(In thousands of dollars unless otherwise specified)

Overview

The Company's operating results for the three and nine months ended September 30, 2008 were negatively impacted by increased selling, general and administrative expenses associated with the operations of the Company's newly formed Trading Card and Game Distribution companies. The Company's results also reflect an overall decrease in licensing revenues worldwide. These decreases were partially offset by revenues generated from the Trading Card and Game Distribution segment resulting from the sale of "Chaotic" game trading cards.

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 blocks from Fox ("4Kids TV") and The CW ("The CW Kids Block"), 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 4Kids TV and The CW Kids Block 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.

The Company's media buying subsidiary, Summit Media, which previously provided print and broadcast media planning and buying services for clients principally in the children's toy and game business, terminated its operations effective June 30, 2006. In connection with the closing of Summit Media, the media buying operations have been classified as a discontinued operation. As further discussed in Note 12 of the Notes to the Company's consolidated financial statements, the consolidated financial statements have been reclassified to accommodate the reporting of this business as a discontinued operation.

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 Statement of Position No. 00-2, Accounting by Producers and Distributors of Film ("SOP No. 00-2").

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.

4Kids TV Broadcast Agreement - The Company broadcasts certain of its Properties on 4Kids TV, the Saturday morning programming block that the Company leases from Fox. The cost of 4Kids TV has been and will continue to be capitalized and amortized over each broadcast year based on estimated advertising revenue up until the termination of the Fox Agreement on December 31, 2008. See Note 13 of the Notes to the Company's consolidated financial statements for additional information regarding the termination of the Fox Agreement. In developing estimated future revenues, the Company has made certain assumptions with regard to the anticipated popularity of the television series that the Company broadcasts on 4Kids TV and the general market demand and pricing of advertising time for Saturday morning children's broadcast television. The popularity of such series impacts audience levels and the level of the network advertising rates that the Company can charge. These estimates are based on historical trends, as well as the Company's subjective judgment of future customer demand and acceptance of its television programming. Differences may result in the amount and timing of revenue for any period if actual performance varies from the Company's estimates. See Note 10 of the Notes to the Company's consolidated financial statements for additional information.

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 Issued Accounting Pronouncements - In November 2007, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141R, Business Combinations ("SFAS No. 141R"), which continues to require that all business combinations be accounted for by applying the acquisition method. Under the acquisition method, the acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed,

In November 2007, the FASB issued SFAS No. 160, Accounting and Reporting of Noncontrolling Interest ("SFAS No. 160"). SFAS No. 160 requires that a noncontrolling interest (previously referred to as a minority interest) be separately reported in the equity section of the consolidated entity's balance sheet. SFAS No. 160 also established accounting and reporting standards for: (i) ownership interests in subsidiaries held by parties other than the parent, (ii) the amount of consolidated net income attributable to the parent and to the noncontrolling interest, (iii) changes in a parent's ownership interest and (iv) the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 is effective for the Company beginning January 1, 2009. The Company is currently evaluating the impact the adoption of SFAS No. 160 will have on its consolidated financial position and results of operations.

In March 2008, the FASB issued SFAS No. 161) ("SFAS 161"), Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No.133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133"). SFAS No. 161 requires companies to provide enhanced disclosures regarding derivative instruments and hedging activities in order to better convey the purpose of derivative use in terms of risk management. Disclosures about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect a company's financial position, financial performance, and cash flows, are required. This Statement retains the same scope as SFAS No. 133 and is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact, if any, that the adoption of SFAS No. 161 will have on its consolidated financial position and results of operations.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, ("SFAS No. 162"). SFAS No. 162 sets forth the sources of accounting principles and the framework, or hierarchy, for selecting principles to be used in financial statement preparation. Prior to the issuance of SFAS No. 162, the GAAP hierarchy was defined in the AICPA Statement on Auditing Standards No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. SFAS No. 162 will be effective 60 days following the approval by the Securities and Exchange Commission ("SEC") of the Public Company Accounting Oversight Board amendments to AU Section 411, the meaning of present fairly in conformity with GAAP. The Company is currently evaluating the impact, if any, that the adoption of SFAS No. 162 will have on its consolidated financial position and results of operations.

