Shift4 Payments 10-Q 2009 Q3 Quarterly report

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

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

For the quarterly period ended September 30, 2009

OR

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

For the transition period from _____________ to _____________

Commission file number 0-7843

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

New York(State or other jurisdiction of
incorporation or organization) 13-2691380(I.R.S. Employer
Identification No.)

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

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes |X|    No |_|        

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

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

Large accelerated filer ___ Accelerated filer X Non-accelerated filer ___ Smaller reporting company ___

(Do not check if a smaller reporting company)

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

      As of November 6, 2009, the number of shares outstanding of the registrant’s common stock, par value $.01 per share was 13,352,053.

4Kids Entertainment,Inc. and Subsidiaries

Table of Contents

			Page #
Part I—FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008	2
		Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2009 and 2008	3
		Consolidated Statements of Stockholders’ Equity and Comprehensive Loss for the nine months ended September 30, 2009 (Unaudited) and the year ended December 31, 2008	4
		Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2009 and 2008	5
		Notes to Consolidated Financial Statements (Unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
	Item 4.	Controls and Procedures	39
Part II—OTHER INFORMATION
	Item 1.	Legal Proceedings	40
	Item 1A	Risk Factors	40
	Item 6.	Exhibits	41
Signatures			42

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements.

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2009 and DECEMBER 31, 2008

(In thousands of dollars, except share data)

ASSETS:	September 30, 2009			December 31, 2008
Current assets:	(Unaudited)
Cash and cash equivalents	$	3,573			$	13,503
Accounts receivable - net		9,808				22,818
Inventories - net		5,153				4,241
Prepaid income taxes		127				137
Prepaid expenses and other current assets		3,807				1,876
Deferred income taxes		139				127
Total current assets		22,607				42,702
Property and equipment - net		3,402				4,287
Long term investments		14,179				21,617
Accounts receivable - noncurrent, net		255				655
Film and television costs - net		16,899				16,661
Other assets - net (includes related party amounts of $7,816 and $6,638,      respectively)		17,370				14,652
Total assets	$	74,712			$	100,574
LIABILITIES AND EQUITY:
Current liabilities:
Due to licensors	$	6,507			$	5,651
Accounts payable and accrued expenses		13,618				16,202
Deferred revenue		1,551				3,270
Total current liabilities		21,676				25,123
Deferred rent		356				460
Total liabilities		22,032				25,583
Commitments and contingencies (Note 10)
4Kids Entertainment, Inc. shareholders’ equity
Preferred stock, $.01 par value - authorized, 3,000,000 shares; none issued		—				—
Common stock, $.01 par value - authorized, 40,000,000 shares; issued, 15,411,099 and 15,246,579 shares; outstanding 13,352,053 and 13,227,019 shares in 2009 and 2008, respectively		154				152
Additional paid-in capital		66,991				65,107
Accumulated other comprehensive loss		(14,237	)			(17,396	)
Retained earnings		42,711				63,504
		95,619				111,367
Less cost of 2,059,046 and 2,019,560 treasury shares in 2009 and 2008, respectively		36,434				36,376
Total shareholders’ equity of 4Kids Entertainment, Inc.		59,185				74,991
Noncontrolling interests		(6,505	)			—
Total equity		52,680				74,991
Total liabilities and equity	$	74,712			$	100,574

See notes to consolidated financial statements.

2

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(In thousands of dollars, except share data)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2009			2008			2009			2008
Net revenues:
Service revenue	$	5,736		$	10,534		$	20,077		$	34,620
Product revenue		1,534			7,250			1,786			14,743
Total net revenues		7,270			17,784			21,863			49,363
Costs and expenses:
Selling, general and administrative		11,022			13,937			33,763			39,892
Production service costs		482			1,710			2,503			5,245
Cost of sales of trading cards		1,547			3,447			2,811			6,360
Amortization of television and film costs		1,438			1,864			3,695			5,269
Amortization of 4Kids TV broadcast fee		—			3,041			—			12,150
Total costs and expenses		14,489			23,999			42,772			68,916
Loss from operations		(7,219	)		(6,215	)		(20,909	)		(19,553	)
Interest income		178			689			925			2,096
Impairment on investment securities		(71	)		—			(169	)		—
Loss on sale of investment securities		—			—			(7,250	)		—
Total other (expense) income		107			689			(6,494	)		2,096
Loss before income taxes		(7,112	)		(5,526	)		(27,403	)		(17,457	)
Benefit from income taxes		—			—			—			—
Noncontrolling interest		—			251			—			251
Net loss		(7,112	)		(5,275	)		(27,403	)		(17,206	)
Net loss attributable to noncontrolling interests (Note 11)		2,109			—			6,610			—
Net loss attributable to 4Kids Entertainment, Inc.	$	(5,003	)	$	(5,275	)	$	(20,793)		$	(17,206	)
Per share amounts:
Basic loss per share attributable to 4Kids Entertainment Inc. common shareholders	$	(0.37	)	$	(0.40	)	$	(1.56	)	$	(1.31	)
Diluted loss per share attributable to 4Kids Entertainment Inc. common shareholders	$	(0.37	)	$	(0.40	)	$	(1.56	)	$	(1.31	)
Weighted average common shares
outstanding - basic		13,352,053			13,153,508			13,286,726			13,166,281
Weighted average common shares
outstanding - diluted		13,352,053			13,153,508			13,286,726			13,166,281

See notes to consolidated financial statements.

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4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND COMPREHENSIVE LOSS

NINE MONTHS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 2008

(In thousands of dollars and shares)

	4Kids Entertainment, Inc. Shareholders
	Common Stock				Additional Paid-In Capital			Retained Earnings				Accumulated Other Comprehensive Loss				Less Treasury Stock				Total Shareholders’ Equity				Non-controlling Interests				Total Equity
	Shares	Amount
BALANCE, DECEMBER 31, 2007	15,100		$	151		$	63,679		$	100,323			$	(2,562	)		$	(33,503	)		$	128,088			$	—			$	128,088
Issuance of common stock and stock options exercised	147			1			1,428			—				—				—				1,429				—				1,429
Acquisition of treasury stock, at cost	—			—			—			—				—				(2,873	)			(2,873	)			—				(2,873	)
Comprehensive loss:
Net loss	—			—			—			(36,819	)			—				—				(36,819	)			—				(36,819	)
Translation adjustment	—			—			—			—				(1,348	)			—				(1,348	)			—				(1,348	)
Unrealized loss on marketable securities	—			—			—			—				(13,486	)			—				(13,486	)			—				(13,486	)
Total comprehensive loss	—			—			—			—				—				—				(51,653	)			—				(51,653	)
BALANCE, DECEMBER 31, 2008	15,247		$	152		$	65,107		$	63,504			$	(17,396	)		$	(36,376	)		$	74,991			$	—			$	74,991
Issuance of common stock and stock options exercised	164			2			1,884			—				—				—				1,886				—				1,886
Capital contribution from noncontrolling interests	—			—			—			—				—				—				—				105				105
Acquisition of treasury stock, at cost	—			—			—			—				—				(58	)			(58	)			—				(58	)
Comprehensive loss:
Net loss	—			—			—			(20,793	)			—				—				(20,793	)			(6,610	)			(27,403	)
Translation adjustment	—			—			—			—				428				—				428				—				428
Unrealized gain on investment securities	—			—			—			—				2,731				—				2,731				—				2,731
Total comprehensive loss	—			—			—			—				—				—				(17,634	)			(6,610	)			(24,244	)
BALANCE, SEPTEMBER 30, 2009	15,411		$	154		$	66,991		$	42,711			$	(14,237	)		$	(36,434	)		$	59,185			$	(6,505	)		$	52,680

See notes to consolidated financial statements.

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4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(In thousands of dollars)

		2009			2008
Cash flows from operating activities:
Net loss	$	(27,403	)	$	(17,206	)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization		1,211			1,128
Amortization of television and film costs		3,695			5,269
Amortization of 4Kids TV broadcast fee		—			12,150
Provision for doubtful accounts		95			350
Impairment on investment securities		169			—
Loss on sale of investment securities		7,250			—
Inventory		(912	)		(1,772	)
Accounts receivable		13,474			3,802
Film and television costs		(3,933	)		(6,738	)
Prepaid income taxes		10			194
Prepaid 4Kids TV broadcast fee		—			(5,760	)
Prepaid expenses and other current assets		(1,932	)		629
Other assets - net		(2,577	)		(5,006	)
Due to licensors		613			2,671
Accounts payable and accrued expenses		(729	)		5,296
Deferred revenue		(1,719	)		332
Deferred rent		(104	)		(123	)
Net cash used in operating activities		(12,792	)		(4,784	)
Cash flows from investing activities:
Proceeds from sale of investments		2,750			24,975
Purchase of property and equipment		(326	)		(1,356	)
Net cash provided by investing activities		2,424			23,619
Cash flows from financing activities:
Proceeds from exercise of stock options		—			232
Capital contribution from noncontrolling interests		105			—
Purchase of treasury shares		(58	)		(2,873	)
Net cash provided by (used in) financing activities		47			(2,641	)
Effect of exchange rate changes on cash and cash equivalents		391			(142	)
Net (decrease) increase in cash and cash equivalents		(9,930	)		16,052
Cash and cash equivalents, beginning of period		13,503			24,872
Cash and cash equivalents, end of period	$	3,573		$	40,924
Supplemental disclosure of cash flow information:
Cash paid during period for income taxes	$	70		$	55
Supplemental schedule of non-cash investing and financing activities
Unrealized gain (loss) on marketable securities included in other comprehensive loss	$	2,731		$	(16,158	)
Vesting of restricted shares	$	1,886		$	1,197

See notes to consolidated financial statements.

5

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of dollars, except share and per share data)

1. DESCRIPTION OF BUSINESS

GeneralDevelopment and Narrative Description of Business - 4Kids Entertainment, Inc., together with the subsidiaries through which its businesses are conducted (the “Company”), is a diversified entertainment and media company specializing in the youth oriented market with operations in the following business segments: (i) Licensing; (ii) Advertising Media and Broadcast; (iii) Television and Film Production/Distribution; and (iv) Trading Card and Game Distribution. The Company was organized as a New York corporation in 1970.

Licensing - The Licensing business segment consists of the results of operations of the following wholly-owned subsidiaries of the Company: 4Kids Entertainment Licensing, Inc. (“4Kids Licensing”); 4Sight Licensing Solutions, Inc. (“4Sight Licensing”); 4Kids Entertainment International, Ltd. (“4Kids International”); and 4Kids Technology, Inc. (“4Kids Technology”). 4Kids Licensing is engaged in the business of licensing the merchandising rights to popular children’s television series, properties and product concepts (individually, the “Property” or collectively the “Properties”). 4Kids Licensing typically acts as exclusive merchandising agent in connection with the grant to third parties of licenses to manufacture and sell all types of merchandise, including toys, videogames, trading cards, apparel, housewares, footwear, books and other published materials, based on such Properties. 4Sight Licensing is engaged in the business of licensing properties and product concepts to adults, teens and “tweens”. 4Sight Licensing focuses on brand building through licensing. 4Kids International, based in London, manages Properties represented by the Company in the United Kingdom and European marketplaces. 4Kids Technology develops ideas and concepts for licensing which integrate new and existing technologies with traditional game and toy play patterns.

Advertising Media and Broadcast - The Company, through a multi-year agreement with The CW Network, LLC (“The CW”), leases The CW’s Saturday morning programming block (“The CW4Kids”) which broadcasts in most markets from 7am to 12pm for an initial term of five years beginning with The CW's 2008-2009 broadcast season. The Company provides substantially all programming content to be broadcast on The CW4Kids. 4Kids Ad Sales, Inc. (“4Kids Ad Sales”), a wholly-owned subsidiary of the Company, retains a portion of the revenue from its sale of network advertising time for the five-hour time period.

The Company, through a multi-year agreement (the “Fox Agreement”) with Fox Broadcasting Corporation (“Fox”), leased Fox’s Saturday morning programming block (“4Kids TV”) from 8am to 12pm eastern/pacific time (7am to 11am central time) which was terminated on December 31, 2008. The Company provided substantially all programming content to be broadcast on 4Kids TV and 4Kids Ad Sales retained all of the revenue from its sale of network advertising time for the four-hour programming block.

The Advertising Media and Broadcast segment also generates revenues from the sale of advertising on the Company’s multiple websites. These websites also showcase and promote The CW4Kids, as well as its many Properties.

Television and Film Production/Distribution - The Television and Film Production/Distribution business segment consists of the results of operations of the following wholly-owned subsidiaries of the Company: 4Kids Productions, Inc. (“4Kids Productions”); 4Kids Entertainment Music, Inc. (“4Kids Music”); and 4Kids Entertainment Home Video, Inc. (“4Kids Home Video”). 4Kids Productions produces and adapts animated and live-action television programs and theatrical motion pictures for distribution to the domestic and international television, home video and theatrical markets. 4Kids Music composes original music for incorporation into television programming produced by 4Kids Productions and markets and manages such music. 4Kids Home Video distributes home videos associated with television programming produced by 4Kids Productions.

Trading Card and Game Distribution- Through its wholly-owned subsidiary, 4Kids Digital Games, Inc. (“4Kids Digital”), the Company owns 55% of TC Digital Games LLC, a Delaware limited liability company (“TC Digital”) that produces, markets and distributes the “Chaotic” trading card game. In December 2006, 4Kids Digital acquired a 53% ownership interest in TC Digital and entered into TC Digital’s operating agreement (the “TCD Agreement”) with Chaotic USA Digital Games LLC (“CUSA LLC”), a wholly-owned subsidiary of Chaotic USA Entertainment Group, Inc. (“CUSA”). The TCD Agreement contains terms and conditions governing the operations of TC Digital, and entitles 4Kids Digital and CUSA to elect two managers to the entity’s Management Committee with 4Kids Digital having the right to break any dead-locks. On December 18, 2007, 4Kids Digital purchased an additional 2% membership interest in TC Digital from CUSA increasing

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4Kids Digital’s ownership percentage to 55%. The consideration for the purchase of the additional membership interest was paid through the settlement of certain capital contributions required to be made by CUSA to TC Websites LLC, a Delaware limited liability company and subsidiary of the Company (“TC Websites”) under TC Websites’ operating agreement (the “TCW Agreement”).

