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 March 31, 2002

[ ] 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 1-13638

MARVEL ENTERPRISES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 13-3711775
- ---------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

10 East 40th Street, New York, NY 10016
- ---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)

212-576-4000
----------------------------------------------------
(Registrant's telephone number, including area code)

---------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)

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

At May 1, 2002, the number of outstanding shares of the registrant's common
stock, par value $.01 per share, was 35,284,207 shares of Common Stock.

TABLE OF CONTENTS

Page
----

PART I. FINANCIAL INFORMATION..................................... 1

Item 1. Financial Statements (unaudited)....................... 1

Condensed Consolidated Balance Sheets as of March 31, 2002
and December 31, 2001.............................. 1

Condensed Consolidated Statements of Operations and
Other Comprehensive Income (Loss) for the Three
Months Ended March 31, 2002 and 2001............... 2

Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2002
and 2001........................................... 3

Notes to Condensed Consolidated Financial Statements... 4

Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations.................... 12
General............................................ 12
Results of Operations.............................. 13
Liquidity and Capital Resources.................... 14

PART II. OTHER INFORMATION......................................... 15

Item 1. Legal Proceedings...................................... 15

Item 2. Exhibits and Reports on Form 8-K....................... 16

SIGNATURES......................................................... 16

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MARVEL ENTERPRISES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

March 31, December 31,
2002 2001
---------- -------------
(unaudited)

ASSETS

Current assets:
Cash and cash equivalents........................... $24,657 $21,591
Accounts receivable, net............................ 51,030 35,648
Inventories, net.................................... 20,935 20,916
Income tax receivable............................... 334 334
Deferred financing costs............................ 10,086 9,144
Prepaid expenses and other current assets........... 6,291 12,594
----------- ----------
Total current assets............................ 113,333 100,227

Goodwill, net........................................ 380,181 380,675
Other intangibles, net............................... 904 988
Molds, tools and equipment, net...................... 7,600 8,076
Product and package design costs, net................ 2,359 2,218
Accounts receivable, non current portion............. 8,672 11,890
Deferred charges and other assets.................... 122 139
Deferred financing costs............................. 12,505 13,357
----------- ----------
Total assets.................................... $525,676 $517,570
=========== ==========

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable.................................... $13,680 $13,052
Accrued expenses and other.......................... 39,567 36,210
Current portion of credit facility.................. 9,243 6,172
Administrative claims payable....................... 3,594 3,500
Unsecured creditors payable......................... 5,263 5,239
Deferred revenue.................................... 7,896 7,128
----------- ----------
Total current liabilities....................... 79,243 71,301
----------- ----------
Senior notes........................................ 150,962 150,962
Long term portion of credit facility................ 27,757 30,828
Deferred revenue.................................... 13,637 14,546
----------- ----------
Total liabilities............................... 271,599 267,637
----------- ----------

Redeemable cumulative convertible
exchangeable preferred stock................. 210,686 207,975
---------- ---------
Stockholders' equity
Common stock........................................ 424 421
Additional paid-in capital.......................... 243,406 238,769
Accumulated deficit................................. (166,268) (162,897)
Accumulated other comprehensive loss................ (1,216) (1,380)
----------- ----------
Total stockholders' equity before treasury
stock........................................ 76,346 74,913
Treasury stock....................................... (32,955) (32,955)
----------- ----------
Total stockholders' equity...................... 43,391 41,958
----------- ----------
Total liabilities, redeemable convertible
preferred stock and stockholders' equity........ $525,676 $517,570
=========== ==========

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.

MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)
(unaudited)

Three Months
Ended March 31,
2002 2001
------ -------

Net sales............................................ $57,222 $42,672
Cost of sales........................................ 28,804 24,323
-------- --------
Gross profit......................................... 28,418 18,349
Operating expenses:
Selling, general and administrative............. 18,111 12,196
Depreciation and amortization................... 946 802
Amortization of goodwill and other intangibles.. 85 5,921
-------- --------
Total operating expenses............................. 19,142 18,919
-------- --------
Operating income (loss).............................. 9,276 (570)
Interest expense, net................................ 7,893 7,867
-------- --------
Income (loss) before income taxes.................... 1,383 (8,437)
Income tax expense................................... 623 154
-------- --------
Income (loss) before equity in net loss of joint
venture......................................... 760 (8,591)
Equity in net loss of joint venture.................. -- (96)
-------- --------
Net income (loss).................................... 760 (8,687)
Less: preferred dividend requirement................. 4,131 3,968
-------- --------
Net loss attributable to common stock................ ($3,371) ($12,655)
======== =========
Basic and dilutive net loss per share:
Loss attributable to common stock............... ($0.10) ($0.37)
======== =========
Weighted average number of common shares............. 34,406 33,820
======== =========
Comprehensive income (loss)
Net income (loss)................................. $ 760 ($8,687)
Other comprehensive income........................ 164 --
-------- --------
Comprehensive income (loss)....................... $ 924 ($8,687)
======== =========

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.

MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(unaudited)

Three Months
Ended March 31,
2002 2001
-------- --------

Cash flows from operating activities:

Net income (loss).................................. $760 ($8,687)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)operating
activities:
Depreciation and amortization.................. 1,030 6,722
Amortization of deferred financing costs....... 2,673 342
Deferred income taxes.......................... 494 --
Changes in operating assets and liabilities:
Accounts receivable............................ (15,382) 7,204
Inventories.................................. (19) 10,222
Prepaid expenses and other current assets.... 6,303 (1,185)
Deferred charges and other assets............ 3,235 1,068
Accounts payable, accrued expenses and
other...................................... 4,008 (17,874)
-------- --------
Net cash provided by (used in) operating
activities.................................. 3,102 (2,188)

Cash flows from investing activities:
Payment of administrative claims and
unsecured claims, net........................ 118 (4,065)
Purchases of molds, tools and equipment........ (228) (1,122)
Expenditures for product and package
design cost.................................. (382) (677)
Other intangibles.............................. (1) --
-------- --------
Net cash used in investing activities........ (493) (5,864)
-------- --------
Cash flows from financing activities:
Deferred financing costs....................... (196) --
Exercise of stock options...................... 653 --
-------- --------
Net cash provided by financing activities...... 457 --
-------- --------
Net increase (decrease) in cash and cash
equivalents.................................. 3,066 (8,052)
Cash and cash equivalents, at beginning
of period.................................... 21,591 22,803
-------- --------
Cash and cash equivalents, at end of period........ $24,657 $14,751
======== =========
Supplemental disclosures of cash flow information:
Interest paid during the period................ $9,149 $158
Income taxes, net paid during the period....... 4 76

Non-cash transactions:
Preferred stock dividends...................... 4,131 3,968
Conversion of preferred stock to common
stock........................................ 1,420 3,775
Warrants issued in connection with credit
facility..................................... 2,567 --

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002
(unaudited)

1. BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements of
Marvel Enterprises, Inc. and its subsidiaries (collectively, the "Company") have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The Condensed Consolidated Statements of
Operations and the Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2002 are not necessarily indicative of those for the full
year ending December 31, 2002. Certain prior year amounts have been reclassified
to conform to the current year's presentation. For further information on the
Company's historical financial results, refer to the Consolidated Financial
Statements and Footnotes thereto contained in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001.

2. SIGNIFICANT ACCOUNTING POLICIES

SFAS No. 144, Accounting for Impairment of Long Lived Assets - On August 1,
2001, the FASB issued SFAS No. 144, "Accounting for Impairment of Long Lived
Assets". The Company adopted this pronouncement beginning January 1, 2002. SFAS
No.144 prescribes the accounting for long lived assets (excluding goodwill) to
be disposed of by sale. SFAS No. 144 retains the requirement of SFAS No. 121 to
measure long lived assets classified as held for sale at the lower of its
carrying value or fair market value less the cost to sell. Therefore,
discontinued operations are no longer measured on a net realizable basis and
future operating results are no longer recognized before they occur. The impact
of adopting SFAS No. 144 had no effect on the results of operations or financial
position of the Company.

3. GOODWILL AND OTHER INTANGIBLE ASSETS

Effective July 1, 2002, the Company adopted SFAS No. 141 " Business
Combinations" and effective January 1, 2002, the Company adopted SFAS No. 142 "
Goodwill and Other Intangible Assets." SFAS No. 141 requires business
combinations initiated after July 1, 2001 to be accounted for using the purchase
method of accounting. It also specifies the types of intangible assets that are
required to be recognized and reported separate from goodwill. Under SFAS No.
142, goodwill and other intangibles with indefinite lives are no longer
amortized but are reviewed for impairment annually, or more frequently if
impairment indicators arise. During the first half of 2002, the Company will
perform the first of the required impairment tests of goodwill and indefinite
lived intangible assets as of January 1, 2002 and as such, the Company has not
yet determined what the effects of these tests will be on the results of
operations and financial position of the Company.

