SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
                   For the fiscal year ended December 31, 2002

                                       OR

[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
ACT OF 1934 For the transition period from ________ to _________

                           Commission File No. 1-13638

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

       Delaware                                      13-3711775
(State of incorporation)                (I.R.S. employer identification number)

                               10 East 40th Street
                            New York, New York 10016
          (Address of principal executive offices, including zip code)

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

           Securities registered pursuant to Section 12(b) of the Act:

      Title of each class             Name of each exchange on which registered
      -------------------             -----------------------------------------
Common Stock, par value $.01 per share        New York Stock Exchange
Preferred Share Purchase Rights               New York Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:

8% Cumulative Convertible Exchangeable Preferred Stock, par value $.01 per share
                            12% Senior Notes due 2009

     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 if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     Indicate by check mark whether the Registrant is an  accelerated  filer (as
defined in Exchange Act Rule 12-b2).  Yes [X]  No [ ]

     The approximate  aggregate market value of the voting and non-voting common
equity held by  non-affiliates  of the  Registrant as of June 28, 2002, the last
business day of the Registrant's most recently  completed second fiscal quarter,
was  $112,263,724  based on a price of $5.48 per share,  the closing sales price
for the  Registrant's  common  stock as reported in the New York Stock  Exchange
Composite  Transaction  Tape on that  date.  As of March 17,  2003,  there  were
61,545,753 outstanding shares of the Registrant's common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

The  information  required by Part III (Items 10, 11, 12 and 13) is incorporated
by  reference  from the  Registrant's  definitive  proxy  statement,  which  the
Registrant intends to file with the Commission not later than 120 days after the
end of the fiscal year covered by this Report.





                                TABLE OF CONTENTS

                                                                           PAGE
PART I
                                                                       
         ITEM 1.       BUSINESS............................................    1
         ITEM 2.       PROPERTIES..........................................    7
         ITEM 3.       LEGAL PROCEEDINGS...................................    7
         ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.    8

PART II
         ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                        STOCKHOLDER MATTERS................................    9
         ITEM 6.       SELECTED FINANCIAL DATA.............................   11
         ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                        CONDITION AND RESULTS OF OPERATIONS................   12
         ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES
                        ABOUT MARKET RISK..................................   24
         ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........   25
         ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                        ACCOUNTING AND FINANCIAL DISCLOSURE................   25

PART III
         ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...  25
         ITEM 11.      EXECUTIVE COMPENSATION...............................  25
         ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                        AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS .....  25
         ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......  25
         ITEM 14.      CONTROLS AND PROCEDURES..............................  26

PART IV
         ITEM 15.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
                        ON FORM 8-K.........................................  26

SIGNATURES..................................................................  31











                                       i




    CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
                PRIVATE SECURITIES 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 herein
concerning the Company's  business and operations  could cause actual results to
differ  materially  from those contained in  forward-looking  statements made in
this Form 10-K Annual Report.  When used in this Form 10-K, 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 the Company:

o    A decrease in the level of media exposure or popularity of our  characters.
     If movies or  television  programs  based upon  Marvel  characters  are not
     successful,  or if certain Marvel characters lose some of their popularity,
     our ability to interest potential licensees in the use of Marvel characters
     in general  could be  substantially  diminished,  as could the royalties we
     receive from current licensees.

o    Financial  difficulties of licensees.  We have granted to a single licensee
     an exclusive  license for the  manufacture  and sale of action  figures and
     accessories  and other lines of toys featuring all of our characters  other
     than those based on movies and TV shows  featuring  Spider-Man and produced
     by Sony.  Our royalties  from sales of toys could be adversely  affected if
     that  licensee,  or any of our  other  significant  licensees,  experienced
     financial difficulties or bankruptcy.

o    Changing consumer preferences.  Our new and existing products (and those of
     our licensees) are subject to changing consumer preferences. In particular,
     products based on feature films are, in general,  successfully marketed for
     only a limited  period  of time  following  the  film's  release.  Existing
     product  lines might not retain their  current  popularity  or new products
     developed  by us or our  licensees  might not meet with the same success as
     current  products.  We and our licensees  might not  accurately  anticipate
     future  trends  or be able to  successfully  develop,  produce  and  market
     products  to take  advantage  of market  opportunities  presented  by those
     trends. Part of our strategy (and our licensees') is to make products based
     on the anticipated success of feature film releases and TV show broadcasts.
     If these releases and broadcasts are not successful, these products may not
     be sold profitably or even at all.

o    Movie-  and  television-production  delays  and  cancellations.  We do  not
     control the decision to proceed with the production of films and television
     programs  based on our  characters or the timing of releases of those films
     and programs.  Delays or  cancellations  of proposed  films and  television
     programs could have an adverse effect on our business.  Dates  expressed in
     this Annual  Report on Form 10-K for the  anticipated  release of films and
     launch dates for television  programs are anticipated  dates only and those
     dates could be delayed or, in some instances, even cancelled.

o    Toy-production  delays  or  shortfalls,   continued  concentration  of  toy
     retailers  and toy  inventory  risk.  The  retail  toy  business  is highly
     concentrated.  The five largest  customers  for the toy  products  which we
     continue to have  manufactured for ourselves  accounted,  in the aggregate,
     for approximately 66% of our total toy sales in 2002. An adverse change in,
     or termination of, the relationship  between us or our major  toy-producing
     licensee  and one or more of our  major  customers  could  have a  material
     adverse effect on us. In addition,  the bankruptcy or other lack of success
     of one or more of our  significant  retailers  could decrease our earnings.
     Although our inventory  risk has been lowered since 2001, our production of
     excess products to meet  anticipated  retailer demand could still result in
     markdowns and increased  inventory  carrying  costs for us on even our most
     popular  items.  If we fail to  anticipate a high demand for our  products,
     however,  we face  the  risk  that we may be  unable  to  provide  adequate
     supplies of popular  toys to retailers  in a timely  fashion,  particularly
     during the Christmas season, and may consequently lose sales.

o    The  imposition of quotas or tariffs on products  manufactured  in China. A
     large  number of our  licensees'  products  (whose  sales may entitle us to
     royalty  payments),  and the toys which continue to be  manufactured on our
     account,  are manufactured in China, which subjects us to risks of currency
     exchange  fluctuations,   transportation  delays  and  interruptions,   and


                                       ii


     political and economic disruptions. Our ability, and that of our licensees,
     to obtain products from Chinese  manufacturers is dependent upon the United
     States' trade  relationship with China. The impositon of trade sanctions on
     China could result in significant  supply disruptions or higher merchandise
     costs  to us.  We and our  licensees  might  not be able to find  alternate
     sources of manufacturing  outside China on acceptable terms even if we want
     or need  to.  Our  inability  or our  licensees'  inability  to find  those
     alternate sources could have a material adverse effect on us.

o    A decrease in cash flow even as we remain indebted to our  noteholders.  We
     are required to pay  approximately  $18 million per year in interest on our
     senior  notes.  A decrease in our cash flow could impair our ability to pay
     that  interest.  If we do not pay  interest on our senior notes when we are
     required  to do so, the  holders of those  notes could cause them to become
     immediately payable in full.

     These forward-looking  statements speak only as of the date of this report.
We do not intend to update or revise any  forward-looking  statements to reflect
events or  circumstances  after the date of this  report,  including  changes in
business strategy or planned capital expenditures,  or to reflect the occurrence
of unanticipated events.


                                       iii



                                     PART I


ITEM 1.      BUSINESS

     Unless the context otherwise requires,  the term "the Company" and the term
"Marvel" each refer to Marvel Enterprises, Inc., a Delaware corporation, and its
subsidiaries.  Certain of the  characters  and  properties  referred  to in this
Report are subject to copyright and/or trademark protection.


Background

     On October 1, 1998,  the  Company,  then known as Toy Biz,  Inc.,  acquired
Marvel  Entertainment  Group,  Inc. ("MEG") out of of bankruptcy and the Company
changed its name to "Marvel  Enterprises,  Inc." Prior to that acquisition,  MEG
was a principal  stockholder  of the  Company and the Company  held a license to
manufacture and sell toys based on Marvel characters.


General

     The  Company  is  one  of  the  world's  most   prominent   character-based
entertainment  companies,  with a proprietary  library of over 4,700 characters.
The Company operates in the licensing,  comic book publishing and toy businesses
in both domestic and international  markets. The Company's library of characters
includes  Spider-Man,  X-Men, The Incredible Hulk,  Daredevil,  Captain America,
Fantastic Four (including Mr.  Fantastic,  Human Torch,  Invisible Woman and The
Thing),  Thor, Silver Surfer, Iron Man, Dr. Strange, and Ghost Rider, and is one
of  the  oldest  and  most   recognizable   collections  of  characters  in  the
entertainment industry.

     The Company's  business is divided into three integrated and  complementary
operating  segments:  its licensing  segment  ("Marvel  Licensing"),  publishing
segment  ("Marvel  Publishing")  and toy  segment  ("Toy  Biz").  For  financial
information  about  Marvel's  segments,  see Note 15 to the  attached  financial
statements.

     The Company and Sony  Pictures  Consumer  Products Inc. have entered into a
joint venture,  called Spider-Man  Merchandising LP, for the purpose of pursuing
licensing  opportunities  relating to characters based upon movies or television
shows  featuring  Spider-Man  and produced by Sony Pictures  Entertainment  Inc.
("Sony  Pictures").  The joint  venture's  current fiscal year ends on March 31,
2003. The Company will file audited financial statements of the joint venture as
an amendment to this Annual  Report on Form 10-K within 90 days of that date, in
accordance with Rule 3-09 of Regulation S-X.

Marvel Licensing

     The Company's Marvel Licensing  division licenses the Company's  characters
for  use in a wide  variety  of  products,  including  toys,  electronic  games,
apparel,  accessories,  footwear,  collectibles and novelties.  Marvel Licensing
also  receives  fees from the sale of licenses to a variety of media,  including
feature films, television programs and destination-based entertainment, and from
the sale of licenses for promotional use.

     Feature Films

     The Company has licensed  Marvel  characters  for  worldwide  use in motion
pictures.  For example, the Company currently has licenses with Sony Pictures to
produce motion  pictures  featuring  Spider-Man,  with Twentieth  Century Fox to
produce motion  pictures  featuring  X-Men and Fantastic Four, with Universal to
produce a motion picture  featuring The Incredible Hulk scheduled for release in
June 2003 and with New Regency to produce a motion picture, released on February
14, 2003, featuring Daredevil.  One X-Men film was released during July 2000 and
a sequel is  presently  scheduled  to be released in May 2003.  Spider-Man:  The
Movie  was  released  in May 2002  and a sequel  is  presently  scheduled  to be
released in May 2004.  Marvel has other  outstanding  licenses with film studios
for a  number  of its  other  characters.  Under  these  licenses,  the  Company
generally retains control over  merchandising  rights and receives not less than
50% of merchandising-based revenue.

                                       1


     Television Programs

     The Company licenses Marvel characters for use in television  programs.  In
2000, Marvel Licensing began production of X-Men Evolution, a half-hour animated
show.  This is  distributed by Warner  Brothers and currently  appears on the WB
Kids!  network  and foreign  television  stations.  In 2001,  a live action show
entitled  Mutant X began  airing on  syndicated  television.  The newest  Marvel
program is a  half-hour  animated  show,  produced by Sony  Pictures,  featuring
Spider-Man.  This show is  scheduled  for  airing  in Summer  2003 on MTV in the
United States, and is being marketed for international distribution.

     Destination-Based Entertainment

     The Company  licenses  Marvel  characters for use at theme parks,  shopping
malls and  special  events.  For  example,  Marvel has  licensed  the  Company's
characters  for use as part of the Islands of  Adventure  theme park in Orlando,
Florida (since 1999) and for use in an attraction,  still under development,  at
the  Universal  Studios  theme  park in Osaka,  Japan.  Another  example  is the
Spider-Man Stunt Show now touring major markets and playing in theatre venues.

     Toy Merchandise

     In July 2001,  the Company  entered into a five and one-half year exclusive
licensing agreement with an unrelated Hong Kong company, Toy Biz Worldwide,  Ltd
("TBW"), for the sale and manufacture of toy action figures and accessories, and
other toys, that feature Marvel characters other than those based upon movies or
television  shows  featuring  Spider-Man and produced by Sony  Pictures.  TBW is
using  the Toy Biz name  for  marketing  purposes  but  Marvel  has  neither  an
ownership interest in TBW nor any financial obligations or guarantees related to
TBW. The agreement  represented a strategic decision by the Company to eliminate
much  of  the  risk  and  investment   previously  associated  with  the  direct
manufacture and sale of these lines of toys while enabling Marvel to participate
in their success  through  ongoing  licensing fees. Toy Biz does product design,
marketing and sales for TBW and is reimbursed for these expenses.

     Consumer Products

     Marvel  licenses  its  characters  for use in a wide  variety  of  consumer
products, including apparel,  interactive games, electronics,  stationery, gifts
and novelties, footwear, collectibles and advertising.

     Promotions

     Marvel  licenses its  characters for use by companies for short term tie-in
promotions that are executed in forms such as premium programs,  sweepstakes and
contests to consumers  and/or the  company's  trade market.  In March 2003,  the
Company   announced  an  international   licensing   agreement  with  Pepsi-Cola
International,  under  which  Pepsi will  introduce  hundreds  of  thousands  of
Marvel-themed soft-drink packages throughout Europe, Asia and other territories.

     Marvel Publishing

     Marvel  Publishing  has been  publishing  comic books  since  1939.  Marvel
Publishing's titles feature classic Marvel super heroes,  newly developed Marvel
characters,  and  characters  created by other  entities  and licensed to Marvel
Publishing.  Marvel's  characters have been developed  through a long history of
comic book plots and storylines  which give each of them their own  personality,
context and depth.

     Marvel  Publishing's  approach  to the  Marvel  characters  is to present a
contemporary  drama  suggestive of real people with real problems.  This enables
the characters to evolve,  remain fresh, and, therefore,  attract new and retain
old readers in each succeeding generation. The Company's characters exist in the
"Marvel  Universe," a fictitious  universe which provides a unifying  historical
and  contextual  background  for the  characters  and  storylines.  The  "Marvel
Universe"  concept  permits  Marvel  Publishing  to use  the  popularity  of its
characters to introduce a new character in an existing Marvel super heroes comic
book or to develop more fully an existing but lesser  known  character.  In this
manner, formerly lesser known characters such as Thunderbolts and Wolverine have
been  developed  and are now  popular  characters  in their  own  right  and are
featured in their own monthly comic books.  The "Marvel  Universe"  concept also

                                       2


allows  Marvel  Publishing  to use its more  popular  characters  to make "guest
appearances" in the comic books of  lesser-known or newer  characters to attempt
to increase the circulation of a particular issue or issues.

     In 2001, Marvel cut back on the number of expensive,  exclusive  agreements
with writers and artists while  establishing new relationships  with some of the
industry's  hottest  creators,  as well as recruiting from outside the industry.
Starting  in 2001,  Marvel  eliminated  the  costly and  inefficient  process of
hand-coloring  books  in favor  of  higher  quality,  less  expensive,  computer
coloring.

     Customers, Marketing and Distribution

     Marvel  Publishing's  primary  target  market for its comic  books has been
teenagers  and  young  adults  in the 13 to 23 year old age  group.  Established
readership of Marvel  Publishing's  comic books also extends to readers in their
mid-thirties.  There are two primary  purchasers  of Marvel  Publishing's  comic
books.  One is the  traditional  purchaser  who buys comic  books like any other
magazine.  The other is the  reader-saver  who purchases comic books,  typically
from a comic book specialty store, and maintains them as part of a collection.

     Marvel  Publishing's comic book publications are distributed  through three
channels:  (i) to comic book  specialty  stores on a  non-returnable  basis (the
"direct market"),  (ii) to traditional retail outlets,  including bookstores and
newsstands,   on  a  returnable  basis  (the  "mass  market")  and  (iii)  on  a
subscription sales basis.

     For the years ended December 31, 2000,  2001 and 2002,  approximately  77%,
80% and 76%, respectively, of Marvel Publishing's net revenues were derived from
sales to the direct market.  Marvel  Publishing  distributes its publications to
the direct  market  through an  unaffiliated  entity  which,  in turn,  services
specialty market  retailers and direct market comic book shops. In 2002,  Marvel
continued its historical policy of printing to order for the direct market, thus
eliminating  the cost of printing  and  marketing  excess  inventory.  In recent
years,  collector  interest  in Marvel has revived  and has  increased  consumer
traffic in the direct market.  The revived interest has been instrumental in not
only  stimulating  market  growth but also  increasing  sales in Marvel's  trade
paperback collections.  Marvel's trade paperbacks are compilations of previously
printed material  collected to tell a "complete"  story. As monthly  periodicals
continued to sell out in 2001 and again in 2002, Marvel  experienced an increase
in demand for the compilations permitting Marvel to achieve a leadership role in
the category of trade paperbacks.

     For the years ended December 31, 2000, 2001 and 2002, approximately 9%, 10%
and 14%,  respectively,  of Marvel  Publishing's  net revenues were derived from
sales to the mass  market.  The  increase  in 2002 was due  partly to  increased
demand for, and an  aggressive  push by the Company of, trade  paperbacks to the
bookstore  market.  This  business,  which puts trade  paperbacks  into the mass
market and in front of general  consumers,  grew more than fivefold from 2001 to
2002.  The Company  believes  that there is still a great deal of growth in this
market for these  products,  and that this is one of the better  ways to attract
new readers to Marvel Publishing.

     Subscription  sales average  approximately 2% to 3% of Marvel  Publishing's
net revenues.

     In addition to revenues  from the sale of comic  books,  Marvel  Publishing
derives revenues from sales of advertising and other publishing  activities such
as  custom  comics.  For the  years  ended  December  31,  2000,  2001 and 2002,
approximately  $5.5  million,  $3.5  million and $5.3 million, respectively,  of
Marvel  Publishing's  net revenues were derived from those  sources.  In most of
Marvel Publishing's comic publications,  ten pages (three glossy cover pages and
seven inside pages) are allocated for  advertising.  Marvel  Publishing  permits
advertisers  to  advertise  in a broad range of Marvel  Publishing's  comic book
publications or to advertise in specific groups of titles whose readership's age
is suited to the advertiser.