Through its wholly-owned subsidiary, 4Kids Websites, Inc. (“4Kids Websites”), the Company owns 55% of TC Websites, a company that owns and operates www.chaoticgame.com, the companion website for the “Chaotic” trading card game which was launched as a public beta version on October 24, 2007. In December 2006, 4Kids Websites purchased a 50% membership interest in TC Websites from CUSA and entered into the TCW Agreement. The TCW Agreement contains terms and conditions governing TC Websites’ operations and entitles 4Kids Websites and CUSA to elect two managers to its Management Committee. On December 18, 2007, 4Kids Websites entered into an agreement pursuant to which it acquired an additional 5% ownership interest in TC Websites from CUSA, and the TCW Agreement was concurrently amended to provide 4Kids Websites with the right to break any deadlocks on TC Websites’ Management Committee, including with respect to operational matters. The consideration for the purchase of the additional membership interest was paid through the settlement of certain capital contributions required to be made by CUSA to TC Websites under the TCW Agreement. Prior to the acquisition by 4Kids Websites of the additional 5% ownership interest and amendment of the TCW Agreement, the Company used the equity method to account for its investment in TC Websites, where it did not have control but had significant influence. As a result of 4Kids Websites’ increased ownership and operational control, TC Websites is consolidated in the Company’s financial statements, subject to a noncontrolling interest.

TC Digital and TC Websites are the exclusive licensees of certain patents covering the uploading of coded trading cards to a website where online game play and community activities occur. The www.chaoticgame.com website provides full access to all of its content and is free of charge for all users. No purchase of trading cards is necessary to play the online version where virtual playing decks are available to users who register on the website. These two businesses enable the Company to offer traditional trading card game play with an online digital play experience.

Certain of the Company’s executive officers have interests in CUSA, CUSA LLC and certain other entities with which TC Digital and TC Websites have engaged in transactions since their formation. Information regarding these relationships can be found in Note 9.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The consolidated financial statements, except for the December 31, 2008 consolidated balance sheet and the consolidated statement of changes in equity and comprehensive loss for the year ended December 31, 2008, are unaudited and should be read in conjunction with audited consolidated financial statements and notes thereto for the year ended December 31, 2008 as presented in our Annual Report on Form 10-K. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying consolidated financial statements contain all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position of the Company as of September 30, 2009 and December 31, 2008, and the results of operations for the three and nine months ended September 30, 2009 and 2008, and changes in equity and comprehensive loss for the nine months ended September 30, 2009 and the year ended December 31, 2008, and cash flows for the nine months ended September 30, 2009 and 2008. 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.

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

7

Broadcast advertising revenues: Advertising revenues are recognized when the related commercials are aired and are recorded net of agency commissions and net of an appropriate reserve when advertising is sold together with a guaranteed audience delivery. Internet advertising revenues are recognized on the basis of impression views in the period the advertising is displayed.

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

Production and adaptation costs charged to the licensors of television rights to Properties represented by the Company are included in net revenues and the corresponding costs are included in production service costs in the accompanying consolidated statements of operations. Production service costs included in net revenues amounted to $424 and $2,088 for the three and nine months ended September 30, 2009, respectively and $1,684 and $4,982 for the three and nine months ended September 30, 2008, respectively.

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

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

Trading card revenues: The Financial Accounting Standards Board (“FASB”) provides guidance on how and when to recognize revenues for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. Revenue arrangements with multiple deliverables are required to be divided into separate units of accounting if the deliverables in the arrangement meet certain criteria. Arrangement consideration must be allocated among the separate units of accounting based on their relative fair values. The Company has determined that because its trading card game is provided with a web component, there is a multiple deliverable arrangement. However, since no purchase of trading cards is necessary to access the website and virtual cards are available free of charge to users who register on the website, the Company has determined that the selling price of the trading cards should be fully attributable to the cards. Many of the Company’s larger trading card distributors, who service mass market retailers, have changed to a point-of-sale (“POS”) model in response to the demands from such retailers and the Company has entered into agreements with these distributors reflecting such a change. Under the POS model, sales are recorded once the sales are made to the ultimate consumer. Distributors and retailers not under the POS model remain under the FOB shipping point model in which sales are recorded, net of a reserve for returns and allowance, upon shipment to distributors.

Revenue generated from merchandise licensing, broadcast advertising, episodic television series, home video, and music are classified as service revenue on the consolidated statement of operations while revenue generated from the sale of trading cards is classified as product revenue.

Fair Value Measurements - The fair values of the Company’s financial instruments reflect the estimates of amounts that would be received from selling an asset in an orderly transaction between market participants at the measurement date. The fair value estimates presented in this report are based on information available to the Company as of September 30, 2009 and December 31, 2008.

8

The carrying values of cash and cash equivalents approximate fair value. The Company has estimated the fair value of its investment in auction rate securities (“ARS”) and other long-term investments using unobservable inputs at September 30, 2009. The authoritative guidance issued by the FASB includes a fair value hierarchy based on three levels of inputs, the first two of which are considered observable and the last of which is considered unobservable, that may be used to measure fair value. The three levels are the following:

• Level 1 - Quoted prices in active markets for identical assets or liabilities.

• Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Investments – The Company’s long-term investments principally consist of ARS, corporate bonds and preferred shares. ARS are generally rated “BBB” or better by one or more national rating agencies and have contractual maturities of up to 80 years. Of the aggregate principal amount of $36,930 in investment securities held by the Company as of September 30, 2009, 4% mature within the next 20 years, 26% mature within the next 30 years, 45% mature through 2087 and the remaining 55% have no maturity date. The Company classifies these investments as “available for sale”, in accordance with the authoritative guidance issued by the FASB for certain investments in debt and equity securities. The ARS that the Company invests in generally had interest reset dates that occurred every 7 or 35 days and despite the long-term nature of their stated contractual maturity, the historical operation of the ARS market had given the Company the ability to quickly liquidate these securities at ongoing auctions every 35 days or less.

During 2007, liquidity issues began to affect the global credit and capital markets. In addition, certain individual ARS experienced liquidity issues specific to such securities. As a result, ARS, which historically have had a liquid market and had their interest rates reset periodically (e.g. monthly) through Dutch auctions, began to fail at auction. These auction failures have caused ARS to become illiquid, which in turn has caused the fair market values of these securities to decline.

The ARS currently held by the Company are private placement debt securities with long-term nominal maturities and interest rates that typically reset monthly. The Company’s investments in ARS represent interests in debt obligations issued by banks and insurance companies that originally had at least an “A” credit rating at the time of purchase, including JP Morgan Chase, bond insurers and re-insurers such as MBIA, AMBAC, FGIC, FSA, RAM and Radian. The collateral underlying these securities consists primarily of commercial paper, but also includes asset-backed and mortgage-backed securities, corporate debt, government holdings, money market funds and other ARS.

As of September 30, 2009, the Company held investment securities having an aggregate principal amount of $36,930. The estimated fair market value of the investment securities held by the Company had declined by $22,751 ($22,507 prior to 2009, and $244 during 2009) to $14,179, based upon an analysis of the current market conditions of the Company’s securities made by the Company in accordance with authoritative guidance issued by the FASB. The Company concluded that $169 of the decline in 2009 in the fair value of the investment securities held by the Company were now other than temporarily impaired. The Company’s determination that certain of its long-term investments were other than temporarily impaired was based upon the fact that certain of the Company’s ARS ceased to pay interest according to their stated terms and that the underlying bond insurers of such securities elected to exercise their put right against the trusts, thereby exchanging the investment grade collateral in the trust with preferred stock. Accordingly, during 2009, the Company recorded an impairment charge of $169 in non-operating expense related to the securities which had previously recorded an other than temporary impairment of $7,834 in 2008. In March 2009, the Company was notified that the underlying bond insurers of one of its ARS elected to exercise their put right against the trusts, thereby exchanging the investment grade collateral in the trust with preferred stock. Based on the enhanced marketability of this security, the decline in the estimated fair value is considered to be temporarily impaired. The Company continues to monitor the market for ARS and consider its impact (if any) on the fair value of its investments. If the current market conditions deteriorate further, the Company may be required to record additional impairment charges to non-operating expense in future periods. In June 2009, the Company sold a security with a par value of $10,000 for $2,750 causing the Company to record a loss on the sale of investment of $7,250. The Company had previously recorded in accumulated other comprehensive income an unrealized loss on this security of $2,753 which was reclassed due to the sale of the investment. As of November 6, 2009, none of the investment securities held by the Company as of September 30, 2009 had been redeemed. Since the Company has the ability, and presently expects, to hold these

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investments until recovery of their face value, which may not be prior to the maturity of the applicable security (to the extent such security has a specified maturity date) and based on consideration of all such factors, the Company considered these investments to be temporarily impaired as such term is defined in the accounting literature as of the filing date. Accordingly, the entire balance of unrealized loss in accumulated other comprehensive income at September 30, 2009 relates to securities which the Company considers temporarily impaired. Additionally, the remaining investment securities held by the Company have continued to pay interest according to their stated terms, which the Company believes may create an incentive for the issuers to redeem these securities once the current liquidity problems in the credit market substantially improve.

In November 2008, one of the Company’s ARS experiencing liquidity problems converted to a corporate bond due to a provision in the trust stating that if liquidity ceased for an extended period of time the trust would dissolve and distribute the underlying assets of the trust, which were solely comprised of corporate bonds. This corporate bond is currently paying interest and the Company does not consider this investment to be other than temporarily impaired.

The credit and capital markets, including the market for ARS, have remained illiquid, and as a result of this and other factors specific to certain investment securities, the Company’s unrealized loss on its investment securities may subsequently increase. The Company estimates the fair values of the investment securities quarterly based upon consideration of such factors as: issuer and insurer credit rating; comparable market data, if available; current market conditions; the credit quality of the investment securities; the rate of interest received since the date the auctions began; yields of securities similar to the underlying investment securities; and, until September 2008, input from broker-dealers’ statements provided by the investment bank through which the Company held such securities. These considerations are used to determine a range of values for each security from moderate to highly conservative. The Company has based its evaluation on the mid-point of that range. Specifically, the Company considers the composition of the collateral supporting the investment securities and the default probabilities of the collateral underlying these securities in our overall valuation of each security. The Company has also researched the secondary market, and while such a market may be available, there is no guarantee that such a market will exist at any particular point in time. Additionally, the Company looks at the probabilities of default, probabilities of successful auctions and probabilities of earning the maximum (failed auction) rate for each period.

Due to the sensitivity of the methodologies and considerations used, the Company continually re-evaluates the investment securities and although the valuation methodologies have remained consistent for each quarter in which these securities were valued, certain inputs may have changed. The changes in these inputs primarily relate to the changes in the economic environment and the market for such securities.

Given the failed auctions, the Company’s investment securities are currently illiquid.  Accordingly, the Company has classified $14,179 of its investment in ARS and the securities into which certain of the ARS have been exchanged, as non-current assets at September 30, 2009 on its balance sheet due to the fact that the Company believes that the liquidity of these securities is unlikely to be restored in a period less than twelve months from such date.

The Company believes that Lehman Brothers, Inc., the securities broker-dealer that purchased the ARS on behalf of the Company that have been classified as other than temporarily impaired based on discretion afforded to it, has violated its legal obligations to the Company. As a result, the Company has taken various measures to obtain appropriate legal relief, including initiating an arbitration with the Financial Industry Regulatory Authority. On September 15, 2008, Lehman Brothers Holdings, Inc., the parent company of Lehman Brothers, Inc., filed for bankruptcy. On September 16, 2008, Barclays PLC announced that it had reached an agreement to purchase the assets of Lehman Brothers Holdings, Inc.’s North American operations, including substantial assets of Lehman Brothers, Inc. The Lehman-Barclays transaction was approved by the United States Bankruptcy Court for the Southern District of New York on September 20, 2008. On September 19, 2008, the Securities Investor Protection Corporation (“SIPC”) filed a proceeding, placing Lehman Brothers, Inc. in liquidation under the Securities Investor Protection Act (“SIPA”). SIPC, pursuant to its authority under SIPA, has acted to facilitate the transfer of Lehman Brothers, Inc.’s customer accounts (including the Company’s accounts) to Barclays, PLC. In view of the bankruptcy of Lehman Brothers Holdings, Inc. and the liquidation of Lehman Brothers, Inc., the Company is currently assessing what additional steps, if any, to take to pursue legal redress.

If uncertainties in the credit and capital markets continue or the Company’s investments experience any rating downgrades on any investments in its portfolio or the value of such investments declines further, the Company may incur additional impairment charges to its investment portfolio, which could negatively affect the Company’s financial condition, results of operations and cash flow. As a result of the current market issues, the Company’s surplus cash is invested solely in government securities with a maturity of 90 days or less.

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Based on the Company’s current cash and cash equivalents, the addition of $9,790 from the sale of the “Teenage Mutant Ninja Turtles” Property in October 2009 (see Note 12, Subsequent Events), and the current, more stable economic environment, the Company expects its overall cash position to provide adequate liquidity to fund its day-to-day operations for the next twelve months. However, the illiquidity affecting a significant portion of the Company’s portfolio of investment securities is impacting the Company’s ability to make capital investments or expand its operations.

There is also a secondary market developing for some of the investment securities held by the Company, which might enable the Company to sell a portion of its investment securities at distressed prices should circumstances require the Company to access additional liquidity.  If the Company determines it is necessary to generate additional cash to fund its operations, the Company will consider all alternatives available to it, including, but not limited to sales of assets, issuance of equity or debt securities and strategic alliances with other companies. There can be no assurance, however, that the Company would be able to generate such additional cash in a timely manner or that such additional cash could be obtained on terms acceptable to the Company.