In December 2007, the FASB ratified EITF Issue No. 07-1, Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property ("EITF 07-1"). The EITF concluded that a collaborative arrangement is one in which the participants are actively involved and are exposed to significant risks and rewards that depend on the ultimate commercial success of the endeavor. Revenues and costs incurred with third parties in connection with collaborative arrangements would be presented gross or net based on the criteria in EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and other accounting literature. Payments to or from collaborators would be evaluated and presented based on the nature of the arrangement and its terms, the nature of the entity's business, and whether those payments are within the scope of other accounting literature. The nature and purpose of collaborative arrangements are to be disclosed along with the accounting policies and the classification and amounts of significant financial statement amounts related to the arrangements. Activities in the arrangement conducted in a separate legal entity should be accounted for under other accounting literature; however required disclosure under EITF 07-1 applies to the entire collaborative agreement. This Issue is effective for fiscal years beginning after December 15, 2008, and is to be applied retrospectively to all periods presented for all collaborative arrangements existing as of the effective date. The Company is currently evaluating the impact that this pronouncement may have on its consolidated financial position and results of operations.

In October 2008, the FASB issued FASB Staff Position FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active ("FSP 157-3"). FSP 157-3 intended to clarify the application of SFAS No. 157 by providing an example that illustrates how the fair value of a financial asset is determined when the market for that financial asset is not active. FSP 157-3 was effective upon issuance, including prior periods for which financial statements had not

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, 2008 and 2007:



                                    Three Months Ended September 30,            Nine Months Ended September 30,
                                      2008                    2007               2008                    2007
Net revenues                                 100    %                100 %              100    %                100 %

Costs and expenses:
Selling, general and
administrative                                78                      86                 81                      76
Production service costs                      10                      12                 10                      13
Cost of sales of trading cards                19                       -                 13                       -
Amortization of television and
film costs                                    11                      13                 11                      12
Amortization of 4Kids TV
broadcast fee                                 17                      45                 25                      35
Total costs and expenses                     135                     156                140                     136

Loss from operations                         (35 )                   (56 )              (40 )                   (36 )

Interest income                                4                      10                  4                      10

Loss before income taxes                     (31 )                   (46 )              (36 )                   (26 )

Benefit from income taxes                      -                      21                  -                      12

Loss from unconsolidated
operations -
net of a tax benefit                           -                      (9 )                -                      (3 )
Minority interest                              1                       -                  1                       -

Net loss (30 )% (34 )% (35 )% (17 )%

Three and nine months ended September 30, 2008 as compared to three and nine months ended September 30, 2007.

Revenues



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



For the three months ended September 30, 2008 and 2007
                                         2008        2007       $ Change       % Change
Licensing                             $    4,203   $   4,270   $       (67 )       (2 )%
Advertising, Media and Broadcast           2,707       3,517          (810 )      (23 )%
Television and Film
Production/Distribution                    3,624       4,396          (772 )      (18 )%
Trading Card and Game Distribution         7,250           -         7,250        n/a
Total                                 $   17,784   $  12,183   $     5,601         46 %

For the nine months ended September 30, 2008 and 2007

                                         2008        2007       $ Change       % Change
Licensing                             $   12,737   $  16,319   $    (3,582 )      (22 )%
Advertising, Media and Broadcast          10,405      10,235           170          2 %
Television and Film
Production/Distribution                   11,478      12,569        (1,091 )       (9 )%
Trading Card and Game Distribution        14,743           -        14,743        n/a
Total                                 $   49,363   $  39,123   $    10,240         26 %

In the Licensing segment, the decrease in revenues for the three months ended September 30, 2008 was primarily attributable to:

(i) decreased licensing revenues from the "Teenage Mutant Ninja Turtles" and "Nintendo" Properties, domestically; partially offset by

(ii) increased revenues attributable to the "Yu-Gi-Oh!" Property, worldwide and the "Dinosaur King" Property, internationally.

In the Licensing segment, the decrease in revenues for the nine months ended September 30, 2008 was primarily attributable to:

(i) decreased licensing revenues on the "Teenage Mutant Ninja Turtles", "Nintendo" and "Cabbage Patch Kids" Properties, domestically and the "Viva Piņata" Property, worldwide; partially offset by

(ii) increased revenues attributable to the "Shaman King" and "Dinosaur King" Properties, worldwide.

The "Yu-Gi-Oh!", "Teenage Mutant Ninja Turtles" and "Cabbage Patch Kids" Properties continue to be the largest contributors with approximately 68% of the Company's revenues in this business segment.