Toy Biz

     Toy Biz designs,  develops,  markets and distributes a limited line of toys
to the  worldwide  marketplace.  Toy Biz's  products  are based upon  movies and
television  shows featuring  Spider-Man and produced by Sony Pictures,  and upon
the movie trilogy Lord of the Rings. Toy Biz also does the design,  development,
marketing  and sales  services for TBW for which it is reimbursed by TBW for its
direct costs. The Spectra Star division of Toy Biz (which is presently scheduled
to be closed  mid-2003)  designed,  produced  and  sells  kites in both the mass
market stores and specialty hobby shops.

                                       3


     The toy industry is a highly  competitive  environment  in which large mass
market toy  retailers  dominate the  industry  and feature a large  selection of
toys. In recent years,  entertainment  conglomerates,  through films, television
shows,  video games, the internet and print products,  have emerged as important
content providers for toy manufacturers.  In addition,  continued  consolidation
among  discount-oriented  retailers  can be expected to require toy companies to
keep prices low and to implement and maintain  production and inventory  control
methods  permitting them to respond quickly to changes in demand. In addition to
the competitive  pressures placed on  manufacturers  and  distributors,  the toy
industry is subject to changing  consumer  preferences and significant  seasonal
patterns in sales.

     During 2000,  2001 and 2002,  the only line of products to account for more
than  10% of the  Company's  net  revenue  was  the  line  of  toys  based  upon
Spider-Man:  The Movie,  whose  sales  accounted  for  approximately  37% of the
Company's net revenue in 2002.

     Products

     While Toy Biz has historically  marketed a variety of toy products designed
for children of different age groups,  its current product  strategy is to focus
sales primarily on toys based on the characters in Spider-Man: The Movie and the
animated TV show featuring Spider-Man, and in the Lord of the Rings trilogy. Toy
Biz products are aimed primarily at boys ages 4-12 and collectors.

     Boys'  Products.  In 2001 and  2002,  Toy Biz  developed  a line of  action
figures,  accessories and role play items based upon the Lord of the Rings movie
trilogy produced by New Line Cinema (a division of AOL/Time  Warner).  The first
two pictures were released in December 2001 and December 2002 and the third film
is scheduled to be released during Holiday 2003. In addition,  Toy Biz developed
a line  of  action  figures,  accessories  and  role  play  items  based  on the
characters in Spider-Man: The Movie which was released in May 2002.

     Design and Development

     Toy Biz maintains a product  development staff and also obtains new product
ideas from third-party  inventors.  The time from concept to production of a new
toy can range from six to twelve months, depending on product complexity.

     Toy Biz relies on independent  parties in China to manufacture  most of its
products.  Toy Biz uses Acts Testing  Labs (H.K.)  Ltd.,  a leading  independent
quality-inspection  firm, to maintain close contact with its  manufacturers  and
subcontractors in China and to monitor quality control of Toy Biz products.  Toy
Biz uses an  affiliate  of Acts  Testing  Labs (H.K.)  Ltd.  to provide  testing
services  for a limited  amount of  product  currently  produced  in the  United
States.

     Customers, Marketing and Distribution

     Toy Biz  markets and  distributes  its  products  in the United  States and
internationally,  with sales to customers in the United  States  accounting  for
approximately  72%, 77% and 77% of the Company's net toy sales in 2000, 2001 and
2002, respectively.

     Outlets for Toy Biz's products in the United States  include  specialty toy
retailers, mass merchandisers,  mail order companies and variety stores, as well
as independent distributors who purchase products directly from Toy Biz and ship
them to retail outlets.  The Company's  customer base for toys is  concentrated.
Toy Biz's five largest  customers are Wal-Mart Stores,  Inc., Toys 'R' Us, Inc.,
Target  Stores,  Inc., a division of Target Corp.,  Kay-Bee Toy Stores and Kmart
Corporation, which accounted in the aggregate for approximately 60%, 56% and 66%
of the Company's total toy sales in 2000, 2001 and 2002, respectively.

     Toy Biz has  traditionally  produced its products for foreign  customers to
order,  and sold them "FOB" the place of  manufacture;  starting in 2001,  in an
effort to lower its inventory  risk,  Toy Biz behan selling most of its products
on that basis to its  domestic  customers as well.  When Toy Biz sells  products
"FOB"  place of  manufacture,  title to the  products,  along with risk of loss,
passes to the customer in the Far East, where Toy Biz products are manufactured.
As a result of this  change in sales terms and of the  licensing  to TBW of most
toy lines  previously  manufactured and sold by Toy Biz, Toy Biz today maintains
far

                                       4


less  inventory  than before 2001.  Among the  advantages  of  maintaining  less
inventory is that Toy Biz reduces its risk of producing  more  products than can
be sold;  among the  disadvantages  is that Toy Biz increases its risk of having
fewer products  available,  in the event of unforeseen  demand,  than might have
otherwise been sold.

     Under an  agreement  with TBW,  Toy Biz  provides  services to TBW as sales
representative.

Intellectual Property

     The Company believes that its library of proprietary  characters as well as
its "Marvel" trade name represent its most valuable  assets and that its library
could not be easily replicated. The Company currently conducts an active program
of maintaining  and protecting its  intellectual  property  rights in the United
States  and in  approximately  55 foreign  countries.  The  Company's  principal
trademarks have been  registered in the United States,  certain of the countries
in Western Europe and Latin America,  Asia including many Pacific Rim countries,
the Middle East and Africa.  While the Company has registered  its  intellectual
property in these  countries,  and expects  that its rights will be protected in
these countries,  certain other countries do not have intellectual property laws
that protect United States holders of intellectual  property and there can be no
assurance  that the  Company's  rights will not be  violated  or its  characters
"pirated" in these countries.

Advertising

     Although a portion of the Company's advertising budget for its toy products
is expended for newspaper advertising,  magazine advertising, catalogs and other
promotional  materials,  the Company  allocates  a majority  of its  advertising
budget for its toy products to television  promotion.  The Company advertises on
national television and purchases advertising spots on a local basis. Management
believes that  television  programs  underlying  the Company's toy product lines
increases exposure and awareness.

     The Company  currently  engages  Tangible Media,  Inc. on a  purchase-order
basis to purchase most of its advertising.  Tangible Media, Inc. is an affiliate
of Isaac  Perlmutter.  Mr.Perlmutter  is Vice Chairman of the Company's Board of
Directors, an employee of the Company and the Company's largest stockholder. The
Company retains the services of a media consulting  agency for advice on matters
of advertising creativity.

Competition

     The industries in which the Company competes are highly competitive.

     Marvel  Licensing  competes  with a  diverse  range of  entities  which own
intellectual property rights in characters.  These include D.C. Comics (which is
owned by AOL Time Warner, Inc.), The Walt Disney Company,  Vivendi Universal and
other  entertainment-related  entities.  Many of these  competitors have greater
financial and other resources than the Company.

     Marvel  Publishing  competes with over 500 publishers in the United States.
Some of  Marvel  Publishing's  competitors,  such as D.C.  Comics,  are  part of
integrated  entertainment  companies  and may have greater  financial  and other
resources than the Company.  Marvel Publishing also faces competition from other
entertainment  media,  such as movies and video games,  but management  believes
that it  benefits  from the low price of comic  books in relation to those other
products.

     Toy  Biz  competes  with  many  larger  toy  companies  in the  design  and
development  of new toys, the  procurement  of licenses and for adequate  retail
shelf space for its products.  The larger toy companies  include  Hasbro,  Inc.,
Mattel Inc., and Jakks Pacific. Many of these competitors have greater financial
and other  resources  than the Company.  The toy industry's  highly  competitive
environment continues to place cost pressures on manufacturers and distributors.
Discretionary  spending  among  potential  toy  consumers is limited and the toy
industry competes for those dollars along with the makers of computers and video
games.  Management  believes  that strong  character and product  licenses,  the
industry  reputation  and ability of its senior  management,  the quality of its
products and its overhead and  operational  controls  have enabled the Company's
Toy Biz division to compete successfully.


                                       5


Employees

     As of December 31, 2002,  the Company  employed  approximately  200 persons
(including  operations  in Hong Kong but  excluding  operations  in Mexico  (169
employees),  which are  scheduled  to be closed in  mid-2003.  The Company  also
contracts for creative work on an as-needed basis with over 500 active freelance
writers and artists.  The Company's  employees are not subject to any collective
bargaining agreements.  Management believes that the Company's relationship with
its employees is good.

Financial Information about Geographic Areas

     The following table sets forth revenues from external customers  attributed
to geographic areas:




                                                           Revenue by Geographic Area
                                                                 (in thousands)
                                             2000                                   2001                             2002
                                 .............................          ............................    ............................

                                        U.S.            Foreign             U.S.        Foreign               U.S.          Foreign*

                                                                                                          
Licensing                              $ 13,342         $  5,817         $ 30,309         $  9,703         $ 47,565         $ 31,997
Publishing                               36,826            8,357           40,685            8,819           53,678           10,823
Toys                                    120,378           46,931           70,996           20,712          118,873           36,110
                                       --------         --------         --------         --------         --------         --------
Total                                  $170,546         $ 61,105         $141,990         $ 39,234         $220,116         $ 78,930
                                       ========         ========         ========         ========         ========         ========


* $21,807  of the 2002  Licensing  Foreign  total is  attributable  to  revenues
generated in Hong Kong.

Government Regulations

     The Company is subject to the  provisions of, among other laws, the Federal
Hazardous Substances Act and the Federal Consumer Product Safety Act. Those laws
empower the Consumer Product Safety  Commission (the "CPSC") to protect children
from  hazardous toys and other  articles.  The CPSC has the authority to exclude
from the market articles which are found to be hazardous.  Similar laws exist in
some  states and cities in the United  States,  Canada and  Europe.  The Company
maintains  a quality  control  program  (including  the  inspection  of goods at
factories and the retention of an independent  quality-inspection firm) designed
to ensure compliance with applicable laws.

The Acquisition of MEG

     In  connection  with the Comany's  acquisition  of MEG out of bankruptcy in
October,  1998,  the Company  agreed to pay in cash all  administration  expense
claims  incurred in connection with MEG's  bankruptcy case (the  "Administration
Expense Claims"). Through 1999, the Company paid $33.9 million of Administration
Expense Claims.  During 2000, 2001 and 2002, the Company paid approximately $2.1
million,   $0.5  million  and  $2.2   million,   respectively,   of   additional
Administration  Expense Claims. The Company estimates that it may be required to
pay  approximately  $1.3 million of additional  Administration  Expense  Claims,
although there can be no assurance as to the amount the Company will be required
to pay.

     In accordance with MEG's bankruptcy plan of reorganization  under which the
Company  acquired MEG (the  "Plan"),  two  litigation  trusts were formed on the
consummation  date of the Plan.  Each  litigation  trust is the  legal  owner of
litigation  claims  that  formerly  belonged  to MEG and its  subsidiaries.  The
primary  purpose of one of the trusts (the "Avoidance  Litigation  Trust") is to
pursue bankruptcy  avoidance claims. The primary purpose of the other trust (the
"MAFCO Litigation  Trust") is to pursue certain litigation claims against Ronald
O. Perelman and various related entities and individuals.  The Company agreed to
lend up to $1.1 million to the Avoidance  Litigation  Trust and up to $1 million
to the MAFCO  Litigation  Trust,  in each case on a revolving  basis to fund the
trust's  professional  fees and expenses.  Each litigation trust is obligated to
reimburse the Company for all sums advanced, with simple interest at the rate of
10% per year. Net  litigation  proceeds of each trust will be distributed to the
trust's  beneficiaries  only after the trust has,  among other things,  paid all
sums owed to the Company,  released the Company from any further  obligation  to
make loans to the trust,  and  established  reserves to satisfy  indemnification
claims.  The Company is entitled to 65.1% of net  litigation  proceeds  from the
Avoidance  Litigation  Trust.  The Company is not entitled to any net litigation
proceeds from the MAFCO Litigation  Trust.

                                       6


     Carl C. Icahn and High River Limited  Partnership and Vincent  Intrieri and
Westgate  International L.P. entered into standstill agreements with the Company
on the consummation  date of the Plan. The Standstill  Agreements  terminated on
October 1, 2002.

Available Information

     Marvel's  Internet  address is  www.marvel.com.  Marvel's annual reports on
Form 10-K,  quarterly  reports on Form 10-Q,  current  reports on Form 8-K,  and
amendments  to those  reports are  available,  free of charge,  on our  Internet
website,  and are  posted  there  as soon as  reasonably  practicable  after  we
electronically file them with the Securities and Exchange Commission.


ITEM 2.  PROPERTIES


     The Company has the following principal properties:

Facility                                                     Location                              Square Feet          Owned/Leased
- -----------------------------------------------              ------------------------              -------              ------------
                                                                                                                
Office (1)                                                   New York, New York                     64,300              Leased
Office/Showroom (2)(3)                                       New York, New York                     14,100              Leased
Office/Warehouse (2)                                         Yuma, Arizona                          80,000              Owned
Warehouse (2)                                                Fife, Washington                           (4)             Leased
Manufacturing (2)(5)                                         San Luis, Mexico                      190,000              Owned
Office (3)                                                   Santa Monica, California                4,900              Leased

(1) Used by all segments of the Company.
(2) Used by the Company's toy segment.
(3) Used by the Company's licensing segment.
(4) The lease payments  associated with the warehouse in Fife,  Washington,  are
based on cubic feet,  measured  monthly,  and are subject to change depending on
the capacity devoted to the inventory stored at this location.
(5) Effective April 1, 2003, the property in San Luis,  Mexico will be leased by
the Company to an unaffiliated party.



ITEM 3.  LEGAL PROCEEDINGS

     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 Court's  decision and the hearing on the
appeal was held in June 2002.  On November 7, 2002,  the United  States Court of
Appeals  for the Second  Circuit  reversed  the  decision  of the United  States
District  Court for the  Southern  District  of New York,  which had granted the
Company's  motion for summary  judgment  and remanded the action to the District
Court for trial. A non-jury trial is scheduled to begin on July 16, 2003.

                                       7


     X-Men  Litigation.  In April 2001,  Twentieth  Century Fox Film Corporation
("Fox") 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 tortious interference with a 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.  The case was settled in February 2003. The settlement included an
extension  of time  during  which Fox may  exploit  its  rights in the  "X-Men",
"Daredevil",  and  "Fantastic  Four"  properties.  Additionally,  the settlement
expanded  the  relationship  between Fox and Marvel  whereby  the  parties  will
negotiate  up to three  new film and  television  deals  for  additional  Marvel
properties during the next two years.

     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 an appeal. The Company entered into negotiations and
settled the case in early 2003 at an amount not in excess of the amount provided
for in the accompanying consolidated financial statements.

     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 vigorously to defend against the claims made
in this action on their merits.

     Stan Lee v. Marvel. On November 12, 2002, Stan Lee commenced his previously
threatened  action in the United States District Court for the Southern District
of New York,  alleging  claims for  breach of his  November  1, 1998  employment
agreement.  Mr. Lee claims the right to a 10% profit participation in connection
with the Spider-Man movie and other film and television productions that utilize
Marvel  characters.  Pursuant  to the  terms of the  Employment  Agreement,  the
Company is currently paying Mr. Lee a salary of $1 million per year and believes
that Mr. Lee's claim is without  merit.  Marvel has answered the  complaint  and
denied all material allegations.

     Administration  Expense  Claims  Litigation.  While the Company has settled
substantially  all  Administration  Expense  Claims,  litigation  brought by the
Company to contest some of those claims is still pending.  The Company estimates
that  it may be  required  to  pay  approximately  $1.3  million  of  additional
Administration  Expense  Claims,  although  there can be no  assurance as to the
amount the Company will be required to pay. At December  31,  2002,  the Company
had reserves (established 1998)of $1.3 million for this purpose.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The only matters  submitted to a vote of security holders during the fourth
quarter  of 2002 were  those  voted  upon at the  Company's  Annual  Meeting  of
Stockholders  held on October 15, 2002. At the meeting,  (i) Sid Ganis and James
Halpin were elected as directors and (ii) the  appointment  of Ernst & Young LLP
as the Company's independent accountants for the fiscal year ending December 31,
2002 was ratified.

     For the election of Sid Ganis to the board of directors,  votes cast at the
meeting were 52,152,913 "For" and 206,680 withheld; for the election of James F.
Halpin to the board of directors,  votes cast were 51,469,947  "For" and 889,646
withheld;  and for the  ratification  of the appointment of Ernst & Young LLP as
the Company's  independent  accountants  for the fiscal year ending December 31,
2002, votes cast were 52,259,479  "For" and 73,375  "Against," with 26,738 votes
abstaining. There were no broker non-votes.

                                       8




                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The following table sets forth, for each fiscal quarter indicated, the high
and low closing  prices for the  Company's  common  stock as reported in the New
York Stock Exchange Composite Transaction Tape.


                                                                  
         Fiscal Year                                  High              Low
- --------------------------------------------          --------          --------
         2001
         First Quarter                                $      2.88       $      1.44
         Second Quarter                               $      3.58       $      1.79
         Third Quarter                                $      4.03       $      1.90
         Fourth Quarter                               $      4.15       $      2.24

         2002
         First Quarter                                $      8.35       $      3.55
         Second Quarter                               $      9.15       $      4.70
         Third Quarter                                $      7.15       $      4.15
         Fourth Quarter                               $      9.40       $      6.00



     As of March 17, 2003,  there were 20,271 holders of record of the Company's
common stock.

     The  Company  has not  declared  any  dividends  on the common  stock.  The
indenture  governing the Company's senior notes restricts the Company's  ability
to pay dividends on the common stock.  See Item 7 - Management's  Discussion and
Analysis of Financial Condition and Results of Operations.