Film and Television Costs – The Company's cost of production for television programming, including overhead, participations and talent residuals is capitalized and amortized in accordance with authoritative guidance issued by the FASB using the individual-film-forecast method under which such costs are amortized for each television program in the ratio that revenue earned in the current period for such program bears to management’s estimate of the ultimate revenues to be realized from all media and markets for such program. Management regularly reviews, and revises when necessary, its ultimate revenue estimates on a title-by-title basis, which may result in a change in the rate of amortization applicable to such title and/or a write-down of the value of such title to estimated fair value. These revisions can result in significant quarter-to-quarter and year-to-year fluctuations in film write-downs and rates of amortization. If a total net loss is projected for a particular title, the associated film and television costs are written down to estimated fair value. All exploitation costs, including advertising and marketing costs are expensed as incurred. Television adaptation and production costs that are adapted and/or produced are stated at the lower of cost, less accumulated amortization, or fair value.

Translation of Foreign Currency -In accordance with authoritative guidance issued by the FASB, the Company classifies items as “other comprehensive income” by their nature in the financial statements and displays the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the consolidated balance sheet. The assets and liabilities of the Company’s foreign subsidiary, 4Kids International have been recorded in their local currency and translated to U.S. dollars using period-end exchange rates. Income and expense items have been translated at the average rate of exchange prevailing during the period. Any adjustment resulting from translating the financial statements of the foreign subsidiary is reflected as “other comprehensive income”, net of related tax. Comprehensive loss for the three and nine months ended September 30, 2009 was $4,651 and $17,634, respectively, which included translation adjustments of $(125) and $428 for the respective periods. Comprehensive loss for the three and nine months ended September 30, 2008 was $11,070 and $34,020, respectively, which included translation adjustments of $(678) and $(656) for the respective periods.

Recently Adopted Accounting Standards - In June 2009, the FASB established the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative U.S. generally accepted accounting principles (“U.S. GAAP”) recognized by the FASB to be applied by nongovernmental entities.  Rules and interpretive releases of the United States Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants.  The adoption of the Codification by the Company did not have a material impact on its consolidated financial statements or results of operations.  In accordance with the FASB’s guidance, the Company’s notes to consolidated financial statements will explain accounting concepts rather than cite the topics of specific U.S. GAAP.

In May 2009, the FASB issued authoritative guidance which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance sets forth (1) the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures that should be made about events or transactions that occurred after the balance sheet date. This guidance is currently effective and its adoption did not have an impact on the Company’s consolidated financial position and results of operations.

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In April 2009, the FASB issued authoritative guidance amending the existing guidance for other-than-temporary impairment of debt securities to make the guidance more operational and to improve disclosure. This guidance is currently effective and its adoption did not have an impact on the Company’s consolidated financial position and results of operations.

In April 2009, the FASB issued authoritative guidance that principally requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. This guidance is currently effective and its adoption did not have an impact on the Company’s consolidated financial position and results of operations.

Recently Issued Accounting Standards - In June 2009, the FASB issued authoritative guidance that is intended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial position and results of operations.

In August 2009, the FASB issued authoritative guidance regarding the measurement of liabilities at fair value when a quoted price in an active market is not available.  In these circumstances, a valuation technique should be applied that uses either the quote of the liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique consistent with existing fair value measurement guidance, such as an income approach or a market approach.  The guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability.  This guidance is effective for interim periods beginning on or after June 15, 2010. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial position and results of operations.

In October 2009, the FASB issued authoritative guidance which will allow companies to allocate arrangement consideration to multiple deliverables. The guidance provides principles and application guidance on whether multiple deliverables exist, how an arrangement should be separated, and the consideration allocated. The guidance requires an entity to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of the selling price. The guidance eliminates the use of the residual method, requires entities to allocate revenue using the relative-selling-price method and significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. The guidance requires new and expanded disclosures and is applied prospectively to revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 or retrospectively for all periods presented. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial position and results of operations.

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3. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values and estimated fair values of the Company’s financial instruments for the periods presented are as follows:

	Estimated Fair Value Measurements
	CarryingValue		Quoted Pricesin Active Markets (Level1)		Significant Other Observable Inputs (Level2)		Significant Unobservable Inputs (Level3)
September 30, 2009:
Financial assets
Cash and cash equivalents	$	3,573	$	3,573	$	—	$	—
Total short-term investments	$	3,573	$	3,573	$	—		—
Available for sale investments
Auction rate securities	$	10,191	$	—	$	—	$	10,191
Corporate obligations		3,472		—		—		3,472
Preferred shares		516		—		—		516
Total long-term investments	$	14,179	$	—	$	—	$	14,179
Total financial assets	$	17,752	$	3,573	$	—	$	14,179
December 31, 2008:
Financial assets
Cash and cash equivalents	$	13,503	$	13,503	$	—	$	—
Total short-term investments	$	13,503	$	13,503	$	—		—
Available for sale investments
Auction rate securities	$	18,871	$	—	$	—	$	18,871
Corporate obligations		2,430		—		—		2,430
Preferred shares		316		—		—		316
Total long-term investments	$	21,617	$	—	$	—	$	21,617
Total financial assets	$	35,120	$	13,503	$	—	$	21,617
						��

Level 1- The Company’s Level 1 assets consist of cash, U.S. Treasury securities with original maturities of three months or less.

Level 2 - At September 30, 2009 and December 31, 2008, the Company had no investments which were considered to be Level 2 assets.

Level 3 – The Company’s Level 3 assets consist of the Company’s investment in ARS, corporate obligations, and preferred shares. The recent uncertainties in the credit markets have hindered the Company and other investors from liquidating their holdings of these securities for the nine months ended September 30, 2009 and the year ended December 31, 2008, because the amount of securities submitted for sale has exceeded the amount of purchase orders.

The carrying value of the Company’s investments in its Level 3 assets, as of September 30, 2009 and December 31, 2008, represents the Company’s best estimate of the fair value of these investments based on currently available information. The Company estimates the fair values of the investment securities quarterly based upon consideration of such factors as: issuer and insurer credit rating; comparable market data, if available; current market conditions; the credit quality of the investment securities; the rate of interest received since the date the auctions began; yields of securities similar to the underlying investment securities; and, until September 2008, broker-dealers’ statements provided by the investment bank through which the Company held such securities. These considerations are used to determine a range of values for each security from moderate to highly conservative. The Company has based its evaluation on the mid-point of that range. Specifically, the Company considered the composition of the collateral supporting the investment securities and the default probabilities of the collateral underlying the ARS in its overall valuation of each security. The Company has also researched the secondary market, and while such a market may be available, there is no guarantee that such a market will exist at any particular point in time. Additionally, the Company looked at the probabilities of default, probabilities of successful auctions and probabilities of earning the maximum (failed auction) rate for each period. If the issuers are unable to successfully close future auctions

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and their credit ratings deteriorate, the Company may be required to further adjust the carrying value of its investment securities through additional devaluations.

The table below provides a summary of changes in fair value for the Company’s available for sale investments:

	September 30, 2009
	Amortized Cost		Unrealized Loss		Estimated Fair Value
Long-term investments:
Auction Rate securities		$18,680	$(8,489	)		$10,191
Corporate obligations		5,400	(1,928	)		3,472
Preferred shares		12,850	(12,334	)		516
Total long-term investments		$36,930	$(22,751	)		$14,179
		December 31, 2008
		Amortized Cost	Unrealized Loss			Estimated Fair Value
Long-term investments:
Auction Rate securities		$33,380	$(14,509	)		$18,871
Corporate obligations		5,400	(2,970	)		2,430
Preferred shares		8,150	(7,834	)		316
Total long-term investments		$46,930	$(25,313	)		$21,617

The following table presents additional information about assets measured at fair value using Level 3 inputs for the nine months ended September 30, 2009: 

		Long-Term
		Auction Rate Securities			Corporate Bonds		Preferred Shares		Total
Balance as of January 1, 2009	$	18,871		$	2,430	$	316	$	21,617
Unrealized gain (loss) – temporarily impaired – included in other comprehensive income		3,102			1,042		(1,413	)	2,731
Unrealized loss – included in earnings		—			—		(169	)	(169	)
Proceeds from sales or settlements		(2,750	)		—		—		(2,750	)
Realized loss on sale or settlements		(7,250	)		—		—		(7,250	)
Converted to preferred shares		(1,782	)		—		1,782		—
Balance as of September 30, 2009	$	10,191		$	3,472	$	516	$	14,179

4. STOCK-BASED EMPLOYEE COMPENSATION

The Company has stock-based compensation plans for employees and non-employee members of the Board of Directors. The plans provide for discretionary grants of stock options, shares of restricted stock, and other stock-based awards. The plans are administered by the Compensation Committee of the Board of Directors, consisting of non-employee directors.

The Company records stock compensation utilizing the modified prospective method provided in the definitive guidance by the SEC whereby prior periods are not restated for comparability. The Company’s recognition of stock-based compensation expense in the statement of operations over the vesting period is based on the fair value of the award at the grant date. All of the Company’s outstanding options were fully vested at the time the Company adopted this guidance and the Company has not subsequently granted any such options.

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The following table summarizes activity under our stock option plans for the nine months ended September 30, 2009:

	Shares under Options (in thousands)			Weighted Average Exercise Price		Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at January 1, 2009		1,301		$	20.76
Granted		—			—
Exercised		—			—
Forfeited		(429	)		22.29
Outstanding at September 30, 2009		872		$	20.01		0.93	$	—
Exercisable at September 30, 2009		872		$	20.01		0.93	$	—

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing price of the Company’s common stock on the date of determination for those awards that have an exercise price currently below the closing price. As of September 30, 2009, there were no options outstanding to purchase shares with an exercise price below the quoted price of its common stock. During the nine months ended September 30, 2009 and 2008, the aggregate intrinsic value of options exercised under its stock option plans was $0, determined as of the date of exercise.

Restricted Stock Awards

The Company granted restricted stock awards of approximately 378,000 shares on May 22, 2009 under its 2008 long-term incentive compensation plan (“LTICP”), 311,000 shares on May 23, 2008 under its 2007 LTICP, 162,000 shares on May 25, 2007 under its 2006 LTICP and 145,000 and 4,000 shares on May 23, 2006 and June 15, 2006, respectively, under its 2005 LTICP. The restricted stock awards were granted to certain employees, including officers and members of the Board of Directors, at grant prices of $1.46, $7.85, $16.79, $16.52 and $15.78 (in each case, the average of the high and low stock price from the previous day of trading) for the May 22, 2009, May 23, 2008, May 25, 2007, the May 23, 2006 and the June 15, 2006 grants, respectively. The restricted stock awards vest annually over a period of three years from the date of grant for the awards made under the 2008 and 2007 LTICPs and over a period of four years for the awards made under the 2006 and 2005 LTICPs, with accelerated vesting upon a change of control of the Company (as defined in the applicable plan). During the restriction period, award holders do not have the rights of stockholders and cannot transfer ownership. Additionally, nonvested shares of award holders are subject to forfeiture. These awards are forfeited and revert to the Company in the event of employment termination, except in the case of death, disability, retirement or other specified events.

A summary of restricted stock award activity under the Company’s LTICPs as of September 30, 2009 and changes during the nine months then ended is presented as follows:

	Number of Shares (in thousands)			Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2009		465		$	11.11
Granted		378			1.46
Vested		(164	)		11.46
Forfeited		(4	)		10.83
Outstanding at September 30, 2009		675		$	5.62

The Company recognized $517 and $1,467 of compensation costs related to the LTICPs during the three and nine months ended September 30, 2009, respectively and $490 and $1,170 of compensation costs during the three and nine months end September 30, 2008, respectively. Additionally, as of September 30, 2009, there was approximately $485, $1,252, $1,000 and $329 of unrecognized compensation cost related to restricted stock awards granted under the Company’s 2008, 2007, 2006 and 2005 LTICPs, respectively. The cost is expected to be recognized over a remaining weighted-average period of 2.6, 1.6, 1.7 and 0.6 years under the 2008, 2007, 2006 and 2005 LTICPs, respectively. There were approximately 97,000, 37,000 and 31,000 shares of restricted stock that vested during the nine months ended September 30, 2009 related to the 2007, 2006 and 2005 LTICPs, respectively.

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Availability for Future Issuance - As of September 30, 2009, (i) options to purchase approximately 1,482,000 shares of the Company’s common stock were available for future issuance under the Company’s stock option plans and (ii) options to purchase a maximum of approximately 255,000 shares of the Company’s common stock were available for future issuance under the Company’s LTICPs, reduced by four shares for each share of restricted stock awarded under the 2006 and 2005 LTICPs, under which an aggregate of 93,000 shares of the 255,000 total shares were available for issuance as options, and reduced by two shares for each share of restricted stock awarded under the 2008 and 2007 LTICPs, under which an aggregate of 162,000 of the 255,000 total shares were available for issuance as options.

5. DEFERRED REVENUE

Music - In July 2002, 4Kids Music granted a right to receive a 50% interest in the Company’s net share of music revenues from currently existing music produced by the Company for television programs produced by the Company other than “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 June 2003, $750 in June 2004 and $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. The Company expects and continues to produce additional new music which, based on the success of the administrative service, continues to supply the unaffiliated third party with this content. Since the Company continues to deliver more than the amount of music required to be delivered under the Music Agreement, there is no way to appropriately record the fair value of the future amounts to be delivered. Based on authoritative guidance issued by the FASB, the Company’s inability to fair value the future portion of the music deliverables results in the entire amount recorded as deferred revenue. The most appropriate and systematic method of accounting for this revenue relating to the deferred portion would be to reduce this deferred amount dollar for dollar based on the actual music earnings of the Company. Pursuant to the above, the Company recognized revenues of $151 and $418 for the three and nine months ended September 30, 2009, respectively, and $165 and $434 for the three and nine months ended September 30, 2008, respectively. The Company has included $942 and $1,360 as deferred revenue on the accompanying consolidated balance sheets as of September 30, 2009 and December 31, 2008, respectively.