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002
(unaudited)

The following table reflects unaudited pro forma results of operations of
the Company, giving effect to SFAS No. 142 as if it were adopted January 1, 2001

Three months ended March 31,
2001 2002
-------- --------

Net loss, attributable to common stock............... ($3,371) ($12,655)
Add back: amortization expense, net of tax........... -- 5,866
-------- --------
Pro forma net loss attributable to
common stock...................................... ($3,371) ($6,789)
======== =========
Basic and diluted net loss per common share:
As reported........................................ ($0.10) ($0.37)
Pro forma.......................................... (0.10) (0.20)

The following table summarizes the activity in goodwill for the periods
indicated:

Three months ended March 31,
2001 2002
--------- ---------

Beginning balance, net............................... $380,675 $414,811
Amortization expense................................. -- 5,866
Decrease due to reduction in valuation allowance
for deferred income taxes......................... (494) --
-------- --------
Ending Balance, net.................................. $380,181 $408,945
========= =========

The following table summarizes other intangibles subject to amortization at the
dates indicated:

March 31, December 31,
2001 2002
--------- --------

Trademarks........................................... $ 1,264 $ 766
Patents.............................................. 3,186 2,695

Accumulated amortization............................. (3,546) (3,461)
--------- --------
Other intangibles, net............................... $ 904 $ 988
========= =========

Amortization expense for other intangibles totaled $85,000 and $54,000 for the
three months ended March 31, 2002 and 2001, respectively. Aggregate amortization
expense for intangible assets is estimated to be:

Nine months ending December 31, 2002................. $193
Year ended December 31, 2003......................... 257
Year ended December 31, 2004......................... 257
Year ended December 2005 and thereafter.............. 197
-------
$904
========

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002
(unaudited)

4. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
March 31, December 31,
2002 2001
-------- --------

Accounts receivable, net, consist of the following:
Accounts receivable............................... $72,869 $52,761
Less allowances for:
Doubtful accounts.............................. (6,264) (5,275)
Advertising, markdowns, returns, volume,
discounts and other.......................... (15,575) (11,838)
-------- --------
Total................................... $51,030 $35,648
======== =========
Inventories, net, consist of the following:
Toys:
Finished goods................................... $10,573 $12,039
Component parts, raw materials and
work-in-process.............................. 2,981 3,849
-------- --------
Total toys............................ 13,554 15,888

Publishing:
Finished goods.................................. 1,793 1,411
Editorial and raw materials..................... 5,588 3,617
-------- --------
Total publishing.............................. 7,381 5,028
-------- --------
Total................................. $20,935 $20,916
======== =========
Molds, tools and equipment, net, consists of
the following:
Molds, tools and equipment....................... $ 3,603 $3,410
Office equipment and other....................... 11,990 12,096
Less accumulated depreciation and amortization... (7,993) (7,430)
-------- --------
Total.................................. $7,600 $8,076
======== =========
Product and package design costs, net, consists
of the following:
Product design costs............................. $2,546 $2,255
Package design costs............................. 955 864
Less accumulated amortization.................... (1,142) (901)
-------- --------
Total.................................. $2,359 $2,218
======== =========
Accrued expenses and other:
Accrued advertising costs......................... $1,679 $1,817
Accrued royalties................................. 3,494 2,737
Inventory purchases............................... 7,548 1,443
Income taxes payable.............................. 1,770 2,051
MEG acquisition accruals.......................... 1,730 1,857
Accrued expenses - Fleer sale including pension
benefits..................................... 3,740 3,946
Pre-acquisition litigation charge................. 3,000 3,000
Accrued interest expense.......................... 5,832 9,971
Other accrued expenses............................ 10,774 9,388
-------- --------
Total................................... $39,567 $36,210
======== =========

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002
(unaudited)

5. DEBT FINANCING

On February 25, 1999, the Company completed a $250.0 million offering of
senior notes in a private placement exempt from registration under the
Securities Act of 1933 ("the Act") pursuant to Rule 144A under the Act. On
August 20, 1999, the Company completed an exchange offer under which it
exchanged virtually all of the senior notes, which contained restrictions on
transfer, for an equal principal amount of registered, transferable senior notes
("Senior Notes"). The Senior Notes are due June 15, 2009 and bear interest at
12% per annum payable semi-annually on June 15th and December 15th. The Senior
Notes may be redeemed beginning June 15, 2004 for a redemption price of 106% of
the principal amount, plus accrued interest. The redemption price decreases 2%
each year after 2004 and will be 100% of the principal amount, plus accrued
interest, beginning on June 15, 2007. In addition, 35% of the Senior Notes may,
under certain circumstances, be redeemed before June 15, 2002 at 112% of the
principal amount, plus accrued interest. Principal and interest on the Senior
Notes are guaranteed on a senior basis jointly and severally by each of the
Company's domestic subsidiaries.