     The following table sets forth the securities authorized for issuance under
the Company's equity compensation plan.




- -----------------------------------------------------------------------------------------------
                 Equity Compensation Plan Information as of December 31, 2002
- -----------------------------------------------------------------------------------------------

                                Number of             Weighted               Number of
                             securities to be         average          securities remaining
                               issued upon         exercise price      available for future
                               exercise of         of outstanding         issuance under
                               outstanding       options, warrants  equity compensation plans
                            options, warrants        and rights        (excluding securities
                                and rights                           reflected in column (a))
                           ------------------   ----------------     ------------------------

                                                                       
Plan Category                       (a)                 (b)                     (c)

Equity compensation plans       10,843,502              $   5.00              4,542,916
approved by security
holders

Equity compensation plans
not approved by security
holders                                --                      --                     --

Total                           10,843,502              $   5.00               4,542,916



                                       9


Recent Sales of Unregistered Securities

Exchange Offer

     On October 7, 2002,  the Company  commenced an offer to exchange any or all
of its outstanding 8% Cumulative  Convertible  Exchangeable Preferred Stock, par
value $.01 per share  (the "8%  Preferred  Stock")  for newly  issued  shares of
common  stock at an exchange  rate of 1.39 shares of common stock for each share
of 8% Preferred Stock tendered (the "Exchange Offer"). This rate of exchange was
higher than the rate set forth under the terms of 8% Preferred  Stock,  which is
1.039 shares of common stock for each share of 8% Preferred  Stock. The Exchange
Offer was completed on November 18, 2002, at which time 17,594,937  shares of 8%
Preferred Stock were tendered  resulting in the issuance of 24,456,962 shares of
common stock to tendering  stockholders.  As a result of the Exchange Offer, the
Company recorded a non-cash charge of approximately $55.3 million  (representing
the fair value of the  additional  shares of common stock issued in the Exchange
Offer: the shares, in other words, additional to what would have been issued had
the exchange rate been 1.039) as a preferred dividend.

     The shares of common stock were offered  pursuant to the exemption from the
registration  requirements  of the Securities  Act under Section  3(a)(9) of the
Securities Act. The Exchange Offer was made  exclusively to existing  holders of
8% Preferred  Stock and no  commission or other  remuneration  was paid or given
directly or indirectly for soliciting the Exchange Offer.

Issuances in Connection with the HSBC Credit Facility and Office Lease

     As  consideration  for the  establishment  of its credit facility with HSBC
Bank USA (the "HSBC Credit Facility"), on November 30, 2001, the Company granted
to HSBC  Securities  (USA),  Inc.  ("HSBC  Securities")  five-year  warrants  to
purchase  up to  750,000  shares of common  stock at $3.62 per share  (the "HSBC
Warrants").  The HSBC Warrants were offered  pursuant to the exemption  from the
registration requirements of the Securities Act under Rule 506 of Regulation D.

     HSBC has exercised  all of the HSBC  Warrants.  On December 18, 2002,  HSBC
exercised  500,000 HSBC Warrants in a cashless exercise for 295,110 newly issued
shares of common  stock  (based on a 20-day mean price per share as of that date
of $8.834). On February 6, 2003, HSBC paid to the Company $905,000 and exercised
the  remaining  250,000 HSBC  Warrants in exchange for 250,000  shares of common
stock.  The shares of common stock issued were offered pursuant to the exemption
from the  registration  requirements  of the  Securities  Act under  Rule 506 of
Regulation D.

     Also in connection with the HSBC Credit Facility,  Isaac Perlmutter entered
into a Guaranty and Security Agreement whereby Mr. Perlmutter agreed to guaranty
payment  of a  portion  of the  Company's  obligations  under  the  HSBC  Credit
Facility.  In  consideration  of the  Guaranty and  Security  Agreement  and Mr.
Perlmutter's  guaranty  of  up to a  maximum  of  $4,365,000  of  the  Company's
obligations under its lease for its executive offices,  on January 31, 2002, the
Company  issued to Mr.  Perlmutter  five-year  warrants  to  purchase  4,603,309
million  shares  of common  stock at $3.11 per  share,  which  were  immediately
exercisable.  The  warrants  were  offered  pursuant to the  exemption  from the
registration requirements of the Securities Act under Rule 506 of Regulation D.

Recent Development

     On March 19, 2003, the Company announced that it will convert all remaining
approximately 3.3 million outstanding shares of 8% Preferred Stock at the stated
conversion rate of 1.039 shares of the Company's  common stock per each share of
8% Preferred Stock.

     Under the terms of the 8% Preferred Stock, the Company is able to force the
conversion  of all  outstanding  shares  of 8%  Preferred  Stock  following  the
completion  of 10  consecutive  trading  days on which the closing  price of the
Company's common stock exceeds $11.55 per share.  March 18, 2003 marked the 10th
consecutive  trading day on which the Company's common stock's closing price met
this  criterion.  The Company  will issue  approximately  3.5 million  shares of
common stock in the  conversion,  which is expected to be effective on March 30,
2003.  The  conversion  will  increase  the trading  float and  liquidity of the
Company's  common stock and will  extinguish the Company's  obligation to redeem
any remaining shares of 8% Preferred Stock for $10.00 per share in cash in 2011.

                                       10


     ITEM 6.     SELECTED FINANCIAL DATA

     The following table presents selected consolidated  financial data, derived
from the Company's audited financial statements,  for the five-year period ended
December 31, 2002. The selected financial data of the Company for the year ended
December 31, 1998 is not  comparable to the other years  presented  below due to
the  Company's  acquisition  of MEG on  October  1, 1998.  The  Company  has not
declared  dividends  on its common  stock  during any of the  periods  presented
below.



                                                                                                Year Ended
                                                                                                December 31,
                                                       ----------------------------------------------------------------------------
                                                                1998            1999           2000           2001          2002
                                                               ------          ------         ------         ------        ------
                                                                               (in thousands, except per share amounts)
Statements of Operations
      Data:
                                                                                                           
Net sales..........................                            $232,076      $ 319,645      $  231,651     $ 181,224      $ 299,046
(Loss) income from continuing operations.................       (32,610)       (32,260)        (89,858)      (27,473)        26,774
Loss from continuing operations per common share ........        (1.23)          (1.39)         (3.13)         (1.27)         (1.07)
Extraordinary item.......................................            --         (1,531)            --         32,738             --
Cumulative effect of change in accounting principle (1)..            --             --             --             --         (4,164)
Net (loss) income (2)                                           (32,610)       (33,791)       (89,858)         5,265         22,610
Basic and diluted net loss per common share (2)..........         (1.23)         (1.43)         (3.13)         (0.31)         (1.18)
Preferred dividends......................................         3,380         14,220         15,395         16,034         68,132
Goodwill amortization (1)................................         6,545         24,277         23,769         23,465             --
Pro forma net (loss) income from continuing operations (1)      (26,065)        (7,983)       (66,089)        (4,008)         26,774
Pro forma loss from continuing operations
  per share (1)..........................................         (1.01)         (0.66)         (2.42)         (0.58)         (1.07)
Pro forma net (loss) income (1)..........................       (26,065)        (9,514)       (66,089)        28,730         22,610
Pro forma basic and diluted net (loss) income per
  common share (1).......................................         (1.01)         (0.71)         (2.42)          0.37          (1.18)

                                                                                                December 31,
                                                      -----------------------------------------------------------------------------
                                                                  1998            1999           2000           2001          2002
                                                                 ------          ------         ------         ------        ------
Balance Sheet Data:
Working (deficit) capital ...............................      (133,392)        91,919         43,067         29,990         32,604
Total assets ............................................       689,904        654,637        553,957        517,570        517,519
Borrowings ..............................................       200,000             --             --         37,000             --
Other non-current debt ..................................        27,000        250,000        250,000        150,962        150,962
Redeemable preferred stock ..............................       172,380        186,790        202,185        207,975         32,780
Stockholders' equity ....................................       183,624        135,763         31,396         41,958        242,869




(1)  Had the Company  adopted  SFAS 142 on October 1, 1998 (the date the Company
     acquired  MEG),  the basic and diluted net (loss)  income per common  share
     would have changed to the adjusted amounts indicated above.

(2)  Net loss per common share,  unlike net (loss) income,  is net of preferred
     dividends.

                                       11


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following  discussion  should be read in conjunction with the financial
statements of the Company and the related notes thereto, and the other financial
information included elsewhere in this Report.

     Set forth below is a discussion of the  financial  condition and results of
operations  of the Company for the three fiscal  years ended  December 31, 2002.
Because of the significant effect of the Reorganization on the Company's results
of   operations,   the   Company's   historical   results  of   operations   and
period-to-period comparisons will not be indicative of future results.

Overview

     Net Sales

     The  Company's  net sales  are  generated  from (i)  licensing  the  Marvel
characters for use on merchandise,  toys, promotions,  feature films, television
programs,  theme parks and various other areas;  (ii) publishing comic books and
trade paperbacks,  including related advertising  revenues;  and (iii) marketing
and distributing toys primarily based upon characters from Spider-Man: The Movie
and  characters  from the movie  trilogy based upon Lord of the Rings as well as
kites  through its Spectra  Star  product  line (which is scheduled to be closed
mid-2003).  Licensing,  publishing  and toys  accounted  for  27%,  21% and 52%,
respectively,  of the Company's net sales for the year ended  December 31, 2002.
The Company expects,  however, that, in 2003, licensing will replace toys as the
Company's top  revenue-producing  segment.  The main reason for this anticipated
shift is the fact that in 2002, the best-selling Marvel toys were those based on
Spider-Man:  The Movie.  In 2003, by contrast,  the Marvel toys expected to sell
best (toys  based on The  Incredible  Hulk) are toys  produced  by TBW under its
Marvel  license,  whose revenue to Marvel is classified as royalty income in the
Company's licensing segment. Sales of Spider-Man: The Movie toys are expected to
decline from 2002 to 2003, and the resulting decline in toy revenues is expected
to exceed the anticipated  increase in licensing  revenues related to toys based
on The  Incredible  Hulk.  This  forecast  reduction in overall  revenues is not
anticipated  to  result  in a  decline  in  overall  earnings.  There  can be no
assurances, however, to that effect.

     The  Company's  strategy is to increase  exposure of the Marvel  characters
through its media and promotional licensing  activities,  which it believes will
create  revenue  opportunities  for the Company  through sales of toys and other
licensed merchandise. The Company uses comic book publishing to support consumer
awareness of the Marvel characters and to develop new characters and storylines.

     During  2001,  the Company  entered into a 5 1/2 year  exclusive  licensing
agreement  with TBW for the sale  and  manufacture  of toy  action  figures  and
accessories that feature Marvel characters other than those based upon movies or
television  shows  featuring  Spider-Man and produced by Sony  Pictures.  TBW is
using  the Toy Biz name  for  marketing  purposes  but  Marvel  has  neither  an
ownership interest in TBW nor any financial obligations or guarantees related to
TBW. The agreement  represents a strategic  decision by the Company to eliminate
much of the risk and investment  previously  associated with toys while enabling
Marvel to participate in their success through  ongoing  licensing fees. Toy Biz
does product  design,  marketing and sales for TBW and is  reimbursed  for these
expenses.

     Toy Biz markets and distributes toys associated with Spider-Man:  The Movie
which was  released  in May 2002.  In  addition,  Toy Biz  began  marketing  and
distributing  toys  associated  with the Lord of the Rings toy  license  in 2001
which  coincided  with the  release of the first of the films in the  trilogy in
December of 2001.  This product line  continued in 2002 and  coincided  with the
release of the second film in the trilogy during  December of 2002. This product
line will also  continue in 2003 and will coincide with the release of the third
film in the trilogy during the Holiday 2003 season.

     The  Company  records as revenue  the  present  value of any  contractually
guaranteed  licensing  fees  from  its  licensing  activities  at the  time  the
Company's  characters  are available to the licensee and the  collection of such
licensing  fees is  reasonably  assured.  Guaranteed  licensing  fees  booked as
revenue but not yet  realized  are  recorded  as  receivables.  Licensing  fees,
collected in advance of the period in which  revenue  would be  recognized,  are
recorded as deferred revenue.

                                       12


     Operating Expenses: Cost of Sales

     During the twelve  months  ended  December  31,  2000 and 2001,  there were
generally  no  material  cost of  sales  associated  with the  licensing  of the
Company's  characters.  Beginning in 2002,  expenses  associated  with a revenue
sharing  arrangement  between the Company and Universal  Studios relating to The
Hulk motion  picture,  which is  scheduled  to be  released  in June 2003,  were
charged to Licensing's Cost of Sales.

     Cost of sales for comic book and trade  paperback  publishing  consists  of
art, editorial, and printing costs. Art and editorial costs account for the most
significant portion of publishing cost of sales. Art and editorial costs consist
of compensation  to editors,  writers and artists.  The Company  generally hires
writers and artists on a freelance basis but has exclusive  employment contracts
with certain key writers and artists.

     The Company  out-sources  the  printing of its comic books to  unaffiliated
companies.  The  Company's  cost of  printing  is  subject  to  fluctuations  in
commodity-based products such as paper.

     Cost  of  sales  for the toy  business  consists  of  product  and  package
manufacturing, shipping and agents' commissions. The most significant portion of
cost of sales is product and package manufacturing.  The Company, which utilizes
multiple  manufacturers,  solicits  multiple  bids for each  project in order to
control its  manufacturing  costs.  A  substantial  portion of the Company's toy
manufacturing  takes place in China. A substantial  portion of the Company's toy
manufacturing contracts are denominated in Hong Kong dollars.

     In  the  fourth   quarter  of  2000,  in  connection   with  the  Company's
discontinuation  of toy lines in the game and promotional dolls categories,  the
Company increased its inventory reserve by an additional $3.8 million by writing
down certain  inventories related to those discontinued toy lines. In connection
with the planned discontinuance of the Spectra Star product line within Toy Biz,
the Company increased its inventory reserve by an additional $2.2 million in the
fourth quarter of 2002.

     Operating Expenses: Selling, General and Administrative

     Selling,  general and  administrative  costs consist  primarily of payroll,
royalties related to the Toy Biz segment,  legal costs associated with presently
active litigation matters,  distribution fees related to the Publishing segment,
advertising,  and development costs associated with the X-Men Evolution animated
television series.

     Royalties  are  payable on toys  based on  characters  licensed  from third
parties,  such  as New  Line  Cinema,  as  well as  toys  developed  by  outside
inventors.  Royalty payments are also paid to Sony for toys based on Spider-Man:
The Movie as part of the Company's license agreement with Sony.

     Operating Expenses: Depreciation and Amortization

     For  the  years  ended  December  31,  2000  and  2001,   depreciation  and
amortization   expense   consisted  of   amortization   of  goodwill  and  other
intangibles,  tooling,  product  design and  development,  packaging  design and
depreciation  expense.  Amortization  expense  related to goodwill was amortized
over an assumed 20-year life.  However,  effective  January 1, 2002, the Company
adopted SFAS No. 142,  "Goodwill and Other Intangible  Assets",  and accordingly
will no longer amortize  goodwill but will be subject to annual impairment tests
in  accordance  with the  statement  (See Note 3 to the  Consolidated  Financial
Statements).  The  results  of  the  Company's  goodwill  impairment  tests  are
described  under "Results of Operations of the Company - Year ended December 31,
2002  compared  with year ended  December 31,  2001." The first of the Company's
impairment  reviews,  performed  at  December  31,  2002,  did not  result in an
impairment  charge.  The Company  will perform its future  annual  reviews as of
December 31st of each subsequent year. Amortization expense relating to goodwill
for the years ended December 31, 2000,  2001 and 2002 was $23.8  million,  $23.5
million and $0, respectively.

     Tooling and product design and  development  and packaging  design expense,
which are attributable to the toy business, are normally amortized over the life
of the respective  product.  However, in the fourth quarter of 2000, the Company
wrote down a substantial portion of its tooling,  product design and development
and packaging  design costs by an  additional  $16.8 million in excess of normal
amortization in connection with the discontinuance of certain product categories
and lines.  Amortization of such costs amounted to $29.5 million,  $4.5 million,
and $4.2 million during 2000, 2001 and 2002, respectively.

                                       13


Results of Operations of the Company

     Year ended December 31, 2002 compared with year ended December 31, 2001

     The Company's net revenue increased  approximately $117.8 million or 65% to
$299.0 million for the year ended December 31, 2002 from $181.2 million in 2001.
The improvements across all operating segments are detailed as follows:

o    Toy Biz segment revenues increased by approximately $63.3 million or 69% to
     $155.0 million (from $91.7 million in the 2001 period) primarily due to the
     sales of  action  figures  and  accessories  based on the  characters  from
     Spider-Man:  The Movie. This increase was partially offset by the cessation
     of sales of Marvel  character  based toys,  which effective July 2001, have
     been sold by TBW under a license  agreement.  In  addition,  as part of the
     year 2000  restructuring,  revenue  from  close-out  sales of  discontinued
     products in 2001 were not repeated in 2002.

o    Licensing revenue increased by approximately  $39.5 million or 99% to $79.6
     million (from $40.0 million in the 2001 period).  Factors  contributing  to
     this increase include the Company's participation of $10.4 million relating
     to the box office  receipts and DVD/Video sales and rentals for Spider-Man:
     The Movie as well as an advance  payment of $5.0 million from Sony Pictures
     to begin  production on the sequel of Spider-Man:  The Movie.  Second,  the
     increase  in  realization  of  approximately  $18.6 in royalty  income from
     approximately  $3.2  million  recognized  in  2001 to  approximately  $21.8
     million in 2002  related  to TBW's  sales of  licensed  toy  products.  The
     increase was generated as a result of the  popularity  of Marvel  character
     based toy lines,  and the fact that 2002 represented the first full year of
     the agreement as compared to only six months during 2001.

o    Publishing's  revenue  increased by  approximately  $15.0 million or 30% to
     $64.5 million (from $49.5 million in the 2001 period) due to an increase in
     sales of comic books and trade  paperbacks  to the direct and mass markets.
     Revenue from the direct market  (specialty  comic retail stores)  increased
     approximately  $9.6 million to $48.9 million in 2002 (from $39.3 million in
     2001) and  consists of sales of comic books and trade  paperbacks.  Revenue
     from the mass market (now including  Borders and Barnes & Noble  bookseller
     chains) increased  approximately $5.9 million to $7.0 million in 2002 (from
     $1.1 million in 2001) and consists of trade paperbacks  only.  According to
     the publication Comics & Games Retailer,  Marvel maintained approximately a
     41% share of the North American comic market sold through  specialty  comic
     retail stores in 2002, which compares to a 38% share in 2001.