Home Video - At various dates since May 2002, 4Kids Home Video entered into various 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 by the Video Distributor. The Video Distributor has paid the Company cumulative advances of $4,119 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, the Company recognized revenue of $30 and $131 for the three and nine months ended September 30, 2009, respectively, and $7 and $195 for the three and nine months ended September 30, 2008, respectively. The Company has included $80 and $211 as deferred revenue on the accompanying consolidated balance sheets as of September 30, 2009 and December 31, 2008, respectively.

Other Agreements - In addition, the Company entered into other agreements for various Properties and advertising time on 4Kids TV in which the Company has received certain advances and/or minimum guarantees. As of September 30, 2009 and December 31, 2008, the unearned portion of these advances and guaranteed payments was $529 and $1,699, respectively, and is included in deferred revenue on the accompanying consolidated balance sheets.

6. INCOME TAXES

The (provision for) benefit from income taxes consisted of the following:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Current	$	—		$	—		$	—		$	—
Deferred		3,772			1,849			11,214			6,935
	$	3,772		$	1,849		$	11,214		$	6,935
Less: Changes in valuation allowance		(3,772	)		(1,849	)		(11,214	)		(6,935	)
Total	$	—		$	—		$	—		$	—

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The Company and its wholly-owned subsidiaries file income tax returns in the United States and in the United Kingdom. Income tax expense (benefit) is provided for using the asset and liability method provided for in the authoritative guidance issued by the FASB. Deferred income taxes are recognized at currently enacted tax rates for the expected future tax consequences attributable to temporary differences between amounts reported for income tax purposes and financial reporting purposes. Deferred taxes are not provided for the undistributed earnings of our subsidiary operating outside the U.S. that have been permanently reinvested in the United Kingdom. The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has not recorded any liability for unrecognized tax benefits. It is difficult to predict what would occur to change the Company’s unrecognized tax benefits over the next twelve months. The Company believes, however, that there should be no change during the next twelve months.

The Company is no longer subject to examinations by income tax authorities in most jurisdictions for years prior to 2004. The Company’s 2006 U.S. Federal Income Tax Return is currently under examination by the Internal Revenue Service.

7. EARNINGS PER SHARE

The Company computes basic EPS based solely on the weighted average number of common shares outstanding during the period in accordance with authoritative guidance issued by the FASB. Diluted EPS reflects all potential dilution of common stock. The following table reconciles Basic EPS with Diluted EPS for the three and nine months ended September 30, 2009 and 2008:

	Three Months Ended					Nine Months Ended
September 30, 2009	Net Loss		Weighted Average Shares	Per Share		Net Loss		Weighted Average Shares	Per Share
Basic loss per share attributable to 4Kids Entertainment Inc. common shareholders	$(5,003	)	13,352,053	$(0.37	)	$(20,793	)	13,286,726	$(1.56	)
Effect dilutive security – Stock options	—		—	—		—		—	—
Diluted loss per share attributable to 4Kids Entertainment Inc. common shareholders	$(5,003	)	13,352,053	$(0.37)		$(20,793	)	13,286,726	$(1.56	)

	Three Months Ended					Nine Months Ended
September 30, 2008	Net Loss		Weighted Average Shares	Per Share		Net Loss		Weighted Average Shares	Per Share
Basic loss per share –Loss available to common shareholders	$(5,275	)	13,153,508	$(0.40	)	$(17,206	)	13,166,281	$(1.31	)
Effect dilutive security – Stock options	—		—	—		—		—	—
Diluted loss per share	$(5,275	)	13,153,508	$(0.40	)	$(17,206	)	13,166,281	$(1.31	)

For the nine months ended September 30, 2009 and 2008, 872,250 and 1,312,000 shares, respectively, attributable to the exercise of outstanding options, were excluded from the calculation of diluted EPS because the effect was antidilutive.

8. LEGAL PROCEEDINGS

On July 29, 2009, The Upper Deck Company, LLC ("Upper Deck") filed suit in Superior Court of the State of California, County of San Diego, North County Division, against Bryan C. Gannon ("Gannon") and TC Digital Games LLC ("TC Digital"). The suit alleges misappropriation and misuse of confidential information and trade secrets of Upper Deck in connection with the Chaotic trading card game.  The complaint alleges that Gannon became privy to the Upper Deck confidential information and trade secrets during the course of Gannon's service to Upper Deck which ended on May 23,

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2003. The complaint seeks monetary damages in a sum to be determined at trial and injunctive relief. On October 5, 2009, Upper Deck voluntarily dismissed the suit against all defendants without prejudice.

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 Properties is the subject will, individually or in the aggregate, have a material adverse affect on the Company’s financial position or the results of its operations.

9. RELATED PARTY

National Law Enforcement and Firefighters Children’s Foundation - The Company’s Chairman and Chief Executive Officer is the founder and President of The National Law Enforcement and Firefighters Children’s Foundation (the “Foundation”). The Foundation is a not-for-profit organization dedicated to helping the children of law enforcement and firefighting personnel and working with law enforcement and firefighting organizations to provide all children with valuable social and life skill programs. The Company had no contributions to the Foundation for the three and nine months ended September 30, 2009, respectively, and $29 and $90 to the Foundation for the three and nine months ended September 30, 2008, respectively.

Chaotic USA Entertainment Group, Inc. (“CUSA”) - On December 11, 2006, 4Kids Digital and CUSA LLC, entered into the TCD Agreement with respect to the operation of TC Digital as a joint venture, with 4Kids Digital owning 53% of TC Digital’s membership interests and CUSA LLC owning 47% of TC Digital’s membership interests. On December 18, 2007, 4Kids Digital purchased an additional 2% membership interest in TC Digital from CUSA LLC increasing 4Kids Digital’s ownership percentage to 55%. Pursuant to the authoritative guidance issued by the FASB (see Note 11), TC Digital is treated as a consolidated subsidiary of the Company as a result of its majority ownership in TC Digital and its right to break any dead-locks within the TC Digital Management Committee. Bryan Gannon (“Gannon”), President and Chief Executive Officer of CUSA and John Milito (“Milito”), Executive Vice President and Chief Operating Officer of CUSA, each own an interest of approximately 32% in CUSA. Additionally, on December 11, 2006, Gannon and Milito became officers of TC Digital.

As of September 30, 2009, the Company has entered into the following transactions with CUSA and CUSA LLC, or parties related to Gannon and Milito that are summarized below:

° Employment Agreements – On December 11, 2006, TC Digital entered into employment agreements through December 31, 2009, with Gannon, to serve as its President and Chief Executive Officer and Milito, to serve as its Executive Vice President. Under the terms of the employment agreements, each of Gannon and Milito will receive an annual base salary of $350 and are eligible to receive additional bonuses at the sole discretion of TC Digital’s Management Committee, on which they serve with minority voting rights. As of September 30, 2009, no bonus had been paid with respect to the employment agreements.

° Chaotic Property Representation Agreement – On December 11, 2006, 4Kids Licensing, CUSA and Apex Marketing, Inc. (“Apex”), a corporation in which Gannon holds 60% of the outstanding capital stock and Milito owns 39% of the outstanding capital stock, entered into an amended and restated Chaotic Property Representation Agreement (“CPRA”) replacing the original Chaotic Property Representation Agreement entered into by the parties in April 2005. Under the terms of the CPRA, 4Kids Licensing is granted exclusive television broadcast and production, merchandising licensing, and home video rights to the “Chaotic” Property worldwide in perpetuity, subject to certain limited exceptions. Under the terms of the CPRA, all “Chaotic” related income less approved merchandising and other expenses shall be distributed 50% to the Company and 50% to CUSA and Apex, excluding trading card royalties which are distributed 55% to 4Kids Digital and 45% to CUSA. Additionally, all approved production expenses for television episodes based on the “Chaotic” property are allocated 50% to 4Kids Licensing and 50% to CUSA and Apex. As of September 30, 2009 and 2008, there were no distributions and approximately $8,116 and $6,204, respectively, of production, merchandising and other general expenses were owed to 4Kids Licensing by CUSA and Apex, collectively.

° Patent License Agreements – On December 11, 2006, TC Digital and TC Websites each entered into an agreement (the “Patent License Agreements”) with Cornerstone Patent Technologies, LLC (“Cornerstone”), a limited liability company, in which Gannon and Milito each hold a 25% membership interest. Pursuant to the Patent License Agreements, TC Digital and TC Websites obtained exclusive licenses (subject to certain exceptions) to use certain patent rights in connection with “Chaotic” and other trading card games which are uploaded to websites owned and operated by each such entity. Additionally, each of TC Digital and TC Websites agreed to pay Cornerstone a royalty of 1.5% of the Manufacturers Suggested Retail Price for the sale of trading cards, which amounted to $124 and

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$344, for each such entity for the three and nine months ended September 30, 2009, respectively and $191 and $390, for each such entity for the three and nine months ended September 30, 2008, respectively. On September 10, 2007, the Company purchased a 25% interest in such patents from Cornerstone for $750. During the three and nine months ended September 30, 2009, the Company earned royalties of $42 and $115, respectively, and during the three and nine months ended September 30, 2008, the Company earned royalties $128 and $260, respectively, associated with its portion of the patents relating to the sales of “Chaotic” trading cards. The royalties earned by the Company under the Patent License Agreements are eliminated in the Company’s consolidated financial statements.

° TCD Agreement – Under the terms of the TCD Agreement, TC Digital is obligated to pay the following fees and/or royalties to: (i) 4Kids Digital equal to 3% of TC Digital’s gross revenues up to $350 per year for management services performed; (ii) 4Kids Digital and CUSA equal to 3% of net sales of each pack of trading cards sold; and (iii) the Company equal to (x) 10% of the net sales of “Chaotic” trading cards and (y) an additional 1% of net sales of “Chaotic” trading cards above $50 million during a calendar year. The Company acquired its rights to receive royalties of 10% in respect to net sales of “Chaotic” trading cards under the TCD Agreement through purchases from Dracco Company Ltd. (“Dracco”) of a 5% royalty stream on October 17, 2007, a 1% royalty stream, previously allocated to CUSA from Dracco, on December 18, 2007, a 4% royalty stream on March 17, 2008 in exchange for one-time payments of $2,250, $450 and $1,100, respectively. The consideration for the purchase of the 1% royalty stream for $450 was satisfied through the settlement of certain capital contributions required to be made by CUSA to TC Websites under the TCW Agreement. During the three and nine months ended September 30, 2009, the Company earned royalties and/or fees of $361 and $690, respectively, and CUSA earned royalties and/or fees of $73 and $151, respectively, and during the three and nine months ended September 30, 2008, the Company earned royalties and or fees of $762 and $1,574, respectively, and CUSA earned royalties and/or fees of $228 and $462, respectively, relating to the sales of “Chaotic” trading cards under the TCD agreement. The Company’s portion of royalties and its management fee were eliminated in its consolidated financial statements.

4Kids Digital is required under the terms of the TCD Agreement and the related loan and line of credit agreements to provide loans to TC Digital from time to time with a maturity date of December 31, 2010. On September 15, 2008, 4Kids Digital and TC Digital agreed to reduce the interest payable on any such loans from 12% to 9% retroactive to December 11, 2006.

° Chaotic Merchandise License Agreement – On December 11, 2006, 4Kids Licensing, CUSA and TC Digital entered into a merchandise licensing agreement pursuant to which 4Kids Licensing and CUSA granted TC Digital exclusive rights to manufacture, produce and license “Chaotic” trading cards and related accessories through December 31, 2016. Under the terms of the agreement, TC Digital is obligated to pay a royalty on trading cards and all related accessories equal to (i) 4% of net sales to 4Kids Licensing while any amounts are outstanding to 4Kids Digital under the loan agreement or line of credit agreement or (ii) 8% of net sales of such cards and accessories, 55% of which will be paid to 4Kids Licensing and 45% of which will be paid to CUSA. During the nine months ended September 30, 2009 and 2008, no royalties had been earned under this agreement.

° Operating Agreement of TC Websites LLC – On December 11, 2006, 4Kids Websites entered into the TCW Agreement with CUSA to purchase a 50% membership interest in TC Websites, which was amended on December 18, 2007 in connection with 4Kids Websites’ acquisition of an additional 5% ownership interest in TC Websites. On September 15, 2008, the terms of the TCW Agreement were further amended to eliminate TC Websites’ obligation to pay fees to each of the following: (i) 4Kids Websites equal to 3% of gross revenues of TC Websites with a minimum fee of $100 and a maximum fee of $200 per year for management services; (ii) Gannon equal to $100 for services as a senior executive; and (iii) Milito equal to $100 for services as a senior executive. Under the terms of the TCW Agreement, each member of TC Websites is obligated to make capital contributions on a pro-rata basis to the extent determined by its Management Committee to be necessary to fund the operation of the Website. Any transaction resulting in the sale of more than 50% of TC Websites’ membership interests or in the sale of all or substantially all of TC Digital’s assets requires the consent of members of TC Websites holding two-thirds of its membership interests (as opposed to a majority of its membership interests).

° Right of First Negotiation Agreement– On December 11, 2006, the Company entered into a letter agreement with TC Digital providing TC Digital with a right of first negotiation for the license of trading card rights represented by the Company as merchandise licensing agent for any third party property and for any property developed and wholly owned by the Company, through December 31, 2009, subject to the terms of the Company’s obligations to third parties and to other limitations. If the Company and TC Digital are unable to reach an agreement with respect to trading card rights within a specified period, the Company will be free to license such trading card rights to third parties on terms no less favorable to the Company as the last offer made to TC Digital during such negotiations.