On November 30, 2001, the Company and HSBC Bank USA entered into an
agreement for an $80 million senior credit facility (the "Credit Facility"). The
Credit Facility is comprised of a $20 million revolving letter of credit
facility renewable annually for up to three years and a $60 million multiple
draw three year amortizing term loan facility, which was available until January
31, 2002. Prior to January 31, 2002, the Company drew down $37 million, which
was used to finance the repurchase of a portion of the Company's Senior Notes.
No additional draws were taken by the Company in 2002. The term loan facility
amortizes quarterly over three years with the outstanding principal due and
payable on December 31, 2004. At the option of the Company, the term loans bear
interest either at the lender's base rate plus a margin of 2.5% or the lender's
reserve adjusted LIBOR rate plus a margin of 3.5% (5.4% at December 31, 2001).
The Company may prepay the term loans applying the base rate at any time without
penalty, but may only prepay the LIBOR rate loans without penalty at the end of
the applicable interest period. The letter of credit facility is a one-year
facility subject to annual renewal, expiring on the date, which is five days
prior to the final maturity for the term loan facility. At March 31, 2002, $13.9
million of letters of credit were outstanding. The Credit Facility contains
customary mandatory prepayment provisions for facilities of this nature,
including an excess cash flow sweep. It also contains customary event of default
provisions and covenants restricting the Company's operations and activities,
including the amount of capital expenditures, and also contains certain
covenants relating to the maintenance of minimum net worth and a minimum
interest coverage and leverage ratio and restrictions on paying cash dividends.
The Credit Facility is secured by (a) a first priority perfected lien in all of
the assets of the Company; (b) a first priority perfected lien in all of the
capital stock of each of the Company's domestic subsidiaries; (c) a first
priority perfected lien in 65% of the capital stock of each of the Company's
foreign subsidiaries; and (d) cash collateral to be placed in a cash reserve
account in an amount equal to at least $10 million at the end of each fiscal
quarter.

In consideration for the Credit Facility, the Company issued a warrant to
HSBC to purchase up to 750,000 shares of the Company's common stock. These
warrants have an exercise price of $3.62 and a life of five years. The fair
value for the warrants was estimated at the date of issuance using the
Black-Scholes pricing model with the following assumptions: risk free interest
rate of 4.16%; no dividend yield; expected volatility of 0.924; and expected
life of five years. The aggregate value of $1,980,000 is included in deferred
financing costs on the Condensed Consolidated Balance Sheets and is being
amortized over the term of the Credit Facility using the effective interest
method.

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002
(unaudited)

In connection with the Credit Facility, the Company and Isaac Perlmutter
entered into a Guaranty and Security Agreement. Under the terms of the Guaranty,
Mr. Perlmutter has guaranteed the payment of the Company's obligations under the
Credit Facility in an amount equal to 25% of all principal obligations relating
to the Credit Facility plus an amount, not to exceed $10 million, equal to the
difference between the amount required to be in the cash reserve account
maintained by the Company and the actual amount on deposit in such cash reserve
account at the end of each fiscal quarter; provided that the aggregate amount
guaranteed by Mr. Perlmutter will not exceed $30 million. Under the terms of the
Security Agreement, Mr. Perlmutter has provided the creditors under the Credit
Facility with a security interest in the following types of property, whether
currently owned or subsequently acquired by him: all promissory notes,
certificates of deposit, deposit accounts, checks and other instruments and all
insurance or similar payments or any indemnity payable by reason of loss or
damage to or otherwise with respect to any such property.

In consideration for the Guaranty and Security Agreement, the Company
issued Mr. Perlmutter a warrant to purchase up to five million shares of the
Company's common stock. These warrants have an exercise price of $3.11, a life
of five years and whose exercisability is determined by a calculation reflecting
the amounts guaranteed by Mr. Perlmutter. Based on the amounts guaranteed by Mr.
Perlmutter, 4,603,309 warrants are exercisable at March 31, 2002 (3,867,708
warrants at December 31, 2002). The fair value for the warrants, which became
exercisable during the three months ended March 31, 2002 was estimated at the
date of issuance using the Black-Scholes pricing model with the following
assumptions: risk free interest rate of 4.16%; no dividend yield; expected
volatility of 0.924; and expected life of five years. The aggregate value of the
exercisable warrants was $13,048,735 and is included in the Condensed
Consolidated Balance Sheets as deferred financing costs and is being amortized
as interest expense over the three year term of the Credit Facility using the
effective interest method.

6 SHARES OUTSTANDING

The Condensed Consolidated Statement of Operations presents operations of
the Company for the three months ended March 31, 2002. During the first three
months of 2002, there were conversions of 141,911 shares of preferred stock into
147,443 shares of common stock and 154,500 shares of common stock were issued
upon the exercise of employee stock options. The total number of shares of
common stock outstanding as of March 31, 2002 is 35,068,801, excluding treasury
shares (assuming no conversion of the 8% cumulative convertible exchangeable
preferred stock ("8% Preferred Stock") and no exercise of any outstanding
warrants or employee stock options); assuming conversion of all of the 8%
Preferred Stock, the number of shares outstanding at March 31, 2002 would have
been 56,957,510, assuming conversion of all of the 8% Preferred Stock and
exercise of all warrants and employee stock options, the number of shares would
have been 80,719,027.