In the Advertising Media and Broadcast segment, revenues decreased for the three months ended September 30, 2008, as compared to the same period in 2007, as a result of decreased revenues from the sale of network advertising time on 4Kids TV.

In the Advertising Media and Broadcast segment, revenues remained relatively consistent for the nine months ended September 30, 2008, as compared to the same period in 2007.

In the Television and Film Production/Distribution segment, decreased revenues for the three months ended September 30, 2008, as compared to the same periods in 2007, were primarily attributable to:

(i) decreased broadcast sales from the "Yu-Gi-Oh!" television series, worldwide and "Chaotic" television series, domestically; as well as

(ii) decreased production service revenue from the "Viva Piņata" television series; partially offset by

(iii) increased production service revenue from the "Teenage Mutant Ninja Turtles" and "Chaotic" television series; as well as

(iv) increased broadcast sales from the "Dinosaur King" television series, internationally.

In the Television and Film Production/Distribution segment, decreased revenues for the nine months ended September 30, 2008 were primarily attributable to:

(i) decreased broadcast sales from the "Yu-Gi-Oh!" television series, worldwide;

(ii) decreased production service revenue from the "Viva Piņata" television series;

(iii) decreased broadcast sales from the "Pokémon" television series, internationally; as well as

(iv) decreased home video sales from the "Teenage Mutant Ninja Turtles" television series; partially offset by

(v) increased production service revenue from the "Teenage Mutant Ninja Turtles", "Dinosaur King" and "Chaotic" television series; as well as

(vi) increased international broadcast sales from the "Dinosaur King" television series.

The Trading Card and Game Distribution segment began to record revenues in the fourth quarter of 2007 as a result of the October launch of the "Chaotic" trading card game to comic and hobby stores. For the three and nine months ended September 30, 2008, revenues were $7,250 and $14,743, respectively, as a result of sales to mass market distribution channels as well as to comic and hobby stores.

Selling, general and administrative expenses increased 33%, or $3,450, to $13,937 for the three months ended September 30, 2008, when compared to the same period in 2007. The increase was primarily attributable to:

(i) increased costs of approximately $2,450 related to the operations of TC Digital along with costs of approximately $790 related to the operations of TC Websites which was not consolidated in the prior year;

(ii) increased foreign exchange loss associated with currency fluctuations of approximately $500;

(iii) increased production service expenses of approximately $290; as well as

(iv) increased costs relating to the grant of restricted shares of approximately $170; partially offset by

(v) decreased professional fees of approximately $190; as well as

(vi) decreased website costs of approximately $150.

Selling, general and administrative expenses increased 35%, or $10,266, to $39,892 for the nine months ended September 30, 2008, when compared to the same period in 2007. The increase was primarily attributable to:

(i) increased costs of approximately $6,510 related to the operations of TC Digital along with costs of approximately $2,750 related to the operations of TC Websites which was not consolidated in the prior year;

(ii) increased international selling expenses of approximately $1,090;

(iii) increased costs relating to the grant of restricted shares of approximately $500; as well as

(iv) increased foreign exchange loss associated with currency fluctuations of approximately $450; partially offset by

(v) decreased advertising and marketing costs of approximately $710; as well as

(vi) decreased bad debt expense of approximately $250.

Cost of Sales of Trading Cards

Cost of sales of trading cards represents finished goods inventory costs relating to the "Chaotic" trading card game which was released at comic and hobby stores in October 2007.

Production Service and Capitalized Film Costs

Production service and capitalized film costs were as follows:

For the three months ended September 30, 2008 and 2007

                                             2008      2007     $ Change     % Change
Production Service Costs                    $ 1,710   $ 1,482    $    228       15   %
Amortization of Television and Film Costs     1,864     1,546         318       21

For the nine months ended September 30, 2008 and 2007

                                             2008      2007     $ Change     % Change
Production Service Costs                    $ 5,245   $ 5,050    $    195        4   %
Amortization of Television and Film Costs     5,269     4,677         592       13

The increase in production service costs during the three months ended September 30, 2008, as compared to the same period in 2007, was primarily due to increased production costs for the "Teenage Mutant Ninja Turtles" and "Chaotic" television series, partially offset by decreased production costs for work performed on the . . .