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° Interest Purchase Agreement– On March 2, 2009, TC Digital, 4Kids Entertainment, Inc. (the "Company") and Home Focus Development Ltd. (“Home Focus”) entered into various agreements pursuant to which TC Digital and Home Focus agreed to form TC Digital International Ltd. (“TDI”), an Irish Private Corporation, for the purpose of distributing “Chaotic” trading cards principally in Europe and the Middle East (“TDI Territory”) and the Company agreed to purchase a 25% interest in TDI from Home Focus (the "TDI Interest"). As a result, TDI is owned 50% by TC Digital, 25% by the Company and 25% by Home Focus. As permitted by authoritative guidance issued by the FASB and based on the Company’s controlling interest and operational control, TDI’s financial statements are included in the Company’s consolidated financial statements for the nine months ended September 30, 2009. The purchase price for the TDI Interest is an initial price of $1,575 with an obligation to pay up to an additional $1,000 (the "Conditional Payments") conditioned upon the “Chaotic” television series being telecast in the five largest European television markets (the United Kingdom, France, Germany, Spain and Italy) and/or TDI selling in excess of $10,000 of “Chaotic” trading cards. To date, the Company has entered into agreements for the telecast of the “Chaotic” television series in the UK, France and Germany, requiring the Company to make $600 of the Conditional Payments. The Company has paid Home Focus the following consideration for the TDI interest: the Company paid $475 upon execution of the various agreements and has paid the monthly installments of $125 for each of April, May, June, July and August. The Company was required to continue to pay the monthly installments of $125 through September 1, 2009, and beginning on October 1, 2009, $150 per month until such time as the balance due has been paid. However, Home Focus had not made the capital contribution to TDI of $422 required under the Shareholders Agreement, dated March 2, 2009, entered into by the Company and Home Focus with respect to TDI (the “TDI Agreement”) and as a result, the Company withheld $125 required to be paid to Home Focus on September 1, 2009, and will continue to withhold such future payments until the required capital contribution has been met.

° TDI Shareholders Agreement– Under the TDI Agreement, the Board of Directors of TDI will consist of four directors. TC Digital has the right to elect two directors and the Company and Home Focus each have the right to elect one director. There are a number of extraordinary actions that require the consent by shareholders holding at least 80% of the voting stock of TDI in addition to approval of the Board of Directors. The TDI Agreement requires the shareholders to provide TDI with additional capital on a pro rata basis in exchange for additional equity. Under the TDI Agreement, TDI is required to pay or reimburse TC Digital for the costs and expenses associated with the printing, advertising, marketing and promotion of the “Chaotic” trading card game in the TDI Territory. In addition, TDI is responsible for reimbursing TC Digital and TC Websites for the cost of translating the “Chaotic” trading cards and “Chaotic” website into the European languages and for bandwidth and equipment charges associated with making the “Chaotic” website operational in the TDI Territory. TDI is also required to pay TC Digital and TC Websites a design fee equal to 3% and 1.5%, respectively, of net sales of “Chaotic” trading cards in the TDI Territory. During the three and nine months ended September 30, 2009, TC Digital earned royalties of $7 and $30, respectively, and during the three and nine months ended September 30, 2009, TC Websites earned royalties of $4 and $15, respectively, under this agreement arising from the net sales of “Chaotic” trading cards in the TDI Territory. The royalties earned by TC Digital and TC Websites are eliminated in the Company’s consolidated financial statements.

10. COMMITMENTS AND CONTINGENCIES

a.The CW Broadcast Agreement - On October 1, 2007, the Company and The CW entered into the CW Agreement, under which The CW granted to the Company the exclusive right to program The CW's Saturday morning children's programming block (“The CW4Kids”) that is broadcast in most markets between 7am and 12pm for an initial term of five years beginning with The CW's 2008-2009 broadcast season.

Under the CW Agreement, the Company is obligated to make quarterly minimum guaranteed payments which are subject to reduction under certain circumstances. On June 30, 2009, the Company and The CW agreed to extend the payment terms of the June 30, 2009 minimum guaranteed payment. As of September 30, 2009, all of the payments due under the extension have been paid. The Company and The CW share advertising revenues earned from the sale of national commercial time during The CW4Kids with The CW's share to be applied against such quarterly guarantee payments. In addition, The CW is entitled under the CW Agreement to participate in the Company's merchandising revenue from certain content broadcast on The CW4Kids, if such merchandising revenues exceed a certain annual minimum. 4Kids Ad Sales, Inc. manages and accounts for the ad revenue and costs associated with The CW4Kids.

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As of September 30, 2009, the minimum guaranteed payment obligations under the CW Agreement are as follows:

Year Ending December 31,		Amount
2009	$	9,300
2010		15,000
2011		15,000
2012		15,000
2013		8,250
Total	$	62,550

The Company’s ability to recover the cost of its minimum guarantee due to The CW will depend on the popularity of the television programs the Company broadcasts on The CW4Kids and the general market demand and pricing of advertising time for Saturday morning children’s broadcast television. The popularity of the programs broadcast by the Company on The CW4Kids impacts audience levels and the level of the network advertising rates that the Company can charge. Additionally, the success of the merchandise licensing programs and home video sales based on the television programs broadcast on The CW4Kids is dependent on consumer acceptance of such television programs. If the Company estimates that it will be unable to generate sufficient future revenue from advertising sales, home video sales and merchandising licensing at levels to cover the cost of its contractual obligation to The CW, the Company would record a charge to earnings to reflect an expected loss on The CW agreement in the period in which the factors negatively affecting the recoverability of the fee payable become known. The Company will be required to make certain assumptions and estimates about future events such as advertising rates and audience viewing levels in evaluating its ability to recover the cost of the minimum guarantee payments. Such estimates and assumptions are subject to market forces and factors beyond the control of the Company and are inherently subject to change. There can be no assurance that the Company will be able to recover the full cost of the minimum guarantee payments and in the event it cannot, it would record a charge to earnings to reflect an expected loss on the minimum guarantee payments, which could be significant.

In addition to the minimum guarantee paid to The CW, the Company incurs additional costs to program each broadcast block and to sell the related network advertising time. These costs include direct programming costs to acquire, adapt and deliver programming for the broadcast during the weekly broadcast block as well as additional indirect expenses of advertising sales, promotion and administration.

b. Fox Settlement Agreement - On November 9, 2008, the Company entered into an agreement with Fox to settle a pending litigation between the parties (the “Settlement Agreement”). During the nine months ended September 30, 2009, the Company paid Fox the remaining obligation under the Settlement Agreement of $6,250.

c. Contractual Arrangements - During the normal course of business, the Company may enter into various agreements with third parties to license, acquire, distribute, broadcast, develop and/or promote Properties. The terms of these agreements will vary based on the services and/or Properties included within the agreements, as each of these agreements also have specific provisions relating to rights granted, territory and the term of the agreements.

11. NONCONTROLLING INTEREST

The Company adopted the authoritative guidance issued by the FASB which provides that all earnings and losses of a subsidiary should be attributed to the parent and the noncontrolling interests, even if the losses attributable to the noncontrolling interest result in a deficit noncontrolling interest balance. Previously, any losses exceeding the noncontrolling interests’ investment in the subsidiaries were attributed to the parent. This guidance was applied prospectively as of January 1, 2009.

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The following table reflects the Company’s net loss and loss per share had the Company not attributed the losses of the subsidiary to the noncontrolling interest and remained under the previous accounting guidance.

		Three Months Ended							Nine Months Ended
September 30, 2009		Net Loss		Weighted Average Shares		Per Share			Net Loss		Weighted Average Shares		Per Share
Net Loss	$	(7,112	)					$	(27,403	)
Capital contribution from noncontrolling interest		51							105
Pro-forma net loss		(7,061	)						(27,298	)
Pro-forma loss per common share – basic and diluted	$	(7,061	)	13,352,053	$	(0.53	)	$	(27,298	)	13,286,726	$	(2.05	)

a) TC Digital Games LLC - On December 11, 2006, 4Kids Digital and CUSA LLC entered into the TCD Agreement with respect to the operation of TC Digital as a joint venture, with 4Kids Digital owning 53% of TC Digital’s membership interests and CUSA LLC owning 47% of TC Digital’s membership interests. On December 18, 2007, 4Kids Digital purchased an additional 2% membership interest in TC Digital from CUSA for approximately $200, increasing 4Kids Digital’s ownership percentage to 55%. The consideration for the purchase of this additional membership interest was paid through the settlement of capital contributions required to be made by CUSA to TC Websites under the TCW Agreement. TC Digital is treated as a consolidated subsidiary of the Company as a result of its majority ownership and its right to break any dead-locks within the TC Digital Management Committee.

Noncontrolling interest of membership units in TC Digital represents the noncontrolling members’ proportionate share of the equity in the entity. Income is allocated to the membership units noncontrolling interest based on the ownership percentage throughout the year. As of September 30, 2009, the noncontrolling member continued to hold 45% of the equity in the entity. The following table summarizes the noncontrolling interest loss attributable to the noncontrolling equity interest in TC Digital:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
TC Digital net loss before common units noncontrolling interest	$	(3,697	)	$	(1,042	)	$	(11,349	)	$	(4,195	)
Noncontrolling interest percentage		45	%		45	%		45	%		45	%
Noncontrolling interest loss allocation		(1,664	)		(469	)		(5,107	)		(1,888	)
Less: Capital contribution from noncontrolling interest		—			—			—			—
Loss attributable to noncontrolling interest	$	(1,664	)	$	(469	)	$	(5,107	)	$	(1,888	)

As of September 30, 2009, the loss in excess of noncontrolling interest for TC Digital absorbed by 4Kids Digital, in the aggregate, since the formation of such entity is $12,800.

b) TC Websites LLC - Under the terms of the TCW Agreement, 4Kids Websites and CUSA are each entitled to elect two managers to TC Websites’ Management Committee. On December 18, 2007, 4Kids Websites entered into an agreement with CUSA and TC Websites pursuant to which 4Kids acquired an additional 5% ownership interest in TC Websites from CUSA for approximately $650 and the TCW Agreement was amended to provide 4Kids Websites with the right to break any deadlocks on TC Websites' Management Committee with respect to operational matters. The consideration for the purchase of this additional membership interest was paid through the settlement of certain capital contributions required to be made by CUSA to TC Websites under the TCW Agreement.

While the Company maintained a 50% ownership interest in TC Websites and did not control, but had significant influence, over such entity, the Company’s investment in TC Websites had been accounted for using the equity method in accordance with authoritative guidance issued by the FASB, due to the increased membership interest and the additional operational control, TC Websites’ financial statements are now included in the Company’s consolidated financial statements, for the three and nine months ended September 30, 2009 and 2008 and for the year ended December 31, 2008.

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As of September 30, 2009, the noncontrolling member continued to hold 45% of the equity in the entity. The following table summarizes the noncontrolling interest loss attributable to the noncontrolling equity interest in TC Websites:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
TC Websites net loss before common units noncontrolling interest	$	(990	)	$	(740	)	$	(3,341	)	$	(2,654	)
Noncontrolling percentage		45	%		45	%		45	%		45	%
Noncontrolling loss allocation		(445	)		(333	)		(1,503	)		(1,194	)
Less: Capital contribution from noncontrolling interest		51			251			105			251
Loss attributable to noncontrolling interest	$	(394	)	$	(82	)	$	(1,398	)	$	(943	)

As of September 30, 2009, the loss in excess of noncontrolling interest for TC Websites absorbed by 4Kids Websites in the aggregate since the formation of such entity is $5,178.

12. SUBSEQUENT EVENTS

On October 21, 2009, the Mirage Group, sold the “Teenage Mutant Ninja Turtles” Property to Nickelodeon, a division of Viacom Inc. In connection with this transaction, the Company agreed to terminate its right to serve as the merchandise licensing agent for this Property prior to the scheduled expiration of the representation agreement in 2012 in exchange for a one-time payment of $9,790 plus the potential to receive up to an additional $1,000 upon expiration of the escrow relating to the transaction, if certain performance criteria are met.

The Company has evaluated and determined that no other significant subsequent events occurred through November 6, 2009.

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13. SEGMENT AND RELATED INFORMATION

The Company has four reportable segments: (i) Licensing; (ii) Advertising Media and Broadcast; (iii) Television and Film Production/Distribution; and (iv) Trading Card and Game Distribution. The Company’s reportable segments are strategic business units, which, while managed separately, work together as a vertically integrated entertainment company. The Company’s management regularly evaluates the performance of each segment based on its net revenues, profit and loss after all expenses, including amortized film and television costs and the 4Kids TV broadcast fee and interest income.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company’s Television and Film Production/Distribution segment records inter-segment revenues and the Company’s Advertising Media and Broadcast segment records inter-segment charges related to the estimated acquisition costs of episodic television series for broadcast. In the opinion of management, such acquisition costs represent the estimated fair value which would have been incurred in a transaction between unaffiliated third parties on an arm’s-length basis. All inter-segment transactions have been eliminated in consolidation.

	Licensing			Advertising Media and Broadcast			TV and Film Production/ Distribution			Trading Card and Game Distribution			Total
Three Months Ended September 30, 2009:
Net revenues from external customers	$	3,333		$	411		$	1,992		$	1,534		$	7,270
Amortization of television and film costs		—			—			1,438			—			1,438
Interest income (expense)		183			(5	)		—			—			178
Impairment on investment securities		(71	)	)	—			—			—			(71	)
Segment loss		(521		)	(1,292	)		(1,535	)		(3,764	)		(7,112	)
2008
Net revenues from external customers	$	4,203		$	2,707		$	3,624		$	7,250		$	17,784
Amortization of television and film costs		—			—			1,864			—			1,864
Amortization of 4Kids TV broadcast fee		—			3,041			—			—			3,041
Interest income		676			13			—			—			689
Segment loss		(360		)	(2,699	)		(1,536	)		(931	)		(5,526	)
Nine months Ended September 30, 2009:
Net revenues from external customers	$	11,246		$	1,408		$	7,423		$	1,786		$	21,863
Amortization of television and film costs		—			—			3,695			—			3,695
Interest income		911			14			—			—			925
Loss on sale of investment securities		(7,250	)	)	—			—			—			(7,250	)
Impairment on investment securities		(169	)	)	—			—			—			(169	)
Segment loss		(7,578		)	(3,898	)		(3,255	)		(12,672	)		(27,403	)
Segment assets		39,566			3,633			22,144			9,369			74,712
2008
Net revenues from external customers	$	12,737		$	10,405		$	11,478		$	14,743		$	49,363
Amortization of television and film costs		—			—			5,269			—			5,269
Amortization of 4Kids TV broadcast fee		—			12,150			—			—			12,150
Interest income		2,045			44			7			—			2,096
Segment loss		(258		)	(8,557	)		(4,130	)		(4,512	)		(17,457	)
Segment assets		88,019			4,979			24,527			11,738			129,263

Through the Company’s London office and network of international subagents, which allow it to license its Properties throughout the world, the Company recognized net merchandise licensing revenues from international sources, primarily in Europe, of $1,745 and $5,279 for the three and nine months ended September 30, 2009, respectively, and $3,101 and $9,001

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for the three and nine months ended September 30, 2008. As of September 30, 2009 and 2008, net assets of the Company’s London office were $5,168 and $6,629, respectively.