7. SEGMENT INFORMATION

Following the Company's acquisition of MEG, the Company realigned its
businesses into three segments: Toy Merchandising and Distributing, Publishing
and Licensing Segments.

Toy Merchandising and Distributing Segment

The toy merchandising and distributing segment designs, develops, markets
and distributes a limited line of toys to the worldwide marketplace. The
Company's toy products are based upon Spider-Man: The Movie as well as
properties that the Company licenses in from other studios such as the Lord of
the Rings (New Line Cinema). The Spectra Star division of the toy merchandising
division designs, produces and sells kites in both the mass market stores and
specialty hobby shops.

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002

(unaudited)

Publishing Segment

The publishing segment creates and publishes comic books principally in
North America. The acquired company has been publishing comic books since 1939
and has developed a roster of more than 4,700 Marvel Characters. The Company's
titles feature classic Marvel Super Heroes, Spider-Man, X-Men, newly developed
Marvel Characters and characters created by other entities and licensed to the
Company.

Licensing Segment

The licensing segment relates to the licensing of or joint ventures
involving the Marvel Characters for use with (i) merchandise and toys, (ii)
promotions, (iii) publishing, (iv) television and film, (v) on-line and
interactive software and (vi) restaurants, theme parks and site-based
entertainment.

Set forth below is certain operating information for the divisions of the
Company.

Three months ended March 31, 2002

Licensing Publishing Toy Biz Corporate Total
--------- ---------- -------- --------- -------
(in thousands)

Net Sales $9,172 $14,559 $33,491 $------- $57,222
Gross Profit 9,157 7,712 11,549 ------- 28,418

Operating (Loss) Income 4,220 3,771 3,762 (2,477) 9,276
EBITDA(1) 4,252 3,775 4,757 (2,477) 10,307

Three months ended March 31, 2001

Licensing Publishing Toy Biz Corporate Total
--------- ----------- -------- --------- -------
(in thousands)

Net Sales $ 5,430 $10,217 $27,025 $------- $42,672
Gross Profit 4,861 8,138 18,349 $------- 5,350
Operating (Loss) Income (2,125) 1,944 1,264 (1,653) (570)
EBITDA(1) 2,739 2,214 (1,653) 6,153 2,853

(1) "EBITDA" is defined as earnings before extraordinary items, interest
expense, taxes, depreciation and amortization. EBITDA does not represent net
income or cash flow from operations as those terms are defined by generally
accepted accounting principles and does not necessarily indicate whether cash
flow will be sufficient to fund cash needs.

MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002
(unaudited)

8. COMMITMENTS AND CONTINGENCIES

Commitments

In June 2000, the Company entered into a merchandise licensing agreement to
manufacture and distribute a line of toys associated with a motion picture
trilogy. The first motion picture in the trilogy was released on December 19,
2001 and the remaining two are expected to be released during the fourth
quarters of 2002 and 2003, respectively. In connection with this licensing
agreement and future minimum royalty obligations, the Company was required to
provide the licensor with a $5.0 million cash payment and a standby letter of
credit in the amount of $10.0 million, which is outstanding at March 31, 2002.

The Company is a party to various other royalty agreements with future
guaranteed royalty payments through 2004. Minimum future obligations under all
royalty agreements are as follows:

(in thousands)

2002..... $5,490
2003..... 5,186
2004..... 50
------
$10,726

The Company remains liable in connection with businesses previously sold.

Legal Matters

The Company is a party to certain legal actions described below. In
addition, the Company is involved in various other legal proceedings and claims
incident to the normal conduct of its business. Although it is impossible to
predict the outcome of any outstanding legal proceeding and there can be no
assurances, the Company believes that its legal proceedings and claims
(including those described below), individually and in the aggregate, are not
likely to have a material adverse effect on its financial condition, results of
operations or cash flows.

Marvel v. Simon. In December 1999, Joseph H. Simon filed in the U.S.
Copyright Office written notices under the Copyright Act purporting to terminate
effective December 7, 2001 alleged transfers of copyright in 1940 and 1941 by
Simon of the Captain America character to the Company's predecessor. On February
24, 2000, the Company commenced an action against Simon in the United States
District Court for the Southern District of New York. The complaint alleges that
the Captain America character was created by Simon and others as a "work for
hire" within the meaning of the applicable copyright statute and that Simon had
acknowledged this fact in connection with the settlement of previous suits
against the Company's predecessors in 1969. The suit seeks a declaration that
Marvel Characters, Inc., not Mr. Simon, is the rightful owner of the Captain
America character. In February 2002, the Court granted the Company's motion for
summary judgment. Simon appealed the Courts decision and the hearing on the
appeal is presently scheduled for June 2002.