     Gross  profit  increased  by $64.4  million  to $156.9  million  in 2002 as
compared  to $92.5  million  in 2001.  As was the case  with net  revenue,  each
operating  segment  contributed  to the  increase in gross profit over the prior
year. The Licensing, Toy Biz and Publishing segments' gross profit accounted for
$35.1 million, $21.8 million and $7.5 million of the increase, respectively. The
growth in Licensing  revenues,  where gross  profit as a percentage  of sales is
approximately  94%,  increased in the Company's  consolidated  gross profit as a
percentage of sales to 52% in 2002 from 51% in 2001.  Inventory reserves of $2.2
million  were charged in 2002 to cost of sales in the Toy Biz segment due to the
planned discontinuance of the Spectra Star product line.

     Selling,  general and administrative expenses increased approximately $23.8
million to $85.8 million in 2002 from $62.0 million in 2001.  This was primarily
due to increases across all operating  segments.  The Licensing segment incurred
higher costs of $4.9 million,  primarily  due to $1.8 million of higher  payroll
costs and $2.0 million in advertising  costs. A 2002 increase of $3.3 million in
expenses  in  the  Publishing   segment  was  primarily  due  to  the  increased
distribution  fees of approximately  $2.2 million that relate to increased sales
of comic book and trade  paperbacks to the direct and mass markets.  The Toy Biz
segment  incurred  $7.8  million in higher costs  during 2002  primarily  due to
approximately  $13.7  million  in  increased  royalties  including   accelerated
write-offs of prepaid royalty payments associated with the Lord of the Rings toy
license  as well as  higher  royalties  related  to the  sale of toys  based  on
Spider-Man:  The Movie.  This increase was partially offset by lower advertising
costs of approximately $2.8 million and increased  reimbursement of $5.5 million
(to $7.2 million in 2002) from TBW for  administrative  and  management  support
provided. A 2002 increase of $4.8 million in the Corporate segment was primarily
due to increased legal fees and accrued  estimated  settlement values associated
with  presently  active  litigation  matters  (See  Note 13 to the  Consolidated
Financial Statements - Commitments and Contingencies - Legal Matters for further
details) and higher payroll costs.

                                       14


     For the year ended December 31, 2002, the Company  recognized $13.8 million
in income as compared to losses of $0.3 million in the comparable 2001 period in
connection with its share in a jointly owned limited partnership with Sony whose
purpose is to pursue licensing  opportunities  for motion picture and television
related  merchandise  relating  to the  Spider-Man:  The Movie  characters.  The
Company accounts for the activity of this joint venture under the equity method.

     Depreciation and amortization expense decreased approximately $23.5 million
to  approximately  $5.8  million in the 2002 period  (from  approximately  $29.3
million in the 2001 period)  primarily due to the effect of the adoption of SFAS
No 142,  "Goodwill  and Other  Intangible  Assets",  whereby  periodic  goodwill
amortization  charges  are no longer  recorded  (See Note 3 to the  Consolidated
Financial Statements).

     During  the first  half of 2002,  the  Company  completed  the first of the
impairment  tests of  goodwill  required  under  SFAS  142,  which  was  adopted
effective January 1, 2002. Under the new rules, goodwill is no longer subject to
amortization  but it is reviewed for  potential  impairment,  upon  adoption and
thereafter,  annually or upon the  occurrence  of an impairment  indicator.  The
annual amortization of goodwill, which would have approximated $23.5 million, is
no longer required.  Other intangible assets continue to be amortized over their
useful lives. As a result of completing the required test, the Company  recorded
a charge  retroactive  to the  adoption  date for the  cumulative  effect of the
accounting  change in the initial  amount of $4.6  million,  net of $2.6 million
tax,  representing the excess of the carrying value of the toy merchandising and
distribution  reporting  unit as compared to its  estimated  fair value.  In the
third and fourth quarters of 2002, the Company recorded quarterly adjustments of
$0.2 million and $0.2 million, respectively, to the income tax provision related
to this charge so as to properly  reflect the full year  effective  tax rate. At
December  31,  2002,  the net  cumulative  effect of this  change in  accounting
principle was $4.2 million.

     Interest expense increased  approximately  $12.8 million for the year ended
December 31, 2002 as compared to 2001 primarily due to the accelerated write-off
of deferred financing costs associated with the early repayment of the Company's
three year term bank loan.  Interest expense associated with the term bank loan,
which was outstanding for the majority of 2002 as compared to one month in 2001,
also  contributed  to the  increase  in the 2002  period.  In 2001,  the Company
repurchased  approximately  $99.0 million of its outstanding  senior notes. Cash
interest savings from that repurchase  (approximately $11.9 million on an annual
basis) were exceeded by the non-cash  amortization  of deferred  financing costs
associated  with the HSBC Warrants and the Perlmutter  Guaranty and the Security
Agreement.  Cash interest  expense  aggregated  approximately  $20.8 million and
$27.0 million during the years ended December 31, 2002 and 2001, respectively.

     The Company's  effective tax rate for the twelve months ended  December 31,
2002  (30.8%) was lower than the federal  statutory  rate due  primarily  to the
payment of certain unsecured claims and Administration  Expense Claims (purchase
accounting),  which arose  during the  bankruptcy.  At December  31,  2002,  the
Company has Federal net operating loss  carryforwards  of  approximately  $132.0
million,  which are  scheduled to expire in the years 2017 through  2020. Of the
total Federal loss  carryforwards,  approximately  $39.8 million is subject to a
Section 382 limitation.  A portion of these pre-acquisition NOLs was utilized in
the year ended  December 31, 2002 and  recorded as a $7.9  million  reduction in
goodwill.  Additionally,  the Company has various  state and local net operating
loss carryforwards of approximately $365.4 million, which will expire in various
jurisdictions in years 2005 through 2021. The state and local loss carryforwards
are also generally subject to a Section 382 limitation. As of December 31, 2002,
no value has been ascribed in the accompanying  financial  statements for either
Federal or state and local net operating loss carryforwards.

     The Company evaluates its net deferred tax asset valuation  allowances on a
quarterly basis. The elimination or reduction of these valuation allowances will
occur  in  accordance  with  generally   accepted   accounting   principles  and
management's conclusion that the asset's recoverability will be more likely than
not.

     Year ended December 31, 2001 compared with year ended December 31, 2000

     The Company's net revenue decreased  approximately  $50.4 million to $181.2
million for the year ended  December  31,  2001 from $231.6  million in the 2000
period. Toy Biz revenues were down $75.6 million or 45% primarily as a result of
the  licensing  of Marvel  character  based toys to TBW,  an  unrelated  entity,
effective  July 1, 2001. The decrease in Toy Biz revenues was also the result of
declining sales relating to X-Men motion picture toys, dolls, World Championship
Wrestling  products and Pokemon marbles which were sold through  close-out sales
in order  to  dispose  of this  inventory  according  to the  Company's  plan of
restructuring  for  the  Toy  Biz  division.   Licensing  revenue  increased  by
approximately  $20.9  million  in 2001 from  2000 as a result  of a  substantial
number of licensing agreements signed across a wide array of consumer products

                                       15


such as apparel, electronics,  interactive games, stationery and back to school,
seasonal gifts and novelties,  footwear, and collectibles.  Additional licensing
revenues were also  recognized  from first and second  seasons of our television
series  "X-Men  Evolution"  as well as from  our  licensing  agreement  with TBW
effective July 1, 2001.  Licensees  include such names as Buster Brown,  Haddad,
Encore Software, Universal, Burger King and The Dairy Board. Publishing revenues
increased by  approximately  $4.3 million  primarily  due to increased  sales of
comic books and trade paperbacks to the direct market.

     Gross profit decreased approximately $10.6 million to $92.5 million in 2001
from $103.1  million in 2000.  The  reduction in Toy Biz  division  gross profit
accounted for  approximately  $34.7 million of the decrease  which was partially
offset by an increase in Licensing gross profit of $21.4 million and an increase
in Publishing gross profit of $2.7 million.  Gross Profit as a percentage of net
sales increased to approximately 51% in 2001 from approximately 45% in 2000. The
licensing  and  publishing  divisions  produced  gross  margins of 100% and 52%,
respectively.  The gross profit margin for the Toy Biz division decreased to 29%
in 2001 from  approximately  37% in 2000 due primarily to a higher percentage of
close out sales of Marvel products relating to the X-Men motion picture,  Dolls,
WCW products and Pokemon marbles as well as other activity toys and games,  then
estimated at the end of 2000.

     Selling,  general and administrative expenses decreased approximately $45.5
million to $62.0 million in 2001 from $107.5 million in 2000. Expense reductions
in the toy division  accounted for  approximately  $48.9 million of the decrease
primarily due to lower advertising, royalty, other selling expenses and payroll.
Selling,  general  and  administrative  expense  as a  percentage  of net  sales
decreased to approximately 34% in 2001 from approximately 46% in 2000 mainly due
to cost  reductions  relating to the  elimination of certain high risk and media
intensive product categories and lines from the toy division.  Further, pursuant
to its agreement with TBW, the Company provides TBW certain  administrative  and
management support for which TBW reimburses the Company. Included as a reduction
of  selling,   general  and   administrative   expenses   are  $1.7  million  of
reimbursements received from TBW for services provided during the period July 1,
2001 through December 31, 2001.

     A  pre-acquisition  litigation  charge of $3.0  million  in  regards to the
matter of MacAndrews & Forbes v. Marvel was recorded  during the second  quarter
of 2001.  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 Inc. and The Coleman Company.
The complaint  alleged that Toy Biz Inc. 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  judgement  plus
interest.

     During 2001,  the Company  determined  that  approximately  $3.5 million of
liability related to Administration Expense Claims payable included in the final
purchase price allocation during 1999 was no longer required. A reduction in the
liability,  Administration  Expense  Claims  payable,  was included in operating
results.

     Depreciation and amortization expense decreased approximately $25.1 million
to $5.6 million in 2001 from $30.7  million in 2000  primarily due to additional
amortization expense of $16.8 million recorded in the fourth quarter of 2000 for
accelerated write-offs of tooling,  product design and development and packaging
design  related  to  discontinued  toy  products.  In  addition,  lower  capital
expenditures  of $7.2  million  in 2001 as  compared  to $15.1  million  in 2000
contributed to the decrease in depreciation and amortization.

     Amortization of goodwill and other intangibles  decreased  slightly in 2001
as compared to 2000.

     Interest expense decreased  approximately  $2.7 million to $29.2 million in
2001 from  $31.9  million  in 2000,  primarily  due to the  repurchase  of $99.0
million in principal  of Senior  Notes  during the third and fourth  quarters of
2001.

     During 2001, the Company,  through a series of transactions,  reacquired an
aggregate  $99.0  million  principal  amount of its senior notes at an aggregate
cost of $54.4  million,  including $2.5 million of accrued  interest.  The $99.0
million  principal  amount  includes  $39.2  million with a fair market value of
approximately  $20.0 million  (including  approximately  $0.3 million of accrued
interest) received in satisfaction of advanced licensing fees from a third party
as described in Note 9 to the Consolidated  Financial Statements.  The principal
amount also  includes  $46.6 million  purchased  from Mr.  Perlmutter  for $26.8
million (including  approximately $1.9 million of accrued interest). The Company

                                       16


recorded an extraordinary  gain of $32.7 million,  net of write-offs of deferred
financing fees of $3.2 million and income taxes of $11.3 million

     As a result of the above,  the Company  reported net income of $5.3 million
in 2001  compared  to a net  loss of  $89.9  million  in 2000,  an  increase  of
approximately  $95.2  million.  The  Company  reported  a loss per  share  after
preferred  dividends  of  $0.31  in 2001  compared  to a loss  per  share  after
preferred dividends of $3.13 in 2000.

Liquidity and Capital Resources

     The Company's primary sources of liquidity are cash on hand, cash flow from
operations  and cash  available from the $15.0 million HSBC letter of credit and
$15.0 million credit line facilities.  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 (used in) provided by the  Company's  operations  during the years
ended December 31, 2000,  2001 and 2002 were ($24.2)  million,  $9.9 million and
$75.0 million, respectively.

     At December 31,  2002,  the Company had working  capital of $32.6  million,
including cash of $53.7 million.

     The 8% Preferred  Stock pays quarterly  dividends on a cumulative  basis on
the first  business  day of  January,  April,  July,  and  October in each year,
commencing January 4, 1999. Dividends are payable, at the option of the Board of
Directors,  in  cash,  in  additional  shares  of 8%  Preferred  Stock or in any
combination thereof. The Company is restricted under the indenture governing its
senior notes from making  dividend  payments on the 8% Preferred Stock except in
additional  shares of 8% Preferred  Stock. In an effort to reduce the redemption
requirements  associated  with the  Company's  8% Preferred  Stock,  the Company
completed  an Exchange  Offer on November  18,  2002,  when  approximately  17.6
million (85%) shares of its 8% Preferred Stock were tendered in exchange for its
common stock.  Under the Exchange Offer, 1.39 shares of common stock were issued
for every share of 8% Preferred Stock  tendered.  In the fourth quarter of 2002,
the Company recorded a non-cash charge of $55.3 million  (representing  the fair
value of the  additional  common  shares  issued  in the  Exchange  Offer)  as a
preferred dividend in connection with this exchange.  Earnings per share in 2003
will be impacted by a full-year  effect of the additional  common shares and the
elimination  of the  preferred  stock  dividend  associated  with  those  shares
exchanged.  Under the terms of the 8%  Preferred  Stock,  the Company is able to
force the conversion of all  outstanding  shares of 8% Preferred Stock following
the completion of 10 consecutive  trading days on which the closing price of the
Company's common stock exceeds $11.55 per share.  March 18, 2003 marked the 10th
consecutive  trading day on which the Company's common stock's closing price met
this criterion. As a result, and as the Company announced on March 19, 2003, the
Company will force the conversion of all of the outstanding 8% Preferred  Stock.
The conversion will extinguish the Company's  obligation to redeem any remaining
shares  of 8%  Preferred  Stock  for  $10.00  per  share  in cash in  2011.  The
conversion is expected to be effective on March 30, 2003.

     The Company  estimates  that it may be required to pay  approximately  $1.3
million of additional  Administration  Expense Claims,  although there can be no
assurance as to the amount the Company will be required to pay.

     The  Company  will be required  to make a cash  payment to MEG's  unsecured
creditors  at  such  time as the  amount  thereof  is  determined.  The  Company
initially  deposited  $8 million  into a trust  account to satisfy  the  maximum
amount  of such  payment.  Through  December  31,  2002,  the  Company  received
approximately  $2.2 million from the trust  account,  primarily as a result of a
settlement  with the NBA.  The balance in the trust  account as of December  31,
2002 is approximately $3.0 million.

     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  "Securities  Act") pursuant to Rule 144A under the
Securities  Act. On August 20, 1999,  the Company  completed  an exchange  offer
under which it exchanged  virtually all of those senior notes,  which  contained
restrictions  on  transfer,   for  an  equal  principal  amount  of  registered,
transferable  senior notes (the "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 June 15, 2007. Principal and

                                       17


interest  on the Senior  Notes are  guaranteed  on a senior  basis  jointly  and
severally by each of the Company's domestic subsidiaries.

     During 2001, the Company,  through a series of transactions,  reacquired an
aggregate  $99.0  million  principal  amount of its senior notes at an aggregate
cost of $54.4  million,  including $2.5 million of accrued  interest.  The $99.0
million  principal  amount  includes  $39.2  million with a fair market value of
approximately  $20.0 million  (including  approximately  $0.3 million of accrued
interest) received in satisfaction of advanced licensing fees from a third party
as described in Note 9 to the Consolidated  Financial Statements.  The principal
amount also  includes  $46.6 million  purchased  from Mr.  Perlmutter  for $26.8
million (including  approximately $1.9 million of accrued interest). The Company
recorded an extraordinary  gain of $32.7 million,  net of write-offs of deferred
financing fees of $3.2 million and income taxes of $11.3 million.

     On  October 5, 2001,  the  Company  terminated  its  credit  facility  with
Citibank and replaced $12.4 million of letters of credit  outstanding  under the
facility  with  letters  of  credit   guaranteed  by  Object  Trading  Corp.,  a
corporation wholly owned by Isaac Perlmutter. Mr. Perlmutter is Vice Chairman of
the Company's  Board of Directors,  an employee of the Company and the Company's
largest stockholder.

