32,793
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value - authorized, 3,000,000 shares; none issued		--		--
Common stock, $.01 par value - authorized, 40,000,000 shares;
issued, 14,101,393 and 13,965,343 shares; outstanding 13,351,393 and
13,965,343 shares in 2004 and 2003, respectively		141		140
Additional paid-in capital		55,539		52,798
Accumulated other comprehensive income		779		693
Retained earnings		114,597		106,856
		171,056		160,487
Less- cost of 750,000 treasury shares		14,944		--
		156,112		160,487
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$191,340		$193,280

See notes to consolidated financial statements. 2 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (In thousands of dollars, except share data)

		Three Months Ended September 30,				Nine Months Ended September 30,
		2004		2003		2004		2003
NET REVENUES		$       24,682		$       25,334		$       69,246		$       69,681
COSTS AND EXPENSES:
Selling, general and administrative		10,473		8,579		27,411		23,996
Production service costs		1,941		2,574		6,942		6,556
Amortization of television and film costs and
Fox broadcast fee		8,408		9,700		22,957		24,204
Total costs and expenses		20,822		20,583		57,310		54,756
INCOME FROM OPERATIONS		3,860		4,481		11,936		14,925
INTEREST INCOME		375		252		953		835
INCOME BEFORE INCOME TAXES		4,235		4,733		12,889		15,760
INCOME TAXES		1,704		1,866		5,148		6,278
NET INCOME		$         2,531		$         2,867		$         7,741		$         9,482
PER SHARE AMOUNTS:
Basic earnings per common share		$            0.19		$            0.22		$            0.56		$            0.72
Diluted earnings per common share		$            0.18		$            0.20		$            0.54		$            0.68
Weighted average common shares
outstanding - basic		13,527,388		13,247,459		13,762,211		13,174,119
Weighted average common shares
outstanding - diluted		14,124,098		14,169,729		14,445,848		14,018,995

See notes to consolidated financial statements. 3 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (In thousands of dollars)

		2004		2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$   7,741		$   9,482
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		979		928
Amortization of television and film costs and Fox broadcast fee		22,957		24,204
Provision for doubtful accounts		30		253
Deferred income taxes		(1,630	)	(784	)
Tax benefit on exercise of stock options		1,343		1,569
Changes in operating assets and liabilities:
Accounts receivable		10,267		10,736
Film and television costs		(6,800	)	(9,115	)
Prepaid income taxes		(453	)	(30	)
Prepaid Fox broadcast fee		(23,093	)	(22,149	)
Prepaid expenses and other current assets		(36	)	7
Other assets - net		(2,515	)	(2,532	)
Due to licensors		1,084		(121	)
Media payable		(1,775	)	(3,570	)
Accounts payable and accrued expenses		3,008		(1,623	)
Deferred revenue		67		1,160
Deferred rent		103		171
Net cash provided by operating activities		11,277		8,586
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investments		49,029		63,242
Purchase of investments		(48,713	)	(88,443	)
Purchase of property and equipment		(625	)	(525	)
Net cash used in investing activities		(309	)	(25,726	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		1,399		1,832
Purchase of treasury shares		(14,944	)	--
Net cash (used in) provided by financing activities		(13,545	)	1,832
EFFECTS OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS		86		87
NET DECREASE IN CASH AND CASH EQUIVALENTS		(2,491	)	(15,221	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		95,136		78,712
CASH AND CASH EQUIVALENTS, END OF PERIOD		$ 92,645		$ 63,491
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Income Taxes		$   5,377		$   5,600