judgment that the license of the Mutant X title and certain Marvel characters
did not breach the 1993 X-Men movie license with Fox. Both suits were
consolidated. On August 9, 2001, in response to Fox's motion for a preliminary
injunction and defendants' motion to dismiss Fox's claims, the Court (i) granted
the motion to dismiss all of Fox's claims except for its breach of contract and
copyright claims (ii) granted Fox's motion for a preliminary injunction but only
as to the defendants use of (a) video clips from the X-Men film and/or trailer
in order to promote the new Mutant X series and (b) a logo that is substantially
similar to the logo used by Fox in connection with the X-Men film. The
preliminary injunction will not have a significant effect on the Company's
operations. In January 2002, the United States Appeals Court for the Second
Circuit, in response to Fox's appeal, affirmed the District Court's denial of
Fox's motion for a preliminary injunction to prevent the airing of the Mutant X
series and remanded the case to the District Court for further proceedings
consistent with its opinion. At the present time, the parties are engaged in
pre-trial discovery with a trial on the merits scheduled for November 2002.

MacAndrews & Forbes v. Marvel. On July 25, 2001, a jury verdict was entered
in the Sedgwick County, Kansas District Court in the amount of $3.0 million on a
breach of contract action based on a 1994 toy license between Toy Biz and The
Coleman Company. The complaint alleged that Toy Biz did not fulfill its
obligation to spend certain monies on the advertising and promotion of Coleman's
products. The Company filed and intends to vigorously prosecute an appeal. The
Company was required to post a letter of credit in the amount of the judgment
plus interest. The Company has provided for this judgment during the second
quarter of 2001 in the Consolidated Statement of Operations.

Brian Hibbs, d/b/a Comix Experience v. Marvel. On May 6, 2002, plaintiff
commenced an action on behalf of himself and a purported class consisting of
specialty store retailers and resellers of Marvel comic books against the
Company and Marvel Entertainment Group, Inc.(the "Marvel Defendants") in New
York Supreme Court, County of New York, alleging that the Marvel Defendants
breached their own Terms of Sale Agreement in connection with the sale of comic
books to members of the purported class breached their obligation of good faith
and fair dealing(s), fraudulently induced plaintiff and other members of the
purported class to buy comics and unjustly enriched themselves. The relief
sought in the complaint consists of certification of the purported class and the
designation of plaintiff as its representative, compensatory damages of $8
million on each cause of action and punitive damages in an amount to be
determined at trial. Marvel intends to oppose certification of the purported
class and vigorously defend this action on the merits.

Administration Expense Claims Litigation. The Company has initiated
litigation contesting the amount of certain Administration Expense Claims
submitted to the Company for payment. As of March 31, 2002, the Company has
settled substantially all Administrative Expense Claims and believes the accrual
of $3.5 million is sufficient to provide for its remaining obligations.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURTIES LITIGATION REFORM ACT OF 1995

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" could cause actual results to differ materially from those contained
in forward-looking statements made in this Form 10-Q Quarterly Report and in
oral statements made by authorized officers of the Company. When used in this
Form 10-Q, the words "intend", "estimate", "believe", "expect", and similar
expressions are intended to identify forward-looking statements. In addition,
the following factors, among others, could cause the Company's financial
performance to differ materially from that expressed in any forward-looking
statements made by, or on behalf of, the Company: (i) the Company's potential
inability to successfully implement its business strategy, (ii) a decrease in
the level or a shift in the timing of media exposure or a decrease in popularity
of the Company's characters resulting in declining revenues from products based
on those characters, (iii) the continued financial stability of major licensees
of the Company (iv) the lack of commercial success of properties owned by major
entertainment companies that have granted the Company toy licenses, (v) the lack
of consumer acceptance of new product introductions, (vi) the imposition of
quotas or tariffs on toys manufactured in China as a result of a deterioration
in trade relations between the U.S. and China, (vii) changing consumer
preferences, (viii) production delays or shortfalls, (ix) continued pressure by
certain of the Company's major retail customers to significantly reduce their
toy inventory levels, (x) the impact of competition and changes to the
competitive environment on the Company's products and services, (xi) a decrease
in cash flow effecting the Company's ability to pay the outstanding indebtedness
(xii) changes in technology, (xiii) changes in governmental regulation, and
(xiv) other factors detailed from time to time in the Company's filings with the
Securities and Exchange Commission.

General

Following the Company's acquisition of MEG, the Company realigned its
businesses into three segments: Toy Merchandising and Distributing, Publishing
and Licensing Segments.