******

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(In thousands of dollars unless otherwise specified)

Overview

The Company’s operating results for the three and nine months ended September 30, 2009 were negatively impacted by the global economic downturn, as well as a continuing decline in the popularity of the Company’s significant Properties. As a result of the downturn, many retailers decided to reduce inventory on hand and the Company’s Trading Card and Game Distribution segment was negatively impacted by the resulting cut back by the Company’s distributors on their own orders placed with TC Digital. The overall decrease in revenues was partially offset by decreased expenses relating to the broad cost-cutting efforts of the Company.

General

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

The Company’s licensing revenues have historically been derived primarily from the licensing of toy and game concepts. As a result, a substantial portion of the Company’s revenues and net income are subject to the seasonal variations of the toy and game industry. Typically, a majority of toy orders are shipped in the third and fourth calendar quarters resulting in increased royalties earned by the Company during such calendar quarters. The Company recognizes revenues from the sale of advertising time on the leased Saturday morning programming block from The CW (“The CW4Kids”), as more fully described in Note 2 of the notes to the Company’s consolidated financial statements. The Company’s advertising sales subsidiary, 4Kids Ad Sales, sells advertising time on The CW4Kids at higher rates in the fourth quarter due to the increased demand for commercial time by children’s advertisers during the holiday season. As a result, much of the revenues of 4Kids Ad Sales are earned in the fourth quarter when the majority of toy and video game advertising occurs. As a result of the foregoing, the Company has historically experienced greater revenues during the second half of the year than during the first half of the year.

Critical Accounting Policies

The Company’s accounting policies are fully described in Note 2 of the notes to the Company’s consolidated financial statements. Below is a summary of the critical accounting policies, among others, that management believes involve significant judgments and estimates used in the preparation of its consolidated financial statements.

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

Management regularly reviews, and revises when necessary, its total revenue estimates on a title-by-title basis, which may result in a change in the rate of amortization and/or a write-down of the film or television asset to estimated fair value. The Company determines the estimated fair value for individual film and television Properties based on the estimated future ultimate revenues and costs in accordance with the authoritative guidance issued by the FASB.

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.

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

Other Estimates -   The Company estimates reserves for future returns of product in the trading card and home video markets as well as provisions for uncollectible receivables. In determining the estimate of trading card and home video product sales that will be returned, the Company performs an analysis that considers historical returns, changes in customer demand and current economic trends. Based on this information, a percentage of each sale is reserved provided that the customer has the right to return unsold trading card and home video inventory. The Company estimates the amount of uncollectible receivables 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 four business segments are appropriate to the circumstances of each segment’s business. See Note 2 of the notes to the Company’s consolidated financial statements for a discussion of these revenue recognition policies.

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company continually evaluates the policies and estimates that it uses to prepare its consolidated financial statements. In general, management’s estimates and assumptions are based on historical experience, known trends or events, information from third-party professionals and other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Recently Adopted Accounting Standards - In June 2009, the FASB established the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative U.S. generally accepted accounting principles (“U.S. GAAP”) recognized by the FASB to be applied by nongovernmental entities.  Rules and interpretive releases of the United States Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants.  The adoption of the Codification by the Company did not have a material impact on its consolidated financial statements or results of operations.  In accordance with the FASB’s guidance, the Company’s notes to consolidated financial statements will explain accounting concepts rather than cite the topics of specific U.S. GAAP.

In May 2009, the FASB issued authoritative guidance which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance sets forth (1) the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures that should be made about events or transactions that occurred after the balance sheet date. This guidance is currently effective and its adoption did not have an impact on the Company’s consolidated financial position and results of operations.

In April 2009, the FASB issued authoritative guidance amending the existing guidance for other-than-temporary impairment of debt securities to make the guidance more operational and to improve disclosure. This guidance is currently effective and its adoption did not have an impact on the Company’s consolidated financial position and results of operations.

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In April 2009, the FASB issued authoritative guidance that principally requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. This guidance is currently effective and its adoption did not have an impact on the Company’s consolidated financial position and results of operations.

Recently Issued Accounting Standards - In June 2009, the FASB issued authoritative guidance that is intended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial position and results of operations.

In August 2009, the FASB issued authoritative guidance regarding the measurement of liabilities at fair value when a quoted price in an active market is not available.  In these circumstances, a valuation technique should be applied that uses either the quote of the liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique consistent with existing fair value measurement guidance, such as an income approach or a market approach.  The guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability.  This guidance is effective for interim periods beginning on or after June 15, 2010. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial position and results of operations.

In October 2009, the FASB issued authoritative guidance which will allow companies to allocate arrangement consideration to multiple deliverables. The guidance provides principles and application guidance on whether multiple deliverables exist, how an arrangement should be separated, and the consideration allocated. The guidance requires an entity to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of the selling price. The guidance eliminates the use of the residual method, requires entities to allocate revenue using the relative-selling-price method and significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. The guidance requires new and expanded disclosures and is applied prospectively to revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 or retrospectively for all periods presented. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial position and results of operations.

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Results of Operations

The following table sets forth our results of operations expressed as a percentage of total net revenues for the three and nine months ended September 30, 2009 and 2008:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Net revenues		100	%		100	%		100	%		100	%
Costs and expenses:
Selling, general and administrative		151			78			154			81
Production service costs		7			10			11			10
Cost of sales of trading cards		21			19			13			13
Amortization of television and film costs		20			11			17			11
Amortization of 4Kids TV broadcast fee		—			17			—			25
Total costs and expenses		199			135			195			140
Loss from operations		(99	)		(35	)		(95	)		(40	)
Interest income		2			4			4			4
Impairment of investment securities		(1	)		—			(1	)		—
Loss on sale of investment securities		—			—			(33	)		—
Total other (expense) income		1			4			(30	)		4
Noncontrolling interest		—			1			—			1
Net loss		(98	)%		(30	)%		(125	)%		(35	)%

Three and nine months ended September 30, 2009 as compared to three and nine months ended September 30, 2008.

Revenues

Revenues by reportable segment and for the Company as a whole were as follows:

For the three months ended September 30, 2009 and 2008
	2009		2008		$ Change			% Change
Licensing	$	3,333	$	4,203	$	(870	)	(21	)%
Advertising, Media and Broadcast		411		2,707		(2,296	)	(85	)
Television and Film Production/Distribution		1,992		3,624		(1,632	)	(45	)
Trading Card and Game Distribution		1,534		7,250		(5,716	)	(79	)
Total	$	7,270	$	17,784	$	(10,514	)	(59	)%

For the nine months ended September 30, 2009 and 2008
	2009		2008		$ Change			% Change
Licensing	$	11,246	$	12,737	$	(1,491	)	(12	)%
Advertising, Media and Broadcast		1,408		10,405		(8,997	)	(86	)
Television and Film Production/Distribution		7,423		11,478		(4,055	)	(35	)
Trading Card and Game Distribution		1,786		14,743		(12,957	)	(88	)
Total	$	21,863	$	49,363	$	(27,500	)	(56	)%

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The decrease in consolidated net revenues for the three and nine months ended September 30, 2009, as compared to the same periods in 2008, was due to a number of factors.

In the Licensing segment, decreased revenues for the three months ended September 30, 2009 were primarily attributable to:

(i) reduced licensing revenues on the “Teenage Mutant Ninja Turtles” and “Monster Jam” Properties, domestically of approximately $350 and $100, respectively; as well as

(ii) reduced licensing revenues on the “Yu-Gi-Oh!”, “Winx Club” and “Dinosaur King” Properties, internationally of approximately $130, $130 and $90, respectively; partially offset by

(iii) increased revenues attributable to the “Yu-Gi-Oh!” Property, domestically of approximately $230.

In the Licensing segment, decreased revenues for the nine months ended September 30, 2009 were primarily attributable to:

(i) reduced licensing revenues on the “Teenage Mutant Ninja Turtles”, “Yu-Gi-Oh!”, and “Shaman King” Properties, worldwide of approximately $1,000, $590 and $440, respectively;

(ii) reduced licensing revenues on the “Winx Club” Property, internationally of approximately $280; as well as

(iii) reduced licensing revenues on the “Cabbage Patch Kids” Property, domestically of approximately $200; partially offset by

(iv) increased revenues attributable to the “Monster Jam” Property, domestically of approximately $1,090.

The “Yu-Gi-Oh!”, “Monster Jam”, “Teenage Mutant Ninja Turtles” and “Cabbage Patch Kids” Properties are the largest contributors with approximately 78% of the Company’s revenues in this business segment for the nine months ended September 30, 2009.

In the Advertising Media and Broadcast segment, the significant decrease in revenues for the three and nine months ended September 30, 2009, as compared to the same periods in 2008, was primarily attributable to:

(i) The CW’s $2,550 and $8,250 minimum guaranteed shares of revenue for the three and nine months ended September 30, 2009, respectively, was offset against the Company’s revenues from the sale of network advertising time on The CW4Kids of approximately $2,636 and $8,028, respectively as compared to the same periods in the prior year in which the Fox broadcast revenue was approximately $2,544 and $8,703, respectively and the Fox broadcast fee was amortized and classified as an expense rather than offsetting revenues; partially offset by

(ii) increased revenue from the sale of internet advertising time on the Company’s websites for the three and nine months of approximately $150 and $575, respectively, when compared to the same periods in 2008.

In the Television and Film Production/Distribution segment, the decrease in revenues for the three months ended September 30, 2009, as compared to the same period in 2008, was primarily attributable to:

(i) decreased production service revenue from the “Teenage Mutant Ninja Turtles”, “Chaotic”, “Dinosaur King” and “Viva Piñata” television series of approximately $640, $400, $180 and $180, respectively; as well as

(ii) decreased international broadcast sales from the “Viva Piñata” television series of approximately $260; partially offset by

(iii) increased international broadcast sales from the “Yu-Gi-Oh!” and “Teenage Mutant Ninja Turtles” television series of approximately $280 and $220, respectively.

In the Television and Film Production/Distribution segment, the decrease in revenues for the nine months ended September 30, 2009, as compared to the same period in 2008, was primarily attributable to:

(i) decreased production service revenue from the “Teenage Mutant Ninja Turtles”, “Viva Piñata” and “Chaotic” television series of approximately $1,340, $1,160 and $720, respectively; as well as

(ii) decreased international broadcast sales from the “Yu-Gi-Oh!”, “Teenage Mutant Ninja Turtles” and “Viva Piñata” television series of approximately $690, $580 and $540, respectively; partially offset by

(iii) increased international broadcast sales from the “Dinosaur King” television series of approximately $800.

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The Trading Card and Game Distribution segment began to record significant revenues in the first quarter of 2008 as a result of the launch of the “Chaotic” trading card game to retail and mass market distribution. During the three and nine months ended September 30, 2009, retail sales were negatively impacted by the continued global economic downturn. As a result of the downturn, many retailers maintained reduced inventory levels, and the Company’s Trading Card and Game Distribution segment was negatively impacted by the resulting cut back by the Company’s distributors on their orders placed with TC Digital. Many of the Company’s larger trading card distributors, who service mass market retailers, have changed to a point-of-sale (“POS”) model in response to the demands from the applicable retailers and the Company has entered into agreements with these distributors reflecting such a change. Under the POS model, sales are recorded and paid for by the retailer and distributors once the sales are made to the ultimate consumer, while under the currently prevailing FOB shipping point model, sales are recorded and paid for upon shipment to distributors. In anticipation of the migration to the POS model, certain of the Company’s retailers and distributors have been significantly reducing inventory levels over the last several months, causing the Company to record reduced revenue and higher inventory levels for the three and nine months ended September 30, 2009. Additionally, due to the economic downturn and the migration to a POS model, the Company has given to these distributors allowances and promotional markdowns which have amounted to approximately $1,586 and $2,652 for the three and nine months ended September 30, 2009, respectively. As the Company’s distributors migrate to the POS model, the Company’s recognition of revenue in this segment will be modified accordingly.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased 21%, or $2,915, to $11,022 for the three months ended September 30, 2009, when compared to the same period in 2008. The decrease was attributable to broad cost-cutting initiatives implemented throughout the Company and included:

(i) decreased personnel related costs of approximately $1,260;

(ii) decreased advertising and marketing costs of approximately $440;

(iii) decreased website costs of approximately $310;

(iv) decreased travel and entertainment costs of approximately $280; and

(v) decreased international selling expenses of approximately $270.

Selling, general and administrative expenses decreased 15%, or $6,129, to $33,763 for the nine months ended September 30, 2009, when compared to the same period in 2008. The decrease was attributable to broad cost-cutting initiatives implemented throughout the Company and included:

(i) decreased personnel related costs of approximately $1,970;

(ii) decreased advertising and marketing costs of approximately $1,200;

(iii) decreased international selling expenses of approximately $1,020;

(iv) decreased travel and entertainment costs of approximately $700;

(v) decreased website costs of approximately $610; and

(vi) decreased professional fees of approximately $320.