See notes to consolidated financial statements. 4 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands of dollars, except share and per share data) 1. DESCRIPTION OF BUSINESS 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: (i) Licensing, (ii) Advertising Media and Broadcast and (iii) Television and Film Production/Distribution. Licensing — The Company’s wholly-owned subsidiaries, 4Kids Entertainment Licensing, Inc. (“4Kids Licensing”) and 4Kids Entertainment International, Ltd. (“4Kids International”), are engaged in the business of licensing the commercial rights to popular children’s properties, personalities and product concepts. 4Kids Licensing typically acts as exclusive agent in connection with the grant to third parties of licenses to manufacture and sell all types of merchandise based on such properties, personalities and product concepts. The licensing of these rights has been primarily in the areas of toys, electronic games, trading cards, food, toiletries, apparel, housewares, footwear and publishing rights. 4Kids Licensing also licenses merchandising rights in connection with certain television shows and motion pictures produced by the Company. 4Kids International, which is based in London, manages the Company’s properties in the United Kingdom and European marketplaces. 4Kids Technology, Inc., a wholly-owned subsidiary, develops ideas and concepts for licensing which integrate new and existing technologies with traditional game and toy play patterns. Websites 4Kids, Inc., a wholly-owned subsidiary, specializes in website development by creating websites designed to enhance and support the marketing of children’s properties represented by the Company. Advertising Media and Broadcast — The Company, through a multi-year agreement with the Fox Broadcasting Company (“Fox”), leases Fox’s Saturday morning programming block (the “Fox Box”). The Company provides substantially all programming content to be broadcast on the Fox Box, which airs on Saturday mornings from 8am to 12pm eastern/pacific time (7am to 11am central time); and retains all of the revenue from network advertising sales for the four-hour time period. 4Kids Ad Sales, Inc., a wholly-owned subsidiary of the Company manages and accounts for the revenue and costs associated with the Fox Box. The Company’s wholly-owned subsidiary, The Summit Media Group, Inc. (“Summit Media”), provides media planning and buying services for clients in both print and broadcast media. Summit Media is compensated by receiving a percentage of the cost of the media it places. Television and Film Production/Distribution — The Company’s wholly-owned subsidiary, 4Kids Productions, Inc. (“4Kids Productions”), produces and acquires animated and live-action television programs for distribution to the television, home video and theatrical markets. 4Kids Productions adapts foreign programming for the US market and also produces original animated television programming for domestic and international broadcast. Additionally, 4Kids 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 administers 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 Basis of Presentation — The consolidated financial statements, except for the December 31, 2003 consolidated balance sheet, are unaudited. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 2004 and December 31, 2003 and the results of operations for the three and nine months ended September 30, 2004 and 2003 and cash flows for the nine months ended September 30, 2004 and 2003. Because of the inherent seasonality and changing trends of the toy, game, entertainment and advertising industries, operating results for the Company on a quarterly basis may not be indicative of operating results for the full year. 5 These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto, for the year ended December 31, 2003, which are included in the Company’s Annual Report on Form 10-K with respect to such period filed with the Securities and Exchange Commission on March 15, 2004. All significant intercompany accounts and transactions have been eliminated. The December 31, 2003 consolidated balance sheet amounts are derived from the Company’s audited consolidated financial statements. 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. 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. Prepaid Fox Broadcast Fee — The Company has capitalizes the broadcast fee paid to Fox and amortizes the amount over the broadcast season based on estimated advertising revenue. During the nine months ended September 30, 2004, the Company paid Fox and certain affiliates $6,934 and $16,159 attributable to the second and third year’s broadcast fees, respectively, and during calendar year 2003, the Company paid Fox and certain affiliates $6,328 and $19,506 attributable to the first and second year’s broadcast fees, respectively. The unamortized portion of these fees of $14,377 and $8,688 are included in “Prepaid Fox broadcast fee” on the accompanying consolidated balance sheets as of September 30, 2004 and December 31, 2003, respectively. Film and Television Costs — The Company accounts for its film and television costs pursuant to AICPA Statement of Position (“SOP”) No. 00-2, Accounting by Producers or Distributors of Films. The cost of production for television programming, including overhead, participations and talent residuals is capitalized and amortized using the individual-film-forecast method under which such costs are amortized for each television program in the ratio that revenue earned in the current period for such program bears to management’s estimate of the total revenues to be realized from all media and markets for such program. Management regularly reviews, and revises when necessary, its total revenue estimates on a title-by-title basis, which may result in a change in the rate of amortization applicable to such title and/or a write-down of the value of such title to estimated fair value. These revisions can result in significant quarter-to-quarter and year-to-year fluctuations in film write-downs and rates of amortization. If a total net loss is projected for a particular title, the associated film and television costs are written down to estimated fair value. All exploitation costs, including advertising and marketing costs, are expensed as incurred. Television adaptation and production costs that are adapted and/or produced are stated at the lower of cost, less accumulated amortization, or fair value. 6 Reclassifications — Certain amounts reported for the prior period have been reclassified to conform to the current period’s presentation. 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”. Comprehensive income for the three and nine months ended September 30, 2004 was $2,460 and $7,768, respectively, which included translation adjustments of ($12) and $86 for the respective periods. Comprehensive income for the three and nine months ended September 30, 2003 was $2,916 and $9,569, respectively, which included translation adjustments of $49 and $87 for the respective periods. Stock-Based Compensation — SFAS No. 123, “Accounting for Stock-Based Compensation,” encourages, but does not require, companies to record compensation cost for stock-based compensation plans at fair value. The Company has chosen to account for stock-based compensation awards to employees under APB No. 25, “Accounting for Stock Issued to Employees,” and its interpretation, FASB Interpretation No. (“FIN”) 44, “Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25.” In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (“SFAS No. 148”). Among other things, SFAS No. 148 requires the disclosure in interim reports of compensation expense calculated according to SFAS No. 123 for those awards of stock-based employee compensation that were outstanding and accounted for under the intrinsic value method of APB No. 25. The following table illustrates the effect on net income and earnings per share as if the fair value based method under SFAS No. 123 had been applied to all outstanding and unvested awards in each period.