     On  November  30,  2001,  the  Company  and HSBC Bank USA  entered  into an
agreement for a senior credit facility (the "HSBC Credit Facility") comprised of
a $20 million revolving letter of credit facility  renewable  annually for up to
three years and a $37.0 million  multiple draw three year  amortizing  term loan
facility, which was used to finance the repurchase of a portion of the Company's
Senior Notes. The term loan bore interest at the lender's reserve adjusted LIBOR
rate plus a margin of 3.5%.  On August  30,  2002,  the  Company  prepaid  $10.0
million of the term loan.  In connection  with this early  repayment of the term
loan,  the  Company  recorded a charge of $4.1  million for the  write-off  of a
proportionate share of unamortized  deferred financing costs associated with the
facility.  On December 12, 2002, the Company prepaid the remaining $22.4 million
of the term loan and  recorded  an  additional  charge of $7.7  million  for the
write-off the remaining  unamortized  deferred  financing costs  associated with
this  facility.  Approximately  $15.8  million of  letters of credit  previously
issued  by  Object  Trading  Corp.   were  replaced,   in  connection  with  the
establishment of the HSBC Credit  Facility,  by letters of credit issued by HSBC
Bank USA. On December 18, 2002, the Company  amended the HSBC Credit Facility to
provide for a $15.0 million revolving credit facility and a $15.0 million letter
of credit  facility.  As of December 31, 2002, $8.9 million of letters of credit
were outstanding and there were no borrowings under the HSBC revolver.  The HSBC
Credit Facility  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  tangible net worth and minimum free cash flow. The HSBC
Credit Facility is secured by (a) a first priority  perfected lien in all of the
assets of the Company;  and (b) a first  priority  perfected  lien in all of the
capital stock of each of the Company's domestic  subsidiaries.  Borrowings would
bear interest at prime or LIBOR-plus-2 per annum.

     In consideration for the HSBC Credit Facility,  the Company issued warrants
to HSBC to purchase up to 750,000  shares of the Company's  common stock.  These
warrants had 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 approximately  $2.0 million was initially included
in deferred financing costs. Due to the prepayment of the term loan, the related
unamortized deferred financing costs which were being amortized over the initial
three year term of the HSBC Credit Facility using the effective  interest method
were  subsequently  written off on an accelerated basis as of December 31, 2002.
In December 2002, HSBC exercised 500,000 warrants and received 295,110 shares of
common stock under a Cashless  Exercise Ratio  provision of the warrants.  As of
December  31,  2002,   warrants  to  purchase  250,000  common  shares  remained
outstanding with HSBC and were exercised in February 2003.

     In  connection  with  the HSBC  Credit  Facility,  the  Company  and  Isaac
Perlmutter   entered  into  a  Guaranty  and   Security   Agreement   ("Security
Agreement").  Under the terms of the Guaranty, Mr. Perlmutter has guaranteed the
payment of the Company's obligations under the HSBC Credit Facility in an amount
equal to 25% of all principal  obligations  relating to the HSBC Credit Facility
plus an amount, not to exceed $10.0 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 $30.0 million.  Under the terms of the Security  Agreement,  Mr.
Perlmutter  has provided the  creditors  under the HSBC Credit  Facility  with a
security interest

                                       18


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.  This guaranty  continues with the current HSBC revolving,
and letter of, credit facilities.

     In  consideration  for the  Security  Agreement,  the  Company  issued  Mr.
Perlmutter  immediately  exercisable  warrants on November  30, 2001 to purchase
3,867,708 shares of the Company's common stock.  These warrants have an exercise
price of $3.11 and a life of five years.  The aggregate value of the exercisable
warrants was  approximately  $10.5  million and is included in the  Consolidated
Balance Sheet at December 31, 2001 as deferred financing costs.  During February
2002,  Mr.  Perlmutter  guaranteed  approximately  $4.4 million  relating to the
Company's  corporate office lease agreement as well as certain letters of credit
totaling  approximately  $0.2  million,  which are  included  within his maximum
guarantee  of $30.0  million,  for which the  Company  granted  him  warrants to
purchase 735,601 shares of common stock at an exercise price of $3.11 and a life
of five years.  Based on the cumulative  amounts  guaranteed by Mr.  Perlmutter,
4,603,309  warrants were  exercisable as of December 31, 2002. The fair value of
the  warrants  was  estimated  at the date of issuance  using the  Black-Scholes
option pricing model with the following assumptions:  risk free interest rate of
4.16%; no dividend yield; expected volatility of 0.92; and expected life of five
years. The aggregate value of the exercisable  warrants of  approximately  $13.0
million was included in the  Consolidated  Balance Sheet  starting  November 21,
2001 as deferred  financing  costs.  Due to the prepayment of the Company's term
loan, all related deferred  financing costs,  have initially been amortized over
the initial  three year term of the HSBC  Credit  Facility  using the  effective
interest  method and  subsequently  written  off on an  accelerated  basis as of
December 31, 2002.

     Capital  expenditures  by the Company  during the years ended  December 31,
2000,  2001 and 2002 were  approximately  $15.1  million,  $7.2 million and $3.0
million, respectively.




     The following table sets forth the Company's  Contractual  Cash Obligations
as of December 31, 2002:

   Contractual
 Cash Obligations                Payments Due By Period
- ------------------      --------------------------------------------------------
                                        Less than                         After
(Amounts in thousands)       Total       1 Year   1-3 Years  4-5 Years  5 Years
- ---------------------   ------------   --------   ---------  ---------  --------
                                                         
Long Term Debt              $150,962      $  --      $  --       $ --   $150,962
Operating Leases              13,739      3,383      6,810      2,556        990
                            --------   --------   --------   --------   --------
Total Contractual
Cash Obligations            $164,701   $  3,383   $  6,810   $  2,556   $151,952
                            ========   ========   ========   ========   ========


     The Company is a party to a lease agreement for a public warehouse in Fife,
Washington.  The  lease  payments  associated  with  this  warehouse,  which are
estimated to average  between  $72,000 and $120,000 per year, are based on cubic
feet,  measured  monthly,  and are subject to change  depending  on the capacity
devoted to the inventory stored at this location.

     The Company has a contractual  obligation under a studio agreement to spend
approximately $1.5 million and $1.0 million in advertising for the 2002/2003 and
2003/2004 broadcast years, respectively.




The following table sets forth the Company's Other Commercial Commitments as of
December 31, 2002:

- ------------------------        ------------------------------------------------
 Other Commercial                                    Amount of Commitment
   Commitments                   Total              Expiration Per Period
- ------------------------        ------  ----------------------------------------
                                        Less than                        Over
(Amounts in thousands)                   1 Year  1-3 Years 4-5 Years  5 Years
- ------------------------                -------- --------- ---------  --------
                                                        
Standby Letters of Credit       $8,894   $  250   $8,644    $  --      $   --
                                ------  -------- --------- ---------  --------


                                       19


     The Company is obligated to make payments under various royalty  agreements
of  approximately  $5,296,000 and $35,000  during the years ending  December 31,
2003 and 2004, respectively.

     The Company remains liable in connection  with  businesses  previously sold
and has been  indemnified  against  such  liabilities  by the  purchaser of such
businesses.

     The  Company  believes  that  cash on  hand,  cash  flow  from  operations,
borrowings  available  under the HSBC  credit  facilities  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.

Seasonality

     The Company's annual operating  performance  depends, in large part, on its
sales of toys during the Christmas  selling season.  During 2000, 2001 and 2002,
62%,  45%, and 55%  respectively,  of the  Company's net toy sales were realized
during the second half of the year.  This  seasonality  would  normally  require
significant  use of  working  capital  to build  inventory  during  the year and
require  accurate  forecasting of demand for the Company's  products  during the
Christmas  selling  season.  However,  in order to reduce the financial risk and
uncertainty  associated with its toy business, the Company (i) licensed the sale
and  manufacture  of Marvel toy action  figures and  accessories to TBW with the
exception  of  characters  based  upon  movies  or  television  shows  featuring
Spider-Man  and  produced by Sony  Pictures,  -(ii)  shifted the emphasis of its
business  to  direct  import  and (iii)  eliminated  certain  high risk  product
categories and lines.

Critical Accounting Policies and Estimates

General

     Management's discussion and analysis of our financial condition and results
of operations are based upon our consolidated  financial statements,  which have
been prepared in accordance with accounting principles generally accepted in the
United  States.  We review  the  accounting  policies  we use in  reporting  our
financial  results  on a  regular  basis.  The  preparation  of these  financial
statements  requires us to make estimates and judgments that affect the reported
amounts  of  assets,  future  revenues  from  our  animated  television  series,
liabilities,  revenues and expenses and related  disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates, including those
related to, accounts  receivable,  inventories,  goodwill and intangible assets,
prepaid  royalties,  molds, tools and equipment costs,  product,  package design
costs,  future revenue from episodic television series,  Administration  Expense
Claims  liabilities,  income taxes,  contingencies  and litigation.  We base our
estimates on historical  experience  and on various other  assumptions  that are
believed to be reasonable under the circumstances, the results of which form the
basis for making  judgments  about the carrying value of assets and  liabilities
that are not readily apparent from other sources.  Results may differ from these
estimates due to actual  outcomes  being  different from those on which we based
our assumptions.  These estimates and judgments are reviewed by management on an
ongoing  basis,  and by the Audit  Committee at the end of each quarter prior to
the public release of our financial  results.  We believe the following critical
accounting policies affect our more significant  judgments and estimates used in
the preparation of our consolidated financial statements.

Revenue Recognition

Merchandise Sales, Sales Returns and Customer Allowances

     Merchandise sales,  including toys and all  non-subscription  related comic
book sales are  recorded  when title and risk of  ownership  have  passed to the
buyer.  Appropriate provisions for future returns and other sales allowances are
established based upon historical experience, adjusting for current economic and
other factors affecting the customer.  The Company regularly reviews and revises
when  considered  necessary its estimates of sales returns based  primarily upon
actual returns,  planned product  discontinuances,  and estimate sell-through at
the retail  level.  No provision for sales returns is provided when the terms of
the  underlying  sales do not  permit  the  customer  to return  product  to the
Company.  Historical  return rates for returnable comic book sales are typically
higher than those related to toy sales. However,  sales to the Company's largest
comic book distributor are made principally on a no return basis.

                                       20


Subscription Revenues

     Subscription  revenues  related to our comic book  business  are  generally
collected in advance for a one year subscription and are recognized as income on
a pro rata basis over the subscription period as the comic books are delivered.

License Revenues

     Revenue from  distribution  fees, and licensing of characters  owned by the
Company,  are recorded in accordance  with guidance  provided in Securities  and
Exchange  Commission  Staff Accounting  Bulletin No. 101 "Revenue  Recognition."
Under the  guidelines,  revenue  is  recognized  when the  earnings  process  is
complete.  This is considered to have  occurred when  persuasive  evidence of an
agreement  between the customer and the Company exists,  when the characters are
made available to the licensee,  the fee is fixed or determinable and collection
is reasonably assured.  Receivables from licensees due more than one year beyond
the balance sheet date are discounted to their present value.  Revenues  related
to the licensing of animated  television  series are recorded in accordance with
AICPA  Statement of Position 00-2  "Accounting by Producers or  Distributors  of
Films." Under this Statement of Position  revenue is recognized  when persuasive
evidence of a sale or  licensing  arrangement  with a customer  exists,  when an
episode  is  delivered  in  accordance  with the terms of the  arrangement;  the
license  period of the  arrangement  has begun  and the  customer  can begin its
exhibition, the arrangement fee is fixed or determinable,  and collection of the
arrangement fee is reasonably assured.

     Under the  Company's  revenue  recognition  policy for  licenses  involving
minimum payment obligations to the Company, revenue is often recognized prior to
the collection of all amounts ultimately due.

     Revenue  recognized under license  agreements during the years December 31,
2000, 2001 and 2002 were generated within the following business categories:




                                                      Years Ended December 31,
                                                           (in thousand's)
                                                    2000        2001       2002
                                                   -------    -------    -------
                                                                
Apparel and Accessories                             $5,099    $ 7,718    $11,346
Entertainment (Including studios, themed
  Attractions and electronic games)                $10,049    $14,756    $39,529
Toys                                               $   675    $ 6,363    $24,477
Other                                              $ 3,336    $11,175    $ 4,210
                                                   --------   --------   -------
Totals                                             $19,159    $40,012    $79,562
                                                   ========   ========   =======


Allowance for Doubtful Accounts

     The Company  maintains an allowance  for  doubtful  accounts for  estimated
losses resulting from the inability of our customers to make required  payments.
In evaluating the collectibility of accounts receivable, we consider a number of
factors,  including the age of the accounts, changes in status of the customers'
financial  condition  and other  relevant  factors.  Estimates of  uncollectable
amounts are revised  each  period,  and changes are  recorded in the period they
become known. A significant  change in the level of uncollectable  amounts would
have a significant effect on the Company's results of operations.

Excess and Obsolete Inventory

     The Company writes down excess and obsolete  inventory  equal the estimated
market  value based upon  assumptions  about  future  product  demand,  consumer
trends,  the success of related  feature films,  the  availability  of alternate
distribution channels and overall market conditions.  If actual product demands,
consumer trends and market conditions are less favorable than those projected by
management,  additional inventory  write-downs could be required.  In connection
with the planned  discontinuance  of the Spectra  Star  product  line around mid
2003,  the Company  recorded an  additional  $2.2 million in inventory  reserves
during the fourth  quarter of 2002 and are reflected in the cost of sales of the
Toys segment.

                                       21


Molds and Tools

     Molds and tools are  stated  at cost  less  accumulated  depreciation.  The
Company  owns the  molds  and  tools  used in the  production  of the  Company's
products  by  third-party  manufacturers.   For  financial  reporting  purposes,
depreciation and amortization is computed by the  straight-line  method over the
estimated  selling  life  of  the  related  toys,  which  is  generally  one  to
three-years.  On an ongoing basis, the Company reviews the recoverability of the
carrying value of the molds and tools. The Company  considers  factors including
actual sales,  sell through at the retail level, the overall retail  environment
and  when  applicable,  the  overall  commercial  success  of  the  related  and
comparable feature length movies, television shows and comic books. If the facts
and  circumstances  suggest a change  in useful  lives of the molds and tools or
impairment  in the  carrying  value,  the  useful  lives  are  adjusted  and the
unamortized costs are expensed.

Product and Package Design Costs

     Product  and  package  design  costs are  stated  at cost less  accumulated
depreciation and amortization.  The Company capitalizes costs related to product
and  package  design  when  such  products  are  determined  to be  commercially
acceptable.  Product design costs include costs  relating to the  preparation of
precise detailed  mechanical drawings and the production of sculptures and other
handcrafted  models from which  molds and dies are made.  Package  design  costs
include costs relating to artwork, modeling and printing separations used in the
production of packaging.  For financial  reporting  purposes,  depreciation  and
amortization is computed by the straight-line  method over the estimated selling
life of the related toys,  which is generally one to three-years.  On an ongoing
basis, the Company reviews the  recoverability  of the carrying value of product
and package design costs. The Company  considers factors including actual sales,
sell  through at the retail  level,  the  overall  retail  environment  and when
applicable, the overall commercial success of the related and comparable feature
length movies,  television shows and comic books. If the facts and circumstances
suggest a change in useful  lives of the  product and  package  design  costs or
impairment  in the  carrying  value,  the  useful  lives  are  adjusted  and the
unamortized costs are expensed.

Goodwill and Other Intangibles

     The Company has  significant  goodwill and other  intangible  assets on its
balance  sheet,  which  resulted from the  acquisition  of Marvel  Entertainment
Group,  Inc. in 1998. The valuation and  classification  of these assets and the
assignment of useful amortization lives involves  significant  judgments and the
use of estimates.  We assess the fair value and recoverability of our long-lived
assets,  including  goodwill,  whenever  events and  circumstances  indicate the
carrying  value of an asset may not be recoverable  from  estimated  future cash
flows expected to result from its use and eventual disposition.  In doing so, we
make assumptions and estimates  regarding future cash flows and other factors to
make our determination.  The fair value of our long-lived assets and goodwill is
dependent upon the forecasted performance of our business,  changes in the media
and  entertainment  industry  and  the  overall  economic  environment.  When we
determine  that the carrying  value of our  intangibles  and goodwill may not be
recoverable,  we measure any impairment based upon a forecasted  discounted cash
flow method.

     Effective  January 1, 2002,  the Company  adopted  Statement  of  Financial
Standards No. 142,  "Goodwill and Other Intangible  Assets," and was required to
analyze its goodwill for impairment  issues during the first six months of 2002,
and then on a periodic  basis  thereafter.  Goodwill will no longer be amortized
but will be subject to an annual (or under certain  circumstances more frequent)
impairment test based on its estimated fair value.  Other intangible assets that
meet certain  criteria will continue to be amortized over their useful lives and
will also be  subject  to an  impairment  test based on  estimated  fair  value.
Estimated  fair  value is  typically  less  than  values  based on  undiscounted
operating  earnings  because fair value  estimates  include a discount factor in
valuing future cash flows.  There are many assumptions and estimates  underlying
the determination of an impairment loss.  Another estimate using different,  but
still reasonable,  assumptions  could produce a significantly  different result.
Therefore,  impairment losses could be recorded in the future. The first of such
impairment test was performed during the first six months of 2002 which resulted
in the  recording  of a  one-time  non-cash  charge  with  respect  to  its  toy
merchandising  and  distribution  reporting unit (See Note 3 to the Consolidated
Financial  Statements for further  details.) The Company  performed the first of
its annual  impairment  reviews at  December  31 2002 which did not result in an
impairment charge and will perform its future annual reviews as of December 31st
of each subsequent year.

                                       22


Royalties

     The Company regularly  reviews the  recoverability of its prepaid royalties
and minimum  guaranteed  commitments.  The Company  considers  factors including
actual sales,  sell through at the retail level, the overall retail  environment
and the overall  commercial success of the related and comparable feature length
movies.  During 2002, the Company reviewed the recoverability of prepaid royalty
payments  associated  with the Lord of the Rings toy license.  Due to lower than
anticipated  actual  sales and sell  through at the retail  level,  the  Company
accelerated  the write-off of $7.9 million in prepaid  royalties.  These charges
are reflected in the selling,  general and administrative  expenses for the Toys
segment.

Accounting for Joint Venture

     The Company has entered into a jointly owned limited  partnership with Sony
Pictures  Consumer Products Inc. to pursue licensing  opportunities  relating to
characters  based upon  movies or  television  shows  featuring  Spider-Man  and
produced by Sony Pictures.  The Company  accounts for the activity of this joint
venture under the equity method.  The joint venture began  recognizing  revenues
once Spider-Man: The Movie was released during May 2002.