Cost of Sales of Trading Cards

Cost of sales of trading cards represents finished goods inventory costs relating to the “Chaotic” trading card game. Cost of sales decreased 55%, or $1,900, to $1,547 and 56%, or $3,549, to $2,811 for the three and nine months ended September 30, 2009, respectively, when compared to the same periods in 2008. The decreases were primarily attributable to the overall decrease in trading card revenue. In an effort to increase future trading card sales, additional promotional allowances were given to retailers and distributors which caused a decrease in net trading card revenues while cost of sales in the quarter ended September 30, 2009 remained consistent with gross sales.

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Production Service and Capitalized Film Costs

Production service and capitalized film costs were as follows:

For the three months ended September 30, 2009 and 2008

	2009		2008		$ Change			% Change
Production Service Costs	$	482	$	1,710	$	(1,228	)	(72)	%
Amortization of Television and Film Costs		1,438		1,864		(426	)	(23)

For the nine months ended September 30, 2009 and 2008

	2009		2008		$ Change			% Change
Production Service Costs	$	2,503	$	5,245	$	(2,742	)	(52)	%
Amortization of Television and Film Costs		3,695		5,269		(1,574	)	(30)

The decrease in production service costs during the three months ended September 30, 2009, as compared to the same period in 2008, was primarily due to decreased production costs for the “Teenage Mutant Ninja Turtles” and “Chaotic” television series. Production service costs decreased for the nine months ended September 30, 2009, as compared to the same period in 2008 primarily due to decreased costs for the “Teenage Mutant Ninja Turtles”, “Viva Piñata” and “Chaotic” television series. When the respective costs are incurred, the Company categorizes them as production service costs and reflects a corresponding amount in revenues for the amounts billed back to the property owners.

The decrease in amortization of television and film costs for the three months ended September 30, 2009, as compared to the same periods in 2008 is due to a decrease relating to the “Teenage Mutant Ninja Turtles” and “Chaotic” television series, partially offset by increased amortization relating to the “GoGoRiki” television series. Amortization of television and film costs decreased for the nine months ended September 30, 2009, as compared to the same periods in 2008 primarily due to decreased amortization relating to the “Teenage Mutant Ninja Turtles” and “Viva Piñata” television series, partially offset by increased amortization relating to the “GoGoRiki” television series.

As of September 30, 2009, there was $16,899 of capitalized film production costs recorded in the Company’s consolidated balance sheet relating primarily to various stages of production on 362 episodes of animated programming. Based on management’s ultimate revenue estimates as of September 30, 2009, approximately 49% of the total completed and unamortized film and television costs are expected to be amortized during the next year, and over 90% of the total completed and unamortized film and television costs are expected to be amortized during the next three years.

4Kids TV Broadcast Fee

For the three months ended September 30, 2009 and 2008
	2009		2008		$ Change			% Change
Amortization of 4Kids TV Broadcast Fee	$	—	$	3,041	$	(3,041	)	—	%

For the nine months ended September 30, 2009 and 2008
	2009		2008		$ Change			% Change
Amortization of 4Kids TV Broadcast Fee	$	—	$	12,150	$	(12,150	)	—	%

Due to the termination of the Fox Agreement on December 31, 2008, there is no longer amortization of the 4Kids TV broadcast fee, as the fee has been fully amortized. The minimum guaranteed payment obligations under the CW Agreement are offset against the Company’s revenues from the sale of network advertising time on The CW4Kids rather than being amortized as a broadcast fee.

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Interest Income

Interest income decreased 74%, or $511, to $178 and 56%, or $1,171, to $925 for the three and nine months ended September 30, 2009, respectively, as compared to the same periods in 2008, primarily as a result of lower cash balances and the Company‘s investments yielding lower interest rates than the prior period.

Impairment in Investment Securities

As of September 30, 2009, the Company held investment securities having an aggregate principal amount of $36,930. The estimated fair market value of the investment securities held by the Company had declined by $22,751 ($22,507 prior to 2009, and $244 during 2009) to $14,179, based upon an analysis of the current market conditions of the Company’s securities made by the Company in accordance with authoritative guidance issued by the FASB. The Company concluded that $169 of the decline in 2009 in the fair value of the investment securities held by the Company were now other than temporarily impaired. The Company’s determination that certain of its long-term investments were other than temporarily impaired was based upon the fact that certain of the Company’s ARS ceased to pay interest according to their stated terms and that the underlying bond insurers of such securities elected to exercise their put right against the trusts, thereby exchanging the investment grade collateral in the trust with preferred stock. Accordingly, during 2009, the Company recorded an impairment charge of $169 in non-operating expense related to the securities which had previously recorded an other than temporary impairment of $7,834 in 2008. In March 2009, the Company was notified that the underlying bond insurers of one of its ARS elected to exercise their put right against the trusts, thereby exchanging the investment grade collateral in the trust with preferred stock. Based on the enhanced marketability of this security, the decline in the estimated fair value is considered to be temporarily impaired. The Company continues to monitor the market for ARS and consider its impact (if any) on the fair value of its investments. If the current market conditions deteriorate further, the Company may be required to record additional impairment charges to non-operating expense in future periods.

Loss on Sale of Investment Securities

In June 2009, the Company sold a security with a par value of $10,000 for $2,750 causing the Company to record a loss on the sale of investment of $7,250.

Loss Before Income Taxes

For the three months ended September 30, 2009 and 2008
	2009			2008			$ Change			% Change
Licensing	$	(521	)	$	(360	)	$	(161	)	(45	)%
Advertising, Media and Broadcast		(1,292	)		(2,699	)		1,407		52
Television and Film Production/Distribution		(1,535	)		(1,536	)		1		—
Trading Card and Game Distribution		(3,764	)		(931	)		(2,833	)	(304	)
Total	$	(7,112	)	$	(5,526	)	$	(1,586	)	(29	)%

For the nine months ended September 30, 2009 and 2008
	2009			2008			$ Change			% Change
Licensing	$	(7,578	)	$	(258	)	$	(7,320	)	(2,837	)%
Advertising, Media and Broadcast		(3,898	)		(8,557	)		4,659		54
Television and Film Production/Distribution		(3,255	)		(4,130	)		875		21
Trading Card and Game Distribution		(12,672	)		(4,512	)		(8,160	)	(181	)
Total	$	(27,403	)	$	(17,457	)	$	(9,946	)	(57	)%

In the Licensing segment, the increase in segment loss for the three months ended September 30, 2009, as compared to the same period in 2008, was primarily attributable to lower licensing revenue and lower interest income allocated to this segment, partially offset by a decrease in licensing expenses.

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The increase in segment loss for the nine months ended September 30, 2009, as compared to the same period in 2008, was primarily attributable to a loss on the sale of investment securities of $7,250, as well as lower licensing revenue and lower interest income allocated to this segment, partially offset by a decrease in licensing expenses.

In the Advertising Media and Broadcast segment, the decrease in segment loss for the three and nine months ended September 30, 2009, as compared to the same periods in 2008, resulted from the amortization of the 4Kids TV broadcast fee during 2008 which was greater than the minimum guaranteed payment made for The CW4Kids broadcast block in 2009.

In the Television and Film Production/Distribution segment, the segment loss for the three months ended September 30, 2009 remained consistent when compared to the same period in 2008.

The decrease in segment loss for the nine months ended September 30, 2009, as compared to the same period in 2008, was primarily due to decreased amortization of television and film costs and production service costs partially offset by an overall decrease in production revenue and increase in international sales expense.

In the Trading Card and Game Distribution segment, the increase in segment loss for the three and nine months ended September 30, 2009, as compared to the same periods in 2008, was primarily attributable to the overall decrease in trading card revenue. In an effort to increase future trading card sales, additional promotional allowances were given to retailers and distributors which caused a decrease in net trading card revenues.

Income Taxes

In accordance with authoritative guidance issued by the FASB. the Company regularly reviews its deferred tax assets for recoverability taking into consideration such factors as historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In view of the level of deferred tax assets as of September 30, 2009 and the Company’s historical losses from operations, the Company has determined that it should record a full valuation allowance against its net deferred tax assets.

As a result of the valuation allowance, the Company did not record a benefit from income taxes for the three and nine months ended September 30, 2009 and 2008.

In the event that the Company earns pre-tax income in the future such that it will be able to use some or all of its deferred tax assets, under the authoritative guidance issued by the FASB, the Company may reduce or eliminate the valuation allowance. If the Company were to reverse the valuation allowance, in whole or in part, the Company’s income statement for such reporting period would record a reduction in income tax expense and an increase in net income, to the extent of the reversal of the valuation allowance.

Our effective tax rate for 2009 and 2008 would have been a benefit of 40% had the Company not taken a valuation allowance. This rate differs slightly from the Federal statutory rate of 35% primarily due to state and local taxes.

Net Loss

As a result of the above, the Company had a net loss for the three and nine months ended September 30, 2009 of $7,112 and $27,403, as compared to a net loss of $5,275 and $17,206 for the same periods in 2008.

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Liquidity and Capital Resources

Financial Position

Cash and cash equivalents as of September 30, 2009 and December 31, 2008 were as follows:

	September 30,		December 31,
	2009		2008			$ Change
Cash and cash equivalents	$	3,573	$	13,503	$		(9,930	)

Long-term investments as of September 30, 2009 and December 31, 2008 were as follows:

	September 30,		December 31,
	2009		2008			$ Change
Investments	$	14,179	$	21,617	$		(7,438	)

The Company’s long-term investments principally consist of ARS, corporate bonds and preferred shares. ARS are generally rated “BBB” or better by one or more national rating agencies and have contractual maturities of up to 80 years. Of the aggregate principal amount of $36,930 in investment securities held by the Company as of September 30, 2009, 4% mature within the next 20 years, 26% mature within the next 30 years, 45% mature through 2087 and the remaining 55% have no maturity date. The Company classifies these investments as “available for sale”, in accordance with the authoritative guidance issued by the FASB for certain investments in debt and equity securities. The ARS that the Company invests in generally had interest reset dates that occurred every 7 or 35 days and despite the long-term nature of their stated contractual maturity, the historical operation of the ARS market had given the Company the ability to quickly liquidate these securities at ongoing auctions every 35 days or less.

During 2007, liquidity issues began to affect the global credit and capital markets. In addition, certain individual ARS experienced liquidity issues specific to such securities. As a result, ARS, which historically have had a liquid market and had their interest rates reset periodically (e.g. monthly) through Dutch auctions, began to fail at auction. These auction failures have caused ARS to become illiquid, which in turn has caused the fair market values of these securities to decline.

The ARS currently held by the Company are private placement debt securities with long-term nominal maturities and interest rates that typically reset monthly. The Company’s investments in ARS represent interests in debt obligations issued by banks and insurance companies that originally had at least an “A” credit rating at the time of purchase, including JP Morgan Chase, bond insurers and re-insurers such as MBIA, AMBAC, FGIC, FSA, RAM and Radian. The collateral underlying these securities consists primarily of commercial paper, but also includes asset-backed and mortgage-backed securities, corporate debt, government holdings, money market funds and other ARS.

As of September 30, 2009, the Company held investment securities having an aggregate principal amount of $36,930. The estimated fair market value of the investment securities held by the Company had declined by $22,751 ($22,507 prior to 2009, and $244 during 2009) to $14,179, based upon an analysis of the current market conditions of the Company’s securities made by the Company in accordance with authoritative guidance issued by the FASB. The Company concluded that $169 of the decline in 2009 in the fair value of the investment securities held by the Company were now other than temporarily impaired. The Company’s determination that certain of its long-term investments were other than temporarily impaired was based upon the fact that certain of the Company’s ARS ceased to pay interest according to their stated terms and that the underlying bond insurers of such securities elected to exercise their put right against the trusts, thereby exchanging the investment grade collateral in the trust with preferred stock. Accordingly, during 2009, the Company recorded an impairment charge of $169 in non-operating expense related to the securities which had previously recorded an other than temporary impairment of $7,834 in 2008. In March 2009, the Company was notified that the underlying bond insurers of one of its ARS elected to exercise their put right against the trusts, thereby exchanging the investment grade collateral in the trust with preferred stock. Based on the enhanced marketability of this security, the decline in the estimated fair value is considered to

35

be temporarily impaired. The Company continues to monitor the market for ARS and consider its impact (if any) on the fair value of its investments. If the current market conditions deteriorate further, the Company may be required to record additional impairment charges to non-operating expense in future periods. In June 2009, the Company sold a security with a par value of $10,000 for $2,750 causing the Company to record a loss on the sale of investment of $7,250. The Company had previously recorded in accumulated other comprehensive income an unrealized loss on this security of $2,753 which was reclassed due to the sale of the investment. As of November 6, 2009, none of the investment securities held by the Company as of September 30, 2009 had been redeemed. Since the Company has the ability, and presently expects, to hold these investments until recovery of their face value, which may not be prior to the maturity of the applicable security (to the extent such security has a specified maturity date) and based on consideration of all such factors, the Company considered these investments to be temporarily impaired as such term is defined in the accounting literature as of the filing date. Accordingly, the entire balance of unrealized loss in accumulated other comprehensive income at September 30, 2009 relates to securities which the Company considers temporarily impaired. Additionally, the remaining investment securities held by the Company have continued to pay interest according to their stated terms, which the Company believes may create an incentive for the issuers to redeem these securities once the current liquidity problems in the credit market substantially improve.

In November 2008, one of the Company’s ARS experiencing liquidity problems converted to a corporate bond due to a provision in the trust stating that if liquidity ceased for an extended period of time the trust would dissolve and distribute the underlying assets of the trust, which were solely comprised of corporate bonds. This corporate bond is currently paying interest and the Company does not consider this investment to be other than temporarily impaired.