		Three Months Ended September 30,				Nine Months Ended September 30,
		2004		2003		2004		2003
Net income as reported		$2,531		$2,867		$7,741		$9,482
Deduct stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax		461		251		2,993		1,486
Pro forma net income		$2,070		$2,616		$4,748		$7,996
Net income per share:
Reported
Basic		$   0.19		$   0.22		$   0.56		$   0.72
Diluted		$   0.18		$   0.20		$   0.54		$   0.68
Pro forma
Basic		$   0.15		$   0.20		$   0.35		$   0.61
Diluted		$   0.15		$   0.18		$   0.33		$   0.57

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average assumptions used for options granted in 2004 and 2003 included no dividend yield for the periods, expected volatility of approximately 58% and 60% for 2004 and 2003, respectively, a risk-free interest rate of approximately 2.06% and 1.92% for 2004 and 2003, respectively, and an option duration of 3.7 and 3.5 years for 2004 and 2003, respectively. 7 Recently Issued Accounting Pronouncements — Consolidation of Variable Interest Entities — In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities. In December 2003, the FASB issued FIN No. 46 (Revised) (“FIN 46-R”) to address certain implementation issues. This interpretation clarifies the application of Accounting Research Bulletin (“ARB”) No. 51, Consolidated Financial Statements — for companies that have interests in entities that are Variable Interest Entities (“VIE”) as defined under FIN 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 receives a majority of the VIE’s expected gains it shall consolidate the VIE. FIN 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 June 30, 2004, except for those VIE’s that are considered to be special purpose entities, for which the effective date was no later than the end of the first interim period or reporting period ending after December 15, 2003. 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. Derivative Instruments and Hedging Activities — In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (“SFAS No. 149”). SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except as stated in the statement for hedging relationships designated after June 30, 2003. The adoption of this standard by the Company did not have a material effect on its consolidated financial position or results of operations. Financial Instruments — In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS No. 150”). SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and to all other instruments that exist as of the beginning of the first interim financial reporting period after June 15, 2003. The Company adopted the provisions of SFAS No. 150 on July 1, 2003. The adoption of this standard by the Company did not have a material effect on its consolidated financial position or results of operations. 3. COMMITMENTS AND CONTINGENCIES

a.

Litigation – 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 Law 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. On May 6, 2004 the Trustee filed suit against Summit Media to seek to recover the Amount. The Company believes it has meritorious defenses to this claim. The Amount paid to Summit Media was not a payment with respect to an antecedent debt. The Company intends to vigorously defend its position.

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 will, individually or in the aggregate, have a material adverse effect on the Company’s consolidated financial position or results of its operations.

b.