Commitments and Contingencies

     The Company is a party to certain  legal  actions as  described in Item 3 -
Legal  Proceedings and 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 such
assurances, the Company believes that its legal proceedings and claims including
those  described  in  Item  3 -  Legal  Proceedings,  individually  and  in  the
aggregate,  are not likely to have a material  adverse  effect on its  financial
condition, results of operations or cash flows.

     The   Company   regularly   evaluates   its   litigation   claims  and  its
Administration  Expense Claims payable to provide  assurance that all losses and
disclosures   are  provided  for  in  accordance  with  Statement  of  Financial
Accounting  Standards  No.  5  "Accounting  for  Contingencies".  The  Company's
evaluation of legal matters and  Administration  Expense Claims payable involves
considerable  judgment of management.  The Company engages  internal and outside
legal  counsel  to assist  in the  evaluation  of these  matters.  Accruals  for
estimated  losses,  if any,  are  determined  in  accordance  with the  guidance
provided by SFAS No. 5.

Recent Accounting Pronouncements

     SFAS No. 141 and No. 142,  "Business  Combinations  and  Goodwill and Other
Intangible Assets" - In January 2002, the Company adopted Statement of Financial
Accounting  Standards  No.142,  "Goodwill and Other Intangible  Assets",  ("SFAS
142"),  which  requires  companies  to  stop  amortizing  goodwill  and  certain
intangible  assets  with an  indefinite  useful  life.  SFAS 142  requires  that
goodwill  and  intangible  assets  deemed to have an  indefinite  useful life be
reviewed for impairment upon adoption of SFAS 142 (January 1, 2002) and annually
thereafter.

     Upon  adoption  of SFAS  142 in the  first  quarter  of 2002,  the  Company
initially  recorded a one-time,  non-cash charge of approximately  $4.6 million,
(net of income tax of  approximately  $2.6 million) or $0.12 per share to reduce
the carrying value of its goodwill,  with respect to its toy  merchandising  and
distribution  reporting  unit.  In the third and fourth  quarters  of 2002,  the
Company recorded  adjustments of $0.2 million and $0.2 million,  respectively to
the  initial  income  tax  provision  related to this  charge so as to  properly
reflect the full year  effective  tax rate.  Such charge is  non-operational  in
nature and $4.2 million ($0.11 per share) is reflected as the cumulative  effect
of change in accounting principle in the accompanying  Consolidated Statement of
Operations  for the year ended  December 31,  2002.  The Company  performed  its
annual  impairment  review as of December 31, 2002 and no impairment  charge was
reflected.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets",  effective  for fiscal  years
beginning  after  December  15, 2001.  This  standard  supersedes  SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", and provides a single accounting model for long-lived assets to
be disposed of. The new standard also  supersedes  the provisions of APB Opinion
No. 30 with  regard to  reporting  the  effects of a disposal  of a segment of a
business  and  required  expected  future  operating  losses  from  discontinued
operations  to be displayed in  discontinued  operations in the periods in which
the losses are incurred. SFAS No. 144 was effective for the Company beginning

                                       23


with the first  quarter of 2002 and its adoption did not have a material  impact
on the Company's results of operations or financial position. In April 2002, the
FASB issued SFAS No. 145,  Rescission  of SFAS Nos. 4, 44 and 64,  Amendment  of
SFAS No. 13, and Technical  Corrections  as of April 2000.  SFAS No. 145 revises
the criteria for classifying the extinguishment of debt as extraordinary and the
accounting treatment of certain lease  modifications.  SFAS No. 145 is effective
in fiscal 2003 and is not  expected to have a material  impact on the  Company's
consolidated financial statements.

     In July  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal Activities".  SFAS No. 146 provides guidance on
the  timing  of the  recognition  of  costs  associated  with  exit or  disposal
activities.  The new guidance  requires costs  associated  with exit or disposal
activities  to  be  recognized  when  incurred.   Previous   guidance   required
recognition  of costs at the date of commitment to an exit or disposal plan. The
provisions of the statement are to be adopted  prospectively for exit activities
after  December 31, 2002.  Although SFAS No. 146 may impact the  accounting  for
costs related to exit or disposal  activities  the Company may enter into in the
future,  particularly  the timing of recognition of these costs, the adoption of
the  statement  will not  have an  impact  on the  Company's  present  financial
condition or results of operations.

     SFAS No. 148,  "Accounting  for  Stock-Based  Compensation - Transition and
Disclosure" - On December 31, 2002,  the FASB issued SFAS 148,  "Accounting  for
Stock-Based Compensation - Transition and Disclosure" which provides alternative
methods of  transition to Statement  123's fair value method of  accounting  for
stock-based compensation. SFAS No. 148 also amended the disclosure provisions of
Statement 123 and APB Opinion No. 28, Interim  Financial  Reporting,  to require
disclosure in the summary of significant  accounting  policies of the effects of
an  entity's  accounting  policy with  respect to  stock-based  compensation  on
reported net income and earnings per share in annual and interim statements.

     The Company  accounts for its stock  options  under  Accounting  Principles
Board Opinion No. 25,  "Accounting for Stock Issued to Employees" ("APB 25") and
related  Interpretations.  Under  APB 25,  because  the  exercise  price  of the
Company's employee stock options equals the market price of the underlying stock
on date of grant, no compensation expense is recognized. The Company has elected
to follow the disclosure-only provisions under SFAS No. 148, For the purposes of
SFAS 148 pro forma  disclosures,  the  estimated  fair  value of the  options is
amortized to expense over the options' vesting period.

The Company's pro forma information follows:



                                                                                                      Years Ended December 31,
                                                                                              --------------------------------------
                                                                                                2000            2001         2002
                                                                                              --------         ------       --------
                                                                                               (in thousands, except per share data)

                                                                                                                 
Net (loss) income, as reported ........................................................     $ (89,858)     $   5,265      $  22,610
Net loss attributable to common stock .................................................      (105,253)       (10,769)       (45,522)
Net loss per share attributable to common stock - diluted .............................         (3.13)         (0.31)         (1.18)
Stock based employee compensation cost, net of tax, if FAS 123 was applied ............         3,764          5,226          3,935
Pro forma net (loss) income ...........................................................       (93,622)            39         18,675
Pro forma net loss attributable to common stock .......................................      (109,017)       (15,995)       (49,457)
Pro forma net loss per share attributable to common stock - diluted ...................     $   (3.24)     $   (0.47)     $   (1.28)



ITEM 7A   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company has  operations in Hong Kong. In the normal course of business,
the  operations  are  exposed to  fluctuations  in currency  values.  Management
believes that the impact of currency fluctuations do not represent a significant
risk in the  context of the  Company's  current  international  operations.  The
Company does not generally  enter into derivative  financial  instruments in the
normal  course  of  business,  nor are such  instruments  used  for  speculative
purposes.

     Market risks  related to the Company's  operations  result  primarily  from
changes in interest rates. At December 31, 2002, the Company's Senior Notes bore
interest at a fixed rate, and all of the Company's  outstanding  preferred stock
earns dividends at a fixed rate. A 10% increase or decrease in the interest rate
on the Company's  credit facility might have a significant  future impact on the
Company's financial position or results of operations.  However, the fair market
value of the fixed rate debt and the outstanding preferred stock is sensitive to
changes in interest rates. The Company is subject to the risk

                                       24


that market  interest  rates will decline and the  interest  rates for the fixed
rate debt and the fixed dividend yield on the  outstanding  preferred stock will
exceed the then prevailing market rates. Under its current policies, the Company
does not utilize any interest rate derivative instruments to manage its exposure
to interest rate changes.

     Additional  information  relating to the  Company's  outstanding  financial
instruments  is  included  in Item 7 -  Management  Discussion  and  Analysis of
Financial Condition and Results of Operations.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The  financial  statements  required  by  this  item,  the  report  of  the
independent  auditors  thereon  and the  related  required  financial  statement
schedule  appear on pages F-2 to F-29. See the  accompanying  Index to Financial
Statements  and  Financial  Statement  Schedule on page F-1.  The  supplementary
financial  data required by Item 302 of Regulation S-K appears in Note 16 to the
December 31, 2002 Consolidated Financial Statements.

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

          Not  applicable.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

     The information  required by Item 10 is incorporated herein by reference to
the information appearing under the captions "Election of Directors," "Executive
Officers" and "Section 16(a) Beneficial  Ownership Reporting  Compliance" in the
Company's  definitive proxy statement to be filed not later than April 30, 2003,
with the Securities and Exchange Commission.

Item 11. EXECUTIVE COMPENSATION

     The information  required by Item 11 is incorporated herein by reference to
the information  appearing  under the caption  "Executive  Compensation"  in the
Company's  definitive proxy statement to be filed not later than April 30, 2003,
with the Securities and Exchange Commission.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

     The information  required by Item 12 is incorporated herein by reference to
the  information  appearing  under the caption  "Security  Ownership  of Certain
Beneficial Owners and Management" in the Company's definitive proxy statement to
be filed not later  than  April  30,  2003,  with the  Securities  and  Exchange
Commission.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information  required by Item 13 is incorporated herein by reference to
the information  appearing under the caption "Certain  Relationships and Related
Transactions" in the Company's  definitive proxy statement to be filed not later
than April 30, 2003, with the Securities and Exchange Commission.

                                       25


ITEM  14.  CONTROLS AND PROCEDURES

     Based  upon their  evaluation  of the  Company's  disclosure  controls  and
procedures  as of a date within 90 days of the filing of this Report,  the Chief
Executive  Officer and Chief Financial Officer have concluded that such controls
and procedures are effective. There were no significant changes in the Company's
internal  controls  or in other  factors  that could  significantly  affect such
internal controls subsequent to the date of their evaluation.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a) Documents Filed with this Report

          1. Financial Statements

          See the  accompanying  Index to  Financial  Statements  and  Financial
          Statement Schedule on page F-1.

          2. Financial Statement Schedule

          See the  accompanying  Index to  Financial  Statements  and  Financial
          Statement Schedule on page F-1.

          3. Exhibits

          See the accompanying Exhibit Index immediately below.

     (b) Reports on Form 8-K.

          During  the last  quarter of 2002,  the  Company  filed the  following
          Current Reports on Form 8-K:

          1. Current Report on Form 8-K dated October 4, 2002, reporting Items 5
          and 7.

          2. Current Report on Form 8-K dated November 22, 2002, reporting Items
          5 and 7.

         (c) Exhibits. See the Exhibit Index immediately below.

                                       26


                                            EXHIBIT INDEX

Exhibit No.

2.1       Fourth Amended Joint Plan of Reorganization  for Marvel  Entertainment
          Group,  Inc.  dated July 31,  1998 and filed  with the  United  States
          District  Court for the  District of Delaware on July 31,  1998,  with
          attached  exhibits.  (Incorporated  by reference to Exhibit 2.1 of the
          Company's  Current Report on Form 8-K dated October 13, 1998 and filed
          with the Securities and Exchange Commission on October 14, 1998.)

2.2       Asset  Purchase  Agreement  by and among Fleer  Corp.,  Frank H. Fleer
          Corp. and SkyBox International Inc. and Golden Cycle, LLC, dated as of
          January 29,  1999.  (Incorporated  by  reference to Exhibit 2.2 of the
          Company's  Annual Report on Form 10-K for the year ended  December 31,
          1998.)

3.1       Restated  Certificate of Incorporation.  (Incorporated by reference to
          Exhibit 4.1 of the Company's  Current Report on Form 8-K dated October
          13, 1998 and filed with the  Securities  and  Exchange  Commission  on
          October 14, 1998.)

3.2       Certificate of Amendment of the Restated Certificate of Incorporation.
          (Incorporated  by  reference  to Exhibit 3.2 of the  Company's  Annual
          Report on Form 10-K for the year ended December 31, 2001.)

3.3       Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.3
          of the  Company's  Annual  Report  on Form  10-K  for the  year  ended
          December 31, 2001.)

4.1       Article V of the Restated  Certificate of  Incorporation  (see Exhibit
          3.1, above), defining the rights of holders of Common Stock.

4.2       Article VI of the Restated  Certificate of Incorporation  (see Exhibit
          3.1, above), defining the rights of holders of 8% Preferred Stock.

4.3       Rights Agreement, dated as of August 22, 2000, between the Company and
          American Stock Transfer & Trust Company as Rights Agent,  defining the
          rights of holders of Preferred Share Purchase Rights. (Incorporated by
          reference to Exhibit 4.2 of the Company's  Current  Report on Form 8-K
          dated  August 22,  2000 and filed  with the  Securities  and  Exchange
          Commission on September 12, 2000.)

4.4       Amendment to Rights  Agreement,  dated as of November 30, 2001, by and
          between the Company and  American  Stock  Transfer & Trust  Company as
          Rights  Agent.  (Incorporated  by  reference  to  Exhibit  10.9 of the
          Company's  Current  Report  on Form  8-K  dated  and  filed  with  the
          Securities and Exchange Commission on December 4, 2001.)

4.5       Amendment No. 2 to Rights  Agreement,  dated as of October 7, 2002, by
          and between the Company and American Stock Transfer & Trust Company as
          Rights  Agent.  (Incorporated  by  reference  to  Exhibit  10.1 of the
          Company's  Current  Report on Form 8-K dated October 4, 2002 and filed
          with the Securities and Exchange Commission on October 7, 2002.)

4.6       Indenture,  dated as of  February  25,  1999,  defining  the rights of
          holders of 12% senior  notes due 2009.  (Incorporated  by reference to
          Exhibit 4.2 of the  Company's  Annual Report on Form 10-K for the year
          ended December 31, 1998.)

4.7       Warrant  Agreement,  dated as of November 30, 2001, by and between the
          Company and HSBC Securities (USA), Inc.  (Incorporated by reference to
          Exhibit  4.1 to the  Company's  Current  Report  on Form 8-K dated and
          filed with the  Securities  and  Exchange  Commission  on  December 4,
          2001.)

                                       27


4.8       Warrant  Agreement,  dated as of November 30, 2001, by and between the
          Company and Isaac Perlmutter (Incorporated by reference to Exhibit 4.2
          to the Company's  Current  Report on Form 8-K dated and filed with the
          Securities and Exchange Commission on December 4, 2001.)

10.1      Credit  Agreement.  dated as of November 30, 2001,  by and between the
          Company and HSBC Bank USA.  (Incorporated by reference to Exhibit 10.1
          to the Company's  Current  Report on Form 8-K dated and filed with the
          Securities and Exchange Commission on December 4, 2001.)

10.2      Pledge and Security Agreement, dated as of November 30, 2001, from the
          Company and other grantors referred to therein,  as Grantors,  to HSBC
          Bank USA, as  administrative  agent.  (Incorporated  by  reference  to
          Exhibit  10.2 to the  Company's  Current  Report on Form 8-K dated and
          filed with the  Securities  and  Exchange  Commission  on  December 4,
          2001.)

10.3      Subsidiary  Guaranty,  dated as of November 30, 2001, in favor of HSBC
          Bank USA, as  administrative  agent.  (Incorporated  by  reference  to
          Exhibit  10.3 to the  Company's  Current  Report on Form 8-K dated and
          filed with the  Securities  and  Exchange  Commission  on  December 4,
          2001.)

10.4      Personal Guaranty by Isaac Perlmutter in favor of HSBC Bank USA, dated
          as of November 30, 2001. (Incorporated by reference to Exhibit 10.4 to
          the  Company's  Current  Report on Form 8-K  dated and filed  with the
          Securities and Exchange Commission on December 4, 2001.)

10.5      Stockholders Agreement,  dated as of October 1, 1998, by and among the
          Company,  Avi Arad, the Dickstien  Entities (as defined therein),  the
          Perlmutter  Entities (as defined  therein),  The Chase Manhattan Bank,
          Morgan  Stanley  &  Co.  Incorporated,  and  Whippoorwill  Associates,
          Incorporated, as agent of and/or general partner for certain accounts.
          (Incorporated  by reference to Exhibit 99.4 to the  Company's  Current
          Report on Form 8-K/A dated and filed with the  Securities and Exchange
          Commission on October 16, 1998.)

10.6      Agreement,  dated as of October 4, 2002,  to  Terminate  Stockholders'
          Agreement,  dated as of October 1, 1998, among the Company and various
          of its stockholders. (Incorporated by reference to Exhibit 10.2 of the
          Company's  Current  Report on Form 8-K dated October 4, 2002 and filed
          with the Securities and Exchange Commission on October 7, 2002.)

10.7      Registration  Rights  Agreement,  dated as of October 1, 1998,  by and
          among the Company,  Dickstein & Co., L.P.,  Dickstein Focus Fund L.P.,
          Dickstein International Limited, Elyssa Dickstein, Jeffrey Schwarz and
          Alan Cooper as Trustees  U/T/A/D  12/27/88,  Mark Dickstein,  Grantor,
          Mark  Dickstein  and Elyssa  Dickstein,  as  Trustees  of the Mark and
          Elyssa Dickstein Foundation,  Elyssa Dickstein,  Object Trading Corp.,
          Whippoorwill/Marvel   Obligations   Trust  -  1997,  and  Whippoorwill
          Associates,  Incorporated.  (Incorporated by reference to Exhibit 99.5
          to the Company's Current Report on Form 8-K/A dated and filed with the
          Securities and Exchange Commission on October 16, 1998.)

10.8      Registration  Rights  Agreement,  dated as of December 8, 1998, by and
          among the Company,  Marvel  Entertainment Group, Inc., Avi Arad, Isaac
          Perlmutter,  Isaac  Perlmutter  T.A.,  The  Laura &  Isaac  Perlmutter
          Foundation  Inc., and Zib Inc.  (Incorporated  by reference to Exhibit
          10.4 of the  Company's  Annual  Report on Form 10-K for the year ended
          December 31, 1998.)

10.9      Registration  Rights Agreement,  dated February 25, 1999, by and among
          the Company, certain subsidiaries of the Company, Morgan Stanley & Co.
          Incorporated  and Warburg Dillon Read LLC.  (Incorporated by reference
          to Exhibit 10.5 of the  Company's  Annual  Report on Form 10-K for the
          year ended December 31, 1998.)