The credit and capital markets, including the market for ARS, have remained illiquid, and as a result of this and other factors specific to certain investment securities, the Company’s unrealized loss on its investment securities may subsequently increase. The Company estimates the fair values of the investment securities quarterly based upon consideration of such factors as: issuer and insurer credit rating; comparable market data, if available; current market conditions; the credit quality of the investment securities; the rate of interest received since the date the auctions began; yields of securities similar to the underlying investment securities; and, until September 2008, input from broker-dealers’ statements provided by the investment bank through which the Company held such securities. These considerations are used to determine a range of values for each security from moderate to highly conservative. The Company has based its evaluation on the mid-point of that range. Specifically, the Company considers the composition of the collateral supporting the investment securities and the default probabilities of the collateral underlying these securities in our overall valuation of each security. The Company has also researched the secondary market, and while such a market may be available, there is no guarantee that such a market will exist at any particular point in time. Additionally, the Company looks at the probabilities of default, probabilities of successful auctions and probabilities of earning the maximum (failed auction) rate for each period.

Due to the sensitivity of the methodologies and considerations used, the Company continually re-evaluates the investment securities and although the valuation methodologies have remained consistent for each quarter in which these securities were valued, certain inputs may have changed. The changes in these inputs primarily relate to the changes in the economic environment and the market for such securities.

Given the failed auctions, the Company’s investment securities are currently illiquid.  Accordingly, the Company has classified $14,179 of its investment in ARS and the securities into which certain of the ARS have been exchanged, as non-current assets at September 30, 2009 on its balance sheet due to the fact that the Company believes that the liquidity of these securities is unlikely to be restored in a period less than twelve months from such date.

The Company believes that Lehman Brothers, Inc., the securities broker-dealer that purchased the ARS on behalf of the Company that have been classified as other than temporarily impaired based on discretion afforded to it, has violated its legal obligations to the Company. As a result, the Company has taken various measures to obtain appropriate legal relief, including initiating an arbitration with the Financial Industry Regulatory Authority. On September 15, 2008, Lehman Brothers Holdings, Inc., the parent company of Lehman Brothers, Inc., filed for bankruptcy. On September 16, 2008, Barclays PLC announced that it had reached an agreement to purchase the assets of Lehman Brothers Holdings, Inc.’s North American operations, including substantial assets of Lehman Brothers, Inc. The Lehman-Barclays transaction was approved by the United States Bankruptcy Court for the Southern District of New York on September 20, 2008. On September 19, 2008, the Securities Investor Protection Corporation (“SIPC”) filed a proceeding, placing Lehman Brothers, Inc. in liquidation under the Securities Investor Protection Act (“SIPA”). SIPC, pursuant to its authority under SIPA, has acted to facilitate the transfer of Lehman Brothers, Inc.’s customer accounts (including the Company’s accounts) to Barclays, PLC. In view of the bankruptcy of Lehman Brothers Holdings, Inc. and the liquidation of Lehman Brothers, Inc., the Company is currently assessing what additional steps, if any, to take to pursue legal redress.

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If uncertainties in the credit and capital markets continue or the Company’s investments experience any rating downgrades on any investments in its portfolio or the value of such investments declines further, the Company may incur additional impairment charges to its investment portfolio, which could negatively affect the Company’s financial condition, results of operations and cash flow. As a result of the current market issues, the Company’s surplus cash is invested solely in government securities with a maturity of 90 days or less.

Based on the Company’s current cash and cash equivalents, the addition of $9,790 from the sale of the “Teenage Mutant Ninja Turtles” Property in October 2009 (see Note 12 of the notes to the Company’s consolidated financial statements), and the current, more stable economic environment, the Company expects its overall cash position to provide adequate liquidity to fund its day-to-day operations for the next twelve months. However, the illiquidity affecting a significant portion of the Company’s portfolio of investment securities is impacting the Company’s ability to make capital investments or expand its operations.

There is also a secondary market developing for some of the investment securities held by the Company, which might enable the Company to sell a portion of its investment securities at distressed prices should circumstances require the Company to access additional liquidity.  If the Company determines it is necessary to generate additional cash to fund its operations, the Company will consider all alternatives available to it, including, but not limited to sales of assets, issuance of equity or debt securities and strategic alliances with other companies. There can be no assurance, however, that the Company would be able to generate such additional cash in a timely manner or that such additional cash could be obtained on terms acceptable to the Company.

Sources and Uses of Cash

Cash flows for the nine months ended September 30, 2009 and 2008 were as follows:

Sources (Uses)	2009			2008
Operating Activities	$	(12,792	)	$	(4,784	)
Investing Activities		2,424			23,619
Financing Activities		47			(2,641	)

Working capital, consisting of current assets less current liabilities, was $931 as of September 30, 2009 and $17,579 as of December 31, 2008. The decrease in working capital relates primarily to a decrease in the Company’s revenue from its trading card and game distribution segment as well as the cash used to fund the Company’s operations.

Operating Activities

2009

Net cash used in operating activities for the nine months ended September 30, 2009 of $12,792 primarily reflects a decrease in the Company’s business performance and a loss on the sale of investment securities. This decrease was offset by increased collections of the Company’s accounts receivable.

2008

Net cash used in operating activities for the nine months ended September 30, 2008 of $4,784 primarily reflects a decrease in the Company’s business performance. This decrease was partially offset by increased amortization of television and film costs and the 4Kids TV broadcast fee.

Investing Activities

2009

Net cash provided by investing activities for the nine months ended September 30, 2009 of $2,424 reflects proceeds from the sale of one of the Company’s investment securities for $2,750, partially offset by purchases of property and equipment.

2008

Net cash provided by investing activities for the nine months ended September 30, 2008 of $23,619 reflects a shift in the Company’s investments for the period, from auction rate securities to U.S. Treasury securities which are short in duration and are classified as cash and cash equivalents.

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Financing Activities

2009

Net cash provided by financing activities for the nine months ended September 30, 2009 of $47 reflects the capital contributions from the Company’s noncontrolling interests, partially offset by the Company’s purchase of shares of its common stock classified as treasury stock on the consolidated financial statements.

2008

Net cash used in financing activities for the nine months ended September 30, 2008 of $2,641 primarily reflects the Company’s purchase of shares of its common stock classified as treasury stock on the consolidated financial statements.

During 2009, the Company's cash flow from operations was impacted by reduced 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.

Historically, the majority of the television-based Properties that the Company represented were existing episodes of foreign programming that were adapted for the United States and other markets. The Company’s strategic focus shifted towards producing and owning, in whole or in part, new content, such as the animated television episodes for “Chaotic” and “Teenage Mutant Ninja Turtles”, where the Company is a joint copyright owner of the episodes. Therefore, the Company had previously allocated a larger portion of its capital resources to the production costs associated with developing original animated programming resulting in increased capitalized film and television costs. Following the commercial release of a Property, its overall market acceptance and resulting revenues will directly impact the Company’s amortization of these capitalized film and television costs. To the extent a Property performs at a level lower than the Company’s expectations, the ratio of amortization expense to revenues realized will increase. While the Company expects that the revenues associated with such Properties will be sufficient to maintain its historical operating margins, there can be no assurance that the marketing plans designed to achieve those revenues can be executed in a manner to achieve its objectives. The Company has now elected to reduce substantially the number of original episodes which the Company is producing. This reduction will result in a decline of amortizable film costs and the allocation of fewer Company resources to original production. This shift in strategy has also enabled the Company to reduce personnel and other costs associated with the production of a greater number of original episodes.

Broadcast Agreements

The CW Broadcast Agreement - On October 1, 2007, the Company and The CW entered into the CW Agreement, under which The CW granted to the Company the exclusive right to program The CW's Saturday morning children's programming block (“The CW4Kids”) that is broadcast in most markets between 7am and 12pm for an initial term of five years beginning with The CW's 2008-2009 broadcast season.

Under the CW Agreement, the Company is obligated to make quarterly minimum guaranteed payments which are subject to reduction under certain circumstances. On June 30, 2009, the Company and The CW agreed to extend the payment terms of the June 30, 2009 minimum guaranteed payment. As of September 30, 2009, all of the payments due under the extension have been paid. The Company and The CW share advertising revenues earned from the sale of national commercial time during The CW4Kids with The CW's share to be applied against such quarterly guarantee payments. In addition, The CW is entitled under the CW Agreement to participate in the Company's merchandising revenue from certain content broadcast on The CW4Kids, if such merchandising revenues exceed a certain annual minimum. 4Kids Ad Sales, Inc. manages and accounts for the ad revenue and costs associated with The CW4Kids.

In addition to the minimum guarantee to be paid to The CW, the Company incurs additional costs to program each broadcast block and to sell the related network advertising time. These costs include direct programming costs to acquire, adapt and deliver programming for the broadcast during the weekly broadcast blocks as well as additional indirect expenses of advertising sales, promotion and administration.

Fox Settlement Agreement - On November 9, 2008, the Company entered into an agreement with Fox to settle a pending litigation between the parties (the “Settlement Agreement”). During the nine months ended September 30, 2009, the Company paid Fox the remaining obligation under the Settlement Agreement of $6,250.

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Recent Developments

On October 21, 2009, the Mirage Group, sold the “Teenage Mutant Ninja Turtles” Property to Nickelodeon, a division of Viacom Inc. In connection with this transaction, the Company agreed to terminate its right to serve as the merchandise licensing agent for this Property prior to the scheduled expiration of the representation agreement in 2012 in exchange for a one-time payment of $9,790 plus the potential to receive up to an additional $1,000 upon expiration of the escrow relating to the transaction, if certain performance criteria are met.

Contractual Commitments

The Company’s contractual obligations and commitments are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. The Company’s remaining contractual obligations and commitments have not materially changed since December 31, 2008.

Forward Looking Information and Risk Factors That May Affect Future Results

This Quarterly Report on Form 10-Q, including the section titled “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements that relate to future events or our future financial performance. We may also make written and oral forward-looking statements in our Securities and Exchange Commission (“SEC”) filings and otherwise. We have tried, where possible, to identify such statements by using words such as “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “project,” “plan” and similar expressions in connection with any discussion of future operating or financial performance. Any forward-looking statements are and will be based upon our then-current expectations, estimates and assumptions regarding future events and are applicable only as of the dates of such statements. By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated in any forward-looking statements. Such risks and uncertainties include those described in this Quarterly Report on Form 10-Q and in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC, as well as other factors. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Foreign Currency Exchange Rate Fluctuations

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

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

(a) We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) that are designed to provide reasonable assurance that information required to be disclosed in our filings and submissions under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

We completed an evaluation under the supervision and with participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, such disclosure controls and procedures were effective to provide the reasonable assurance described above.

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(b) There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the period covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Part II - OTHER INFORMATION

Item 1. Legal Proceedings.

On July 29, 2009, The Upper Deck Company, LLC ("Upper Deck") filed suit in Superior Court of the State of California, County of San Diego, North County Division, against Bryan C. Gannon ("Gannon") and TC Digital Games LLC ("TC Digital"). The suit alleges misappropriation and misuse of confidential information and trade secrets of Upper Deck in connection with the Chaotic trading card game.  The complaint alleges that Gannon became privy to the Upper Deck confidential information and trade secrets during the course of Gannon's service to Upper Deck which ended on May 23, 2003. The complaint seeks monetary damages in a sum to be determined at trial and injunctive relief. On October 5, 2009, Upper Deck voluntarily dismissed the suit against all defendants without prejudice.

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 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” of the Annual Report on Form 10-K for the year ended December 31, 2008 (“2008 Annual Report”), which could materially affect our business, financial condition or future results. The risks described in the 2008 Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently do not consider material also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes from the risk factors disclosed in the 2008 Annual Report except for the following:

If we are not able to maintain our listing with the New York Stock Exchange (the “NYSE”) the liquidity and market price of our common stock, and our ability to obtain financing, could be adversely affected.

On April 14, 2009, we announced that we were not in compliance with the NYSE’s continued listing standards with respect to global market capitalization and stockholders’ equity as a result of our stockholders’ equity at the end of the first quarter 2009 being equal to $74,990, or approximately $10, below the minimum NYSE stockholders’ equity requirement in effect at that time. The NYSE subsequently received approval from the Securities and Exchange Commission for a pilot program effective retroactively to May 12, 2009, to amend its listing criteria through October 31, 2009 such that a NYSE listed company that originally qualified to list under the “earnings test” such as 4Kids will be considered to be not in compliance with the NYSE’s continued listing standards if its average global market capitalization over a consecutive 30 day trading period is less than $50,000, and at the same time, its stockholders’ equity is less than $50,000. As of September 30, 2009, the Company’s stockholders’ equity is approximately $52,680. The NYSE made a subsequent rule filing on October 26, 2009 to make the revised listing standards extend through February 28, 2010. As of November 6, 2009, the proposed rule change has not been approved by the SEC.

Due to the reduction of the stockholders’ equity requirement to $50,000 or more, we are deemed to be back in compliance with the NYSE’s stockholders’ equity requirement, and received a notice to this effect from NYSE Regulation, Inc. (“NYSE Regulation”) on June 1, 2009. In such notice, we were informed that if we do not meet the continued listing standards within 12 months of the date we were deemed in compliance, we would receive a formal notification letter from NYSE Regulation. The staff of NYSE Regulation would then examine the relationship between the two incidents of falling below continued listing standards and reevaluate our method of financial recovery from the first incident. The staff of NYSE Regulation would at that point take such action it believes to be appropriate, which, depending upon the circumstances could include truncating the procedures that would otherwise be applicable, or immediately initiating suspension and delisting procedures.

A delisting of our common stock could negatively impact us by reducing the liquidity and market price of our common stock, reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing.

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Item 6. Exhibits.

(a) Exhibits

31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Joint Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

4KIDS ENTERTAINMENT, INC.

Date: November 9, 2009

By: /s/ Alfred R. Kahn

___________________________

Alfred R. Kahn,

Chairman of the Board,

Chief Executive Officer and

Director

By: /s/ Bruce R. Foster

___________________________

Bruce R. Foster,

Executive Vice President,

Treasurer, Chief Financial

Officer and Principal Accounting

Officer

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