Toy Merchandising and Distributing Segment

Publishing Segment

Licensing Segment

Results of Operations

Three months ended March 31, 2002 compared with the three months ended March 31,
2001

The Company's net sales increased approximately $14.6 million to $57.2
million in the first quarter of 2002 from approximately $42.6 million in the
first quarter of 2001. The increase is due to improved performance across each
of the Company's operating segments. Sales from the Toy Biz division increased
approximately $6.5 million to approximately $33.5 million in the first quarter
of 2002 from approximately $27.0 million in the first quarter of 2001 primarily
due to the sales of action figures and accessories based on characters from
Spider-Man: The Movie. Sales from the Publishing division increased
approximately $4.3 million to approximately $14.5 million in the first quarter
of 2002 from $10.2 million in the first quarter of 2001 primarily due to an
increase in the sales of comic books and trade paperbacks to the direct and mass
markets. Sales from the Licensing division increased approximately $3.8 million
to approximately $9.2 million in the first quarter of 2002 from approximately
$5.4 million in the first quarter of 2001 primarily due to an increase in the
number of domestic licenses signed as well as additional revenue from film and
television projects.

Gross profit increased approximately $10.1 million to approximately $28.4
million in the first quarter of 2002 from approximately $18.3 million in the
2001 period. This was primarily due to improved margins across each of the
Company's operating segments. Increases in gross profit of 71% in Licensing, 59%
in Publishing and 42% in Toy Biz as compared to the first quarter of 2001 were
as a result of the increase in net sales as well as lower cost of sales as a
percentage of net sales. Gross profit as a percentage of net sales increased to
approximately 50% in the 2002 period from approximately 43% in the 2001 period.
The gross profit percentage for the Toy Biz division increased to 34% in the
2002 period from 30% in the 2001 period, primarily due to increased sales of
high margin action figures and accessories and fewer close-out sales as compared
to the 2001 period The gross profit percentage for the Publishing division
increased to 53% in the 2002 period from 48% in the 2001 period primarily due to
increased sales of high margin comic books and trade paperbacks. The gross
profit percentage for Licensing remained relatively the same in the first
quarter of 2002 as compared to the first quarter of 2001.

Selling, general and administrative expenses increased approximately $5.9
million to approximately $18.1 million or approximately 32% of net sales in the
first quarter of 2002 from approximately $12.2 million or approximately 29% of
net sales in the first quarter of 2001. The Licensing division accounted for
approximately $2.4 million of the increase, $1.5 million of which is
attributable to additional development costs associated with the X-Men Evolution
television series and approximately $0.7 million attributable to accounts
receivable reserves. The Publishing division accounted for approximately $1.8
million of the increase which was attributable to an increase in distribution
fees as a result of increased sales to the direct market, an increase of $0.4
million in accounts receivable reserves and a $0.6 million donation to the Twin
Towers Fund as a result of sales of its "Heroes" issue. The Toy Biz division
accounted for approximately $0.9 million of the increase primarily due to an
increase in selling expenses, specifically advertising and royalties. This was
partially offset by reimbursement from Toy Biz Worldwide Ltd., an unrelated
entity, for administrative and management support provided. The Corporate
division accounted for $0.8 million of the increase primarily due to an increase
in payroll expenses and professional fees.

Depreciation and amortization expense decreased approximately $5.7 million
to approximately $1.0 million in the 2002 period from approximately $6.7 million
in the 2001 period primarily due to the adoption of SFAS No 142, "Goodwill and
Other Intangible Assets."

Net interest expense remained at $7.9 million in the first quarter of 2002
as compared to the first quarter of 2001. Interest savings from the repurchase
of Senior Notes was offset by the interest expense incurred from the borrowings
associated with the HSBC Credit Facility and the amortization of deferred
financing costs associated with HSBC financing and the Perlmutter Guaranty and
Security Agreement.

The Company's effective tax rate for the quarter was higher than the
federal statutory rate due primarily to foreign and state and local taxes. The

Company has NOLs of $151.5 million, of which $59.3 million is related to the
acquisition of MEG. A portion of these pre-acquisition NOLs, were utilized in
the quarter and reflected as a reduction in goodwill.

Liquidity and Capital Resources

The Company's primary sources of liquidity are cash on hand, cash flows
from operations and from the $20.0 million HSBC letter of credit facility. The
Company anticipates that its primary needs for liquidity will be to: (i) conduct
its business; (ii) meet debt service requirements; (iii) make capital
expenditures; and (iv) pay administration expense claims.

Net cash provided by operating activities was approximately $3.1 million in
the first quarter of 2002 as compared to net cash used in operating activities
of $2.2 million in the first quarter of 2001.

At March 31, 2002, the Company had working capital of $37.2 million.