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

The Company has deferred all amounts received under the contract, and recognizes revenue as the Current Music Assets and Future Music Assets generate revenue over the contract term. Notwithstanding the foregoing, as of the date that the Company has delivered all of the Future Music Assets required under the contract, any portion of the $5,000 that remains deferred and not recognized, will be recognized as revenue. Pursuant to the above, the Company recognized revenue of $75 and $370 for the three and nine months ended September 30, 2004, respectively, and $68 and $347 for the three and nine months ended September 30, 2003, respectively. The Company has included $3,426 and $3,046 as deferred revenue on the accompanying consolidated balance sheets as of September 30, 2004 and December 31, 2003, respectively.

8

Home Video – On various dates since May 2002, 4Kids Home Video entered into agreements with an unaffiliated third party home video distributor (the “Video Distributor”), pursuant to which 4Kids Home Video provides ongoing advertising, marketing and promotional services with respect to certain home video titles, that are owned or controlled by the Company and which are distributed in the U.S. and Canada by the Video Distributor. The Video Distributor has paid the Company advances of $3,670 ($370 during the nine months ended September 30, 2004) against 4Kids Home Video’s share of the distribution and service fee proceeds to be realized by 4Kids Home Video from such titles. Pursuant to the above agreements, the Company recognized revenue of $75 and $258 for the three and nine months ended September 30, 2004, respectively, and $0 and $587 for the three and nine months ended September 30, 2003, respectively. The Company has included $512 and $400 as deferred revenue on the accompanying consolidated balance sheets as of September 30, 2004 and December 31, 2003, respectively.

Other Agreements — In addition, the Company has entered into other agreements for various properties and advertising time on the Fox Box in which the Company has received certain advances and/or minimum guarantees. Accordingly, as of September 30, 2004 and December 31, 2003 the unearned portion of these advances and guaranteed payments were $4,199 and $4,624, respectively, and are included in deferred revenue on the accompanying consolidated balance sheets.

c.

Master Toy Licensee — 4Kids Licensing, is the exclusive Merchandise Licensing Agent for the “Pokémon” property outside Asia. The master toy licensee (“Licensee”) for the “Pokémon” property and The Pokémon Company LLC, (the assignee of certain rights and obligations of Nintendo of America Inc. with respect to the “Pokémon” property) entered into a master toy license agreement (the “Agreement”) effective January 1, 2001.

Under the terms of the Agreement, Licensee was required to pay a minimum royalty for the period from January 1, 2001 to December 31, 2003. Since all of the conditions under the Agreement were met and the full amount of the minimum guaranteed royalties were payable by the Licensee, the Company earned $7,500 over the period of the Agreement. For the three and nine months ended September 30, 2003, the Company earned royalties relating to the Agreement of $0 and $2,500, respectively. During 2003, the Agreement was amended extending the term to December 31, 2006.

d.

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

The agreement provided for 50% of the fee for the first broadcast season to be paid within ten days of the execution of the short form agreement in February 2002, with the balance of the fee for the first broadcast season to be paid in four equal installments in September 2002, December 2002, February 2003 and April 2003. The fee for each subsequent broadcast year is payable 50% in the June preceding the beginning of the broadcast year (which begins in September) with the balance of the fee for the broadcast year payable in four equal installments in September, December, February and April. All payments required to be made on or prior to November 9, 2004 have been made. 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 fee are paid. As of September 30, 2004, the Company had received a commitment from a bank 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 consolidated financial statements.

The cost of the Fox Box is capitalizes and amortizes over each broadcast season based on estimated advertising revenue for the related broadcast season. The Company recorded amortization expense of $6,699 and $17,404 for the three and nine months ended September 30, 2004, respectively, and $7,167 and $17,836 for the three and nine months ended September 30, 2003, respectively. During 2004, the Company has paid Fox and certain affiliates $6,934 and $16,159, attributable to the second and third year’s broadcast fees, respectively, and during calendar year 2003, the Company paid $6,328 and $19,506 attributable to the first and second year’s broadcast fee, respectively. The unamortized portion of these fees of $14,377 and $8,688 are included in “Prepaid Fox broadcast fee” on the accompanying consolidated balance sheets as of September 30, 2004 and December 31, 2003, respectively.

9

The agreement further provides that, at the Company’s option, up to $10,300 of each year’s fee may be paid by delivering shares of the Company’s common stock. Over the initial four year term of the agreement, the Company will pay Fox an aggregate fee of $101,250. The Company will incur additional costs to program the four hour block and to sell the related network advertising time. These costs will include direct progra