10.10     Warrant Shares Registration Right Agreement,  dated as of November 30,
          2001, by and between the Company and Isaac  Perlmutter.  (Incorporated
          by reference to Exhibit 10.5 to the Company's  Current  Report on Form
          8-K dated and filed with the  Securities  and Exchange  Commission  on
          December 4, 2001.)

10.11     Sublease,dated  as of June  9,  2000  between  HSBC  Bank  USA and the
          Company,  as amended by First  Amendment to Sublease dated December 1,
          2000.  (Incorporated  by reference to Exhibit  10.10 of the  Company's
          Annual Report on Form 10-K for the year ended December 31, 2000.)

                                       28


10.12     Master License Agreement, dated as of April 30, 1993, between Avi Arad
          & Associates  and the Company.  (Incorporated  by reference to Exhibit
          10.21 to the  Company's  Registration  Statement on Form S-1,  File No
          33-87268.)

10.13     Separation  Agreement  made  on July  16,  1999  by and  between  Eric
          Ellenbogen and the Company. (Incorporated by reference to Exhibit 10.3
          of the  Company's  Quartely  Report on Form 10-Q for the quarter ended
          June 30, 1999.)*

10.14     Employment  Agreement between the Company and F. Peter Cuneo, dated as
          of July 19,  1999.  (Incorporated  by reference to Exhibit 10.4 of the
          Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
          1999.)*

10.15     Amendment to  Employment  Agreement,  dated as of December 2, 2002, by
          and between the Company and F. Peter Cuneo.*

10.16     Employment  Agreement,  dated as of September 30, 1998, by and between
          Avi Arad and the Company.  (Incorporated by reference to Exhibit 10.14
          of the  Company's  Annual  Report  on Form  10-K  for the  year  ended
          December 31, 1998.)*

10.17     Amendment to  Employment  Agreement  with Avi Arad dated January 2001.
          (Incorporated  by reference to Exhibit 10.14 of the  Company's  Annual
          Report on Form 10-K for the year ended December 31, 2001.)

10.18     Employment  Agreement by and between the Company and Alan Fine,  dated
          as of August 13, 2001.*

10.19     Employment  Agreement,  dated as of  October  29,  1999,  between  the
          Company and Richard Ungar. (Incorporated by reference to Exhibit 10.19
          to the  Company's  Annual  Report  on Form  10-K  for the  year  ended
          December 31, 1999.)*

10.20     Amendment to Employment Agreement,  dated as of April 9, 2002, between
          the Company and Richard Ungar.  (Incorporated  by reference to Exhibit
          10.1 to the  Company's  Quarterly  Report on Form 10-Q for the quarter
          ended June 30, 2002.)*

10.21     Loan Out Agreement,  dated as of October 29, 1999, between the Company
          and Brentwood Television Funnies,  Inc.  (Incorporated by reference to
          Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year
          ended December 31, 1999.)*

10.22     Employment  Agreement,  dated as of  October  29,  1999,  between  the
          Company and Allen S.  Lipson.  (Incorporated  by  reference to Exhibit
          10.21 to the  Company's  Annual Report on Form 10-K for the year ended
          December 31, 1999.)*

10.23     Amendment  No. 1 to  Employment  Agreement,  dated as of November  21,
          2002, by and between the Company and Allen S. Lipson.*

10.24     Amended and Restated  Employment  Agreement,  dated as of November 21,
          2002, by and between the Company and Allen S. Lipson.*

10.25     Employment  Agreement,  dated as of  January  26,  2000,  between  the
          Company and Bill Jemas. (Incorporated by reference to Exhibit 10.22 to
          the Company's  Annual Report on Form 10-K for the year ended  December
          31, 1999.)*

10.26     Employment  Agreement,  dated as of November 30, 2001,  by and between
          the  Company  and Isaac  Perlmutter.  (Incorporated  by  reference  to
          Exhibit  10.6 to the  Company's  Current  Report on Form 8-K dated and
          filed with the  Securities  and  Exchange  Commission  on  December 4,
          2001.)*

10.27     Employment  Agreement,  dated as of May 28,  2002,  by and between the
          Company and Kenneth P. West.*

                                       29


10.28     Employment  Agreement,  dated as of  November  30,  1998,  between the
          Company and Stan Lee.  (Incorporated  by  reference to Exhibit 10.1 to
          the  Company's  Quarterly  Report on Form 10-Q for the  quarter  ended
          September 30, 2002.)

10.29     1998 Stock  Incentive Plan.  (Incorporated  by reference to Annex A of
          the Company's  Information  Statement on Schedule 14C,  filed with the
          Securities and Exchange Commission on December 30, 1998.)*

10.30     Amendment No. 1 to the 1998 Stock  Incentive  Plan.  (Incorporated  by
          reference to Appendix D of the Company's  Proxy  Statement on Schedule
          14A, filed with the  Securities and Exchange  Commission on January 3,
          2003.)*

10.31     Nonqualified Stock Option Agreement, dated as of November 30, 2001, by
          and  between  the  Company  and  Isaac  Perlmutter.  (Incorporated  by
          reference to Exhibit 10.7 to the Company's  Current Report on Form 8-K
          dated  and  filed  with the  Securities  and  Exchange  Commission  on
          December 4, 2001.)

10.32     Amended and  Restated  Proxy and Stock Option  Agreement,  dated as of
          November  19,  1997,  among  the  Company,  Isaac  Perlmutter,   Isaac
          Perlmutter  T.A.  and Zib Inc.  (Incorporated  by reference to Exhibit
          10.1 to the Company's  Current  Report on Form 8-K dated  November 24,
          1997).

10.33     Amended and  Restated  Proxy and Stock Option  Agreement,  dated as of
          November 19, 1997, between the Company and Avi Arad.  (Incorporated by
          reference to Exhibit 10.2 to the Company's  Current Report on Form 8-K
          dated November 24, 1997.)

10.34     Voting  Agreement,  dated as of November  30,  2001,  by and among the
          Registrant,   Avi  Arad,  Isaac  Perlmutter,   Morgan  Stanley  &  Co.
          Incorporated,  and  Whippoorwill  Associates,  Incorporated,  as agent
          and/or general partner for its discretionary  accounts.  (Incorporated
          by reference to Exhibit 10.8 to the Company's  Current  Report on Form
          8-K  dated  and  filed  with the  Securities  Exchange  Commission  on
          December 4, 2001.)

10.35     Notes  Purchase  Agreement,  dated as of  November  30,  2001,  by and
          between  the  Registrant  and  Isaac   Perlmutter.   (Incorporated  by
          reference to Exhibit 10.10 to the Company's Current Report on Form 8-K
          dated and filed with the Securities Exchange Commission on December 4,
          2001.)

10.36     Waiver  Agreement,  dated as of May 14, 2001,  among the Company,  the
          guarantors  party  thereto,  the lenders  party  thereto and Citibank,
          N.A.,  as  Agent,  Collateral  Agent  and  Issuer.   (Incorporated  by
          reference to Exhibit 10.1 to the  Company's  Quarterly  Report on Form
          10-Q for the quarter ended March 31, 2001.)

10.37     Copyright  Security  Agreement,  dated as of May 14, 2001, made by the
          Company and the guarantors party thereto, in favor of Citibank,  N.A.,
          as Collateral Agent. (Incorporated by reference to Exhibit 10.2 to the
          Company's  Quarterly  Report on Form 10-Q for the quarter  ended March
          31, 2001.)

10.38     Security  Agreement  dated as of May 14, 2001, made by the Company and
          the  guarantors  party  thereto,  in  favor  of  Citibank,   N.A.,  as
          Collateral  Agent.  (Incorporated  by reference to Exhibit 10.3 to the
          Company's  Quarterly  Report on Form 10-Q for the quarter  ended March
          31, 2001.)

10.39     Agreement  (concerning  letters of  credit)  dated  August  23,  2001,
          between Object Trading Corp., the Company and Marvel Characters,  Inc.
          (Incorporated by reference to Exhibit 10.1 to the Company's  Quarterly
          Report on Form 10-Q for the quarter ended September 30, 2001.)

21        Subsidiaries of the Registrant.

23.1      Consent of Independent Auditors.

23.2      Consent of Independent Auditors.

                                       30


23.3      Consent of  Independent  Auditors.

24        Power of attorney (included on signature page hereto).

99.1      Certification by Chief Executive  Officer  pursuant to  Sarbanes-Oxley
          Act.

99.2      Certification by Chief Financial Officer pursuant to  Sarbanes-Oxley
          Act.


*Management contract or compensatory plan or arrangement.





                                   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.

                                        MARVEL ENTERPRISES, INC.

                                        By:/s/----------------------
                                        Allen S. Lipson
                                        President and Chief Executive Officer
                                        Date: March 20, 2003

                                       31


                                POWER OF ATTORNEY

     Each person whose signature  appears below hereby  constitutes and appoints
Allen  S.  Lipson  his true  and  lawful  attorney-in-fact  with  full  power of
substitution  and  resubstitution,  for him and in his name, place and stead, in
any and all  capacities,  to sign any and all  amendments  to this Report and to
cause the same to be filed,  with all  exhibits  thereto and other  documents in
connection  therewith,  with the  Securities  and  Exchange  Commission,  hereby
granting to said  attorney-in-fact  and agent full power and authority to do and
perform  each and every act and thing  whatsoever  requisite  or desirable to be
done in and about the  premises,  as fully to all  intents  and  purposes as the
undersigned  might or could do in person,  hereby  ratifying and  confirming all
acts and things that said  attorney-in-fact  and agent,  or his  substitutes  or
substitute, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.





Signature                                                     Title                                                   Date
- ---------                                                     ------                                                  -------
                                                                                                                  
/s/__________________                                         President and Chief Executive Officer                   March 20, 2003
Allen S. Lipson                                               (principal executive officer)

/s/__________________                                         Chief Financial Officer                                 March 20, 2003
Kenneth P. West                                               (principal financial and accounting officer)

/s/__________________                                         Chairman of the Board of Directors                      March 20, 2003
Morton E. Handel

/s/__________________                                         Director, Vice Chairman of the Board of Directors       March 20, 2003
Isaac Perlmutter

/s/__________________                                         Director                                                March 20, 2003
F. Peter Cuneo

/s/__________________                                         Director                                                March 20, 2003
Avi Arad

/s/__________________                                         Director                                                March 20, 2003
Sid Ganis

/s/__________________                                         Director                                                March 20, 2003
Richard Solar

/s/__________________                                         Director                                                March 20, 2003
James F. Halpin

/s/__________________                                         Director                                                March 20, 2003
Lawrence Mittman


                                       32


                                  CERTIFICATION

I, Allen S. Lipson,  president and chief  executive  officer of the  registrant,
certify that:

1. I have reviewed this annual report on Form 10-K of Marvel Enterprises, Inc.;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and


     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.


Date:  March 20, 2003                      /s/--------------------------
                                           Allen S. Lipson
                                           President and Chief Executive Officer
                                           principal executive officer

                                       33


                                  CERTIFICATION

I, Kenneth P. West, chief financial officer of the registrant, certify that:

1. I have reviewed this annual report on Form 10-K of Marvel Enterprises, Inc.;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and


     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.


Date:   March 20, 2003                          /s/--------------------------
                                                Kenneth P. West
                                                Chief Financial Officer
                                                principal financial officer


                                       34


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                 AND CONSOLIDATED FINANCIAL STATEMENTS SCHEDULES






                                                                                                                             
Marvel Enterprises, Inc
Report of Independent Auditors .......................................................................................          F-2
Consolidated Balance Sheets as of December 31, 2001 and  2002 ........................................................          F-3
Consolidated Statements of Operations for the years ended December 31, 2000, 2001 and 2002 ...........................          F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended
December 31, 2000, 2001 and 2002 .....................................................................................          F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001, and 2002 ..........................          F-6
Notes to Consolidated Financial Statements ...........................................................................          F-7

Consolidated Financial Statement Schedule
Schedule II-Valuation and Qualifying Accounts ........................................................................          F-30

     All other schedules prescribed by the accounting regulations of the
Commission are not required or are inapplicable and therefore have been omitted.




                                       F-1



                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders of Marvel Enterprises, Inc.

     We have  audited the  accompanying  consolidated  balance  sheets of Marvel
Enterprises, Inc. as of December 31, 2002 and 2001, and the related consolidated
statements of operations,  stockholders'  equity and comprehensive  income,  and
cash flows for each of the three years in the period  ended  December  31, 2002.
Our audits also include the financial  statement schedule listed in the Index at
Item 14(a).  These financial  statements and schedule are the  responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

     We conducted our audits in accordance with the auditing standards generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in  all  material  respects,  the  consolidated  financial  position  of  Marvel
Enterprises, Inc. at December 31, 2002 and 2001, and the consolidated results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 2002, in conformity  with  accounting  principles  generally
accepted in the United States.  Also, in our opinion,  the related  consolidated
financial statement schedule, when considered in relation to the basic financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.

     As discussed in Note 3 to the consilidated financial statements, on January
1, 2002, the Company  adopted  Statement of Financial  Accounting  Standards No.
142, "Goodwill and Other Intangible Assets".


                                                           /S/ ERNST & YOUNG LLP

New York, New York
February 21, 2003

                                      F-2






                           MARVEL ENTERPRISES, INC.

                               DECEMBER 31, 2002

                          CONSOLIDATED BALANCE SHEETS


                                                                                                           December 31, December 31,
                                                                                                                2001         2002
                                                                                                            (in thousands, except
                                                                                                                 share data)
                                                                                                                          
ASSETS
Current assets:
  Cash and cash equivalents ......................................................................       $  21,591        $  53,690
  Accounts receivable, net .......................................................................          35,648           43,420
  Inventories, net ...............................................................................          20,916           16,036
  Income tax receivable ..........................................................................             334               --
  Distribution receivable from joint venture, net.................................................              --            2,102
  Deferred financing costs .......................................................................           9,144              667
  Prepaid expenses and other current assets ......................................................          12,594            6,700
                                                                                                         ---------        ---------
        Total current assets .....................................................................         100,227          122,615

Molds, tools and equipment, net ..................................................................           8,076            6,997
Product and package design costs, net ............................................................           2,218              859
Goodwill, net ....................................................................................         380,675          365,604
Intangibles, net .................................................................................             988              649
Accounts receivable, non-current portion .........................................................          11,890           17,284
Deferred financing costs .........................................................................          13,357            3,446
Other assets .....................................................................................             139               65
                                                                                                         ---------        ---------
        Total assets .............................................................................       $ 517,570        $ 517,519
                                                                                                         =========        =========

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable ...............................................................................       $  13,052        $  11,607
  Accrued expenses and other current liabilities .................................................          35,146           48,371
  Current portion of credit facility .............................................................           6,172               --
  Administration Expense Claims payable ..........................................................           3,500            1,303
  Unsecured creditors payable ....................................................................           5,239            3,034
  Deferred revenue ...............................................................................           7,128           25,696
                                                                                                         ---------        ---------
        Total current liabilities ................................................................          70,237           90,011
Senior notes .....................................................................................         150,962          150,962
Long term  portion of credit facility ............................................................          30,828               --
Accrued rent .....................................................................................           1,064              897
Deferred revenue, non-current portion ............................................................          14,546               --
                                                                                                         ---------        ---------
        Total liabilities ........................................................................         267,637          241,870
                                                                                                         ---------        ---------
8% cumulative convertible exchangeable redeemable preferred stock, $.01 par
value, 75,000,000 shares authorized, 20,795,936 issued and outstanding in
2001 and 3,276,544 issued and  outstanding in  2002, liquidation preference $10 per share.........         207,975           32,780
                                                                                                         ---------        ---------
Stockholders' equity:
Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued .......................              --               --
Common stock, $.01 par value, 250,000,000 shares authorized, 42,160,858
  issued and 34,766,858 outstanding in 2001 and 68,534,135 issued and
  61,140,135 outstanding in 2002 .................................................................             421              685
Additional paid-in capital .......................................................................         238,769          486,106
Accumulated deficit ..............................................................................        (162,897)        (208,419)
Accumulated other comprehensive loss .............................................................          (1,380)          (2,548)
                                                                                                         ---------        ---------
        Total stockholders' equity before treasury stock .........................................          74,913          275,824
Treasury stock, 7,394,000 shares .................................................................         (32,955)         (32,955)
                                                                                                         ---------        ---------
        Total stockholders' equity ...............................................................          41,958          242,869
                                                                                                         ---------        ---------
        Total liabilities, redeemable convertible preferred stock and stockholders'
        equity ...................................................................................       $ 517,570        $ 517,519
                                                                                                         =========        =========

See Notes to Consolidated Financial Statements.

                                      F-3



                            MARVEL ENTERPRISES, INC.