On November 30, 2001, the Company and HSBC Bank USA entered into an
agreement for an $80 million senior credit facility (the "Credit Facility"). The
Credit Facility is comprised of a $20 million revolving letter of credit
facility renewable annually for up to three years and a $60 million multiple
draw three year amortizing term loan facility, which was available until January
31, 2002. Prior to January 31 ,2002, the Company drew down $37 million, which
was used to finance the repurchase of a portion of the Company's Senior Notes.
No additional draws were taken by the Company in 2002. The term loan facility
amortizes quarterly over three years with the outstanding principal due and
payable on December 31, 2004. At the option of the Company, the term loans bear
interest either at the lender's base rate plus a margin of 2.5% or the lender's
reserve adjusted LIBOR rate plus a margin of 3.5% (5.4% at December 31, 2001).
The Company may prepay the term loans applying the base rate at any time without
penalty, but may only prepay the LIBOR rate loans without penalty at the end of
the applicable interest period. The letter of credit facility is a one-year
facility subject to annual renewal, expiring on the date, which is five days
prior to the final maturity for the term loan facility. At March 31, 2002, $13.9
million of letters of credit were outstanding. The Credit Facility contains
customary mandatory prepayment provisions for facilities of this nature,
including an excess cash flow sweep. It also contains customary event of default
provisions and covenants restricting the Company's operations and activities,
including the amount of capital expenditures, and also contains certain
covenants relating to the maintenance of minimum net worth and a minimum
interest coverage and leverage ratio and restrictions on paying cash dividends.
The Credit Facility is secured by (a) a first priority perfected lien in all of
the assets of the Company; (b) a first priority perfected lien in all of the
capital stock of each of the Company's domestic subsidiaries; (c) a first
priority perfected lien in 65% of the capital stock of each of the Company's
foreign subsidiaries; and (d) cash collateral to be placed in a cash reserve
account in an amount equal to at least $10 million at the end of each fiscal
quarter.

financing costs on the Condensed Consolidated Balance Sheets and is being
amortized over the term of the Credit Facility using the effective interest
method.

The Company believes that cash on hand, cash flow from operations,
borrowings available under the HSBC letter of credit facility and other sources
of liquidity, will be sufficient for the Company to conduct its business, meet
debt service requirements, make capital expenditures and pay Administration
Expense Claims.

PART II. OTHER INFORMATION.

Item 1. Legal Proceedings

X-Men Litigation. In April 2001, Twentieth Century Fox Film Corporation
sued Marvel, Tribune Entertainment Co., Fireworks Communications, Inc. and
Fireworks Television (US), Inc. in the United States District Court, Southern
District of New York, seeking an injunction and damages for alleged breach of
the 1993 X-Men movie license, unfair competition, copyright infringement and
tortuous interference with the contract arising from the Mutant X television
show being produced by Tribune and Fireworks under license from Marvel which was
released in the fall of 2001. On the same day Fox filed the foregoing suit,
Marvel commenced an action against Fox in the same court seeking a declaratory
judgment that the license of the Mutant X title and certain Marvel characters
did not breach the 1993 X-Men movie license with Fox. Both suits were
consolidated. On August 9, 2001, in response to Fox's motion for a preliminary
injunction and defendants' motion to dismiss Fox's claims, the Court (i) granted
the motion to dismiss all of Fox's claims except for its breach of contract and
copyright claims (ii) granted Fox's motion for a preliminary injunction but only
as to the defendants use of (a) video clips from the X-Men film and/or trailer
in order to promote the new Mutant X series and (b) a logo that is substantially
similar to the logo used by Fox in connection with the X-Men film. The
preliminary injunction will not have a significant effect on the Company's
operations. In January 2002, the United States Appeals Court for the Second
Circuit, in response to Fox's appeal, affirmed the District Court's denial of
Fox's motion for a preliminary injunction to prevent the airing of the Mutant X
series and remanded the case to the District Court for further proceedings
consistent with its opinion. At the present time, the parties are engaged in
pre-trial discovery with a trial on the merits scheduled for November 2002.

Administration Expense Claims Litigation. The Company has initiated
litigation contesting the amount of certain Administration Expense Claims
submitted to the Company for payment. As of March 31, 2002 the Company has
settled substantially all Administrative Expense Claims and believes the accrual
of $3.5 million is sufficient to provide for its remaining obligations.

Item 2. Exhibits and Reports on Form 8-K.

a) Exhibits. See the Exhibits Index immediately below.

Exhibits No.

Exhibit 12: Statement re: Computation of Ratios dated as of
March 31, 2002.

b) Reports on Form 8-K

The Registrant did not file any reports on Form 8-K during the quarter
ended March 31, 2001.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.

MARVEL ENTERPRISES, INC.
(Registrant)

Dated: May 15, 2002 By: /s/ F. Peter Cuneo
-------------------
F. Peter Cuneo
President and Chief Executive
Officer, Chief Financial Officer