                               DECEMBER 31, 2002

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                                                   Years Ended December 31,
                                                                                                2000           2001          2002
                                                                                               -----          -----          ----
                                                                                               (in thousands, except per share
                                                                                                           data)
Net sales .............................................................................     $ 231,651      $ 181,224      $ 299,046
Cost of sales .........................................................................       128,531         88,709        142,103
                                                                                            ---------      ---------      ---------
Gross profit ..........................................................................       103,120         92,515        156,943
Operating expenses:
     Selling, general and administrative ..............................................       107,447         62,048         85,800
     Pre-acquisition litigation charge ................................................            --          3,000             --
     Administration Expense Claims payable no longer required .........................            --         (3,474)            --
     Depreciation and amortization ....................................................        30,651          5,559          5,433
     Amortization of goodwill and other intangibles ...................................        24,012         23,764            339
                                                                                            ---------      ---------      ---------
        Total operating expenses ......................................................       162,110         90,897         91,572
                                                                                            ---------      ---------      ---------
Other income net.......................................................................            --             --          1,170
Equity in net (loss) income of joint venture ..........................................          (263)          (325)        13,802
                                                                                            ---------      ---------      ---------
Operating (loss) income ...............................................................       (59,253)         1,293         80,343
Interest expense ......................................................................        31,901         29,174         41,997
Interest  income and other expenses, net ..............................................         4,223          1,055            330
                                                                                            ---------      ---------      ---------
(Loss) income before income tax expense, extraordinary gain and cumulative effect of
change in accounting principle ........................................................       (86,931)       (26,826)        38,676
Income tax expense ....................................................................         2,927            647         11,902
                                                                                            ---------      ---------      ---------
(Loss) income before extraordinary gain and cumulative effect of
change in accounting principle ........................................................       (89,858)       (27,473)        26,774
Extraordinary gain, net of income tax expense of $11,273 ..............................            --         32,738             --
                                                                                            ---------      ---------      ---------
(Loss) income before cumulative effect of change in accounting principle ..............       (89,858)         5,265         26,774
Cumulative effect of change in accounting principle, net of income tax benefit of $3,002            --            --          4,164
                                                                                            ---------      ---------      ---------
Net (loss) income .....................................................................       (89,858)         5,265         22,610
                                                                                            ---------      ---------      ---------
Less: preferred stock dividends .......................................................        15,395         16,034         68,132
                                                                                            ---------      ---------      ---------
Net loss attributable to common stock .................................................     $(105,253)     $ (10,769)     $ (45,522)
                                                                                            =========      =========      =========
Basic and diluted net loss per common share:
      Loss before extraordinary gain and cumulative effect of
      change in accounting principle ..................................................     $   (3.13)     $   (1.27)     $   (1.07)
      Extraordinary  gain .............................................................            --           0.96             --
      Cumulative effect of change in accounting principle .............................            --             --          (0.11)
                                                                                            ---------      ---------      ---------
      Net loss attributable to common stock ...........................................     $   (3.13)     $   (0.31)     $   (1.18)
                                                                                            =========      =========      =========
      Weighted average number of basic and diluted shares .............................        33,667         34,322         38,514
                                                                                            =========      =========      =========

                 See Notes to Consolidated Financial Statements.

                                      F-4





                            MARVEL ENTERPRISES, INC.

                               DECEMBER 31, 2002

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME


                                                                                                  Accumulated
                                                      Common    Common   Additional Accumulated      Other
                                                      Stock     Stock     Paid-In    (Deficit)   Comprehensive  Treasury
                                                      Shares    Amount    Capital                    Loss        Stock       Total
                                                                                (in thousands)
                                                                                                          
Balance at December 31, 1999 .....................     33,557  $     409  $ 215,184   $ (46,875)        $--   $ (32,955)  $ 135,763
                                                    ---------  ---------  ---------   ---------   ---------   ---------   ---------
Issuance of common stock .........................         80          1        499          --          --          --         500
Warrants exercised ...............................         --         --          5          --          --          --           5
Employee stock options exercised .................         65          1        380          --          --          --         381
Preferred dividends ..............................         --         --         --     (15,395)         --          --     (15,395)
Net loss .........................................         --         --         --     (89,858)         --                 (89,858)
                                                    ---------  ---------  ---------   ---------   ---------   ---------   ---------
Balance at December 31, 2000 .....................     33,702        411    216,068    (152,128)         --     (32,955)     31,396

Conversion of preferred to stock to common stock..      1,065         10     10,234          --          --          --      10,244
Warrants exercised ...............................         --         --          5          --          --          --           5
Warrants issued to bank ..........................         --         --      1,980          --          --          --       1,980
Warrants issued to stockholder/director...........         --         --     10,482          --          --          --      10,482
Preferred dividends ..............................         --         --         --     (16,034)         --          --     (16,034)
Net income .......................................         --         --         --       5,265          --          --       5,265
Other comprehensive loss .........................         --         --         --          --      (1,380)         --      (1,380)
                                                                                                                          ----------
Comprehensive income .............................         --         --         --          --          --          --       3,885
                                                    ---------  ---------  ---------   ---------   ---------   ---------   ---------
Balance at December 31, 2001 .....................     34,767        421    238,769    (162,897)     (1,380)    (32,955)     41,958

Conversion of preferred stock to common stock ....     25,714        257    243,070          --          --          --     243,327
Warrants exercised by bank .......................        295          2         (2)         --          --          --          --
Warrants issued to stockholder/director...........         --         --      2,567          --          --          --       2,567
Preferred dividends ..............................         --         --         --     (68,132)         --          --     (68,132)
Employee stock options exercised .................        364          5      1,702          --          --          --       1,707
Net income .......................................         --         --         --      22,610          --          --      22,610
Other comprehensive loss .........................         --         --         --          --      (1,168)         --      (1,168)
                                                                                                                          ----------
Comprehensive income .............................         --         --         --          --          --          --      21,442
                                                    ---------  ---------  ---------   ---------   ---------   ---------   ---------
Balance at December 31, 2002 .....................     61,140  $     685  $ 486,106   $(208,419)  $  (2,548)  $ (32,955)  $ 242,869
                                                    =========  =========  =========   =========   =========   =========   =========

                 See Notes to Consolidated Financial Statements.


                                      F-5




                            MARVEL ENTERPRISES, INC.

                               DECEMBER 31, 2002

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                              Years Ended December 31,
                                                                                        2000             2001            2002
                                                                                     ---------        ----------       -------
                                                                                                    (in thousands)
                                                                                                                  
Net (loss) income .............................................................       $(89,858)       $  5,265        $ 22,610
Adjustments to reconcile net (loss) income to net cash (unsed in) provided
   by operating activities:
     Depreciation and amortization ............................................         54,663          29,323           5,772
     Provision for doubtful accounts ..........................................             81           3,470           3,335
     Amortization of deferred financing charges ...............................          1,384           2,136          21,151
     Deferred income taxes ....................................................             --              --          10,907
     Pre-acquisition litigation charge ........................................             --           3,000              --
     Administration Expense Claims no longer required .........................             --          (3,474)             --
     Cumulative effect of change in accounting  principle,  net of
       income tax benefit .....................................................             --              --           4,164
     Extraordinary gain, net of income tax provision ..........................             --         (32,738)             --
     Equity in net loss (income) of joint venture .............................            263             325         (13,802)
     Distributions from joint venture .........................................             --           1,081          10,031
     Changes in operating assets and liabilities:
          Accounts receivable .................................................         16,524          (3,543)        (16,501)
          Inventories .........................................................         (3,395)         21,864           4,880
          Goodwill ............................................................            798              --              --
          Prepaid expenses and other ..........................................         (2,809)         (5,676)          6,228
          Deferred charges and other assets ...................................         (1,831)            (25)             74
          Accounts payable, accrued expenses and other ........................            (49)        (11,114)         16,137
                                                                                      --------        --------        --------
Net cash (used in) provided by operating activities ...........................        (24,229)          9,894          74,986
                                                                                      --------        --------        --------
Cash flow used in investing activities:
     Payment of Administration Expense Claims and unsecured creditor claims ...         (3,553)         (2,231)         (4,402)
     Purchases of molds, tools and equipment ..................................         (8,483)         (4,311)         (2,068)
     Expenditures for product and package design costs ........................         (6,601)         (2,934)           (927)
     Other intangibles ........................................................            (31)           (516)             (1)
                                                                                      --------        --------        --------
Net cash used in investing activities .........................................        (18,668)         (9,992)         (7,398)
                                                                                      --------        --------        --------

Cash flow from financing activities:
     Repurchase of senior notes ...............................................             --         (32,108)             --
     Proceeds from (repayments of) credit facility ............................             --          37,000         (37,000)
     Deferred financing costs .................................................             --          (6,011)           (196)
     Employee stock options exercised .........................................            381              --           1,707
     Issuance of common stock .................................................            500              --              --
     Proceeds from exercise of stock warrants .................................              5               5              --
                                                                                      --------        --------        --------
Net cash provided by (used in) financing activities ...........................            886          (1,114)        (35,489)
                                                                                      --------        --------        --------
     Net (decrease) increase in cash and cash equivalents .....................        (42,011)         (1,212)         32,099
     Cash and cash equivalents at beginning of year ...........................         64,814          22,803          21,591
                                                                                      --------        --------        --------
     Cash and cash equivalents at end of year .................................       $ 22,803        $ 21,591        $ 53,690
                                                                                      ========        ========        ========
Supplemental disclosure of cash flow information:
     Interest paid (1) ........................................................       $ 30,348        $ 15,362        $ 29,388
     Income taxes paid, net of refunds ........................................          1,744           2,889             428
     Other non-cash transactions:
        Preferred stock dividends .............................................         15,395          16,034          68,132
        Value of warrants issued in connection with credit facility ...........             --          12,462           2,567
        Value of senior notes received in satisfaction of licensing
          fees from a third party .............................................             --          20,000              --



(1)  Interest  paid in 2002  includes a payment of $9.1 million  relating to the
     December 2001 interest amount due to the Company's 12% senior note holders.

                 See Notes to Consolidated Financial Statements.

                                      F-6


                            MARVEL ENTERPRISES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2002


1.       Description of Business and Basis of Presentation

     Marvel  Enterprises,  Inc. and its subsidiaries,  (the "Company") is one of
the  world's  most  prominent  character-based  entertainment  companies  with a
proprietary  library  of  over  4,700  characters,  and  operates  within  three
segments, licensing, publishing and toy merchandising and distribution.

     The  term  "MEG"  refers  to  Marvel  Entertainment  Group,  Inc.,  and its
subsidiaries,  prior to the consummation of its acquisition by the Company,  and
its emergence from bankruptcy and the term "Toy Biz, Inc." refers to the Company
prior to the consummation of the acquisition.

     On October 1, 1998,  pursuant to the Plan  proposed  by the senior  secured
lenders  of MEG and Toy Biz,  Inc.  (the  "Plan"),  MEG  became  a  wholly-owned
subsidiary  of Toy Biz,  Inc.  Toy Biz,  Inc.  also  changed  its name to Marvel
Enterprises,  Inc. on that date. The  acquisition of MEG was accounted for using
the purchase  method of  accounting.  The Plan was confirmed on July 31, 1998 by
the United States  District  Court for the District of Delaware,  which had been
administering  the MEG  bankruptcy  cases,  and was  approved  by the  Company's
stockholders at a meeting on September 11, 1998.

     In  accordance  with the Plan,  two  litigation  trusts  were formed on the
consummation  date of the Plan.  Each  litigation  trust is the  legal  owner of
litigation  claims  that  formerly  belonged  to MEG and its  subsidiaries.  The
primary  purpose of one of the trusts (the "Avoidance  Litigation  Trust") is to
pursue bankruptcy  avoidance claims. The primary purpose of the other trust (the
"MAFCO Litigation  Trust") is to pursue certain litigation claims against Ronald
O. Perelman and various related entities and individuals.  The Company agreed to
lend up to $1.1 million to the Avoidance Litigation Trust and up to $1.0 million
to the MAFCO  Litigation  Trust,  in each case on a revolving  basis to fund the
trust's  professional  fees and expenses.  Each litigation trust is obligated to
reimburse the Company for all sums advanced, with simple interest at the rate of
10% per year. Net  litigation  proceeds of each trust will be distributed to the
trust's  beneficiaries  only after the trust has,  among other things,  paid all
sums owed to the Company,  released the Company from any further  obligation  to
make loans to the trust,  and  established  reserves to satisfy  indemnification
claims.  The Company is entitled to 65.1% of net  litigation  proceeds  from the
Avoidance  Litigation  Trust.  The Company is not entitled to any net litigation
proceeds from the MAFCO Litigation  Trust.

                                      F-7



                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                               December 31, 2002

2. Summary of Significant Accounting Policies

Reclassifications

     Certain  prior year  amounts  have been  reclassified  to conform  with the
current year's presentation.

Principles of Consolidation

     The consolidated  financial  statements include the accounts of the Company
and its subsidiaries. Upon consolidation, all significant inter-company accounts
and transactions are eliminated.

Use of Estimates

     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally accepted in the United States requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during  the  reporting  period.  The  principal  areas  of  judgment  relate  to
provisions for returns,  other sales  allowances and doubtful  accounts,  future
revenues from episodic  television  series,  the  realizability  of inventories,
goodwill  and other  intangible  assets,  and the reserve  for  minimum  royalty
guarantees and minimum advances,  deferred income tax assets,  molds,  tools and
equipment,  and product and package design costs,  the Fleer pension  liability,
litigation related accruals,  royalties payable,  Administration  Expense Claims
and the fair valuation of the warrants  issued in regard to the 2001 HSBC Credit
Facility. Actual results could differ from those estimates.

Cash Equivalents

     The Company  considers  all highly  liquid  investments  with a maturity of
three months or less when purchased to be cash equivalents.

Inventories

     Inventories are valued at the lower of cost (first-in, first-out method) or
market.

Joint Venture

     The Company has entered into an equally owned limited partnership with Sony
Pictures  Consumer Products Inc. to pursue licensing  opportunities  relating to
characters  based upon  movies or  television  shows  featuring  Spider-Man  and
produced by Sony Pictures  Entertainment  Inc.  ("Sony  Pictures").  The limited
partnership  has a fiscal  year end of March 31. The  Company  accounts  for the
activity of this joint venture under the equity method.

Molds, Tools, and Equipment

     Molds, tools and equipment are stated at cost less accumulated depreciation
and amortization. The Company owns the molds and tools used in production of the
Company's  products  by  third-party  manufacturers.   For  financial  reporting
purposes,  depreciation and amortization is computed by the straight-line method
generally over a one to three-year period (the estimated selling life of related
products)  for molds and tooling  costs and over a five-year  life for furniture
and fixtures and office equipment.  On an ongoing basis, the Company reviews the
lives and  carrying  value of molds and tools  based on the sales and  operating
results of the related products. If the facts and circumstances suggest a change
in useful lives or an  impairment  in the carrying  value,  the useful lives are
adjusted  and  unamortized  costs are written off  accordingly.  Write-offs,  in
excess  of  normal   amortization,   which  are  included  in  depreciation  and
amortization  for the  years  ended  December  31,  2000,  2001  and  2002  were
approximately $9,205,000, $1,295,000, and $660,000, respectively.


                                       F-8


                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

Product and Package Design Costs

     Product  and  package  design  costs are  stated  at cost less  accumulated
depreciation and amortization.  The Company capitalizes costs related to product
and  package  design  when  such  products  are  determined  to be  commercially
acceptable.  Product design costs include costs  relating to the  preparation of
precise detailed  mechanical drawings and the production of sculptings and other
handcrafted  models from which  molds and dies are made.  Package  design  costs
include costs relating to art work,  modeling and printing  separations  used in
the production of packaging.  For financial reporting purposes,  amortization of
product and package  design is computed by the  straight-line  method  generally
over  a one  to  three-year  period  (the  estimated  selling  life  of  related
products).  On an ongoing  basis,  the  Company  reviews  the  useful  lives and
carrying  value of  product  and  package  design  costs  based on the sales and
operating  results  of the  related  products.  If the facts  and  circumstances
suggest a change in useful lives or an  impairment  in the carrying  value,  the
useful  lives are adjusted and  unamortized  costs are written off  accordingly.
Write-offs, in excess of normal amortization, which are included in amortization
for the  years  ended  December  31,  2000,  2001  and 2002  were  approximately
$7,585,000, $1,540,000 and $799,000, respectively.

Goodwill and Other Intangibles

     Goodwill  and  other  intangibles  are  stated  at  cost  less  accumulated
amortization.  For the years  ended  December  31, 2000 and 2001,  goodwill  was
amortized  over 20 years.  In January  2002,  the Company  adopted  Statement of
Financial Accounting  Standards No.142,  "Goodwill and Other Intangible Assets",
("SFAS 142"), which requires  companies to stop amortizing  goodwill and certain
intangible  assets  with an  indefinite  useful  life.  SFAS 142  requires  that
goodwill  and  intangible  assets  deemed to have an  indefinite  useful life be
reviewed for impairment upon adoption of SFAS 142 (January 1, 2002) and annually
thereafter  or upon the  occurrence  of an  impairment  indicator.  The  Company
performed the first of its annual impairment  reviews at December 31, 2002 which
did not result in an  impairment  charge  and will  perform  its  future  annual
reviews as of December 31st of each subsequent year.

     Other intangible asserts are amortized over 3 to 10 years.

Long-Lived Assets

     The  Company  records  impairment  losses  on  long-lived  assets  used  in
operations,  including intangible assets, when events and circumstances indicate
that the assets might be impaired and the  undiscounted  cash flows estimated to
be generated by those assets are less than the carrying amounts of those assets.

Deferred Financing Costs

     Deferred  financing  costs,  which are  mainly  costs  associated  with the
Company's  Senior Notes and the Company's  HSBC Credit  Facility,  are amortized
over the term of the related agreements using the effective interest method. See
Note 4 to the  Consolidated  Financial  Statements  for  further  details of the
accelerated  amortization of the deferred  financing  costs  associated with the
Company's HSBC Credit Facility during the year ended December 31, 2002.

Comprehensive Income

     The  Company   follows  the   provisions   of  SFAS  No.  130,   "Reporting
Comprehensive  Income" which established  standards for reporting and display of
comprehensive  income or loss and its components.  Comprehensive  income or loss
reflects  the change in equity of a  business  enterprise  during a period  from
transactions and other events and circumstances from non-owner sources.  For the
Company,   comprehensive   income   represents  net  income   adjusted  for  the
unrecognized  loss  related  to  the  minimum  pension  liability  of  a  former
subsidiary.  In accordance with SFAS No. 130, the Company has chosen to disclose
comprehensive  loss in the Consolidated  Statements of Stockholders'  Equity and
Comprehensive Income.


                                       F-9


                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

Research and Development

     Research and development  costs are charged to operations as incurred.  For
the years ended  December 31,  2000,  2001 and 2002,  research  and  development
expenses   were   approximately   $7,537,000,    $3,875,000,   and   $2,296,000,
respectively.

Revenue Recognition

     Sales are recorded upon shipment of merchandise  and a provision for future
returns  and  other  sales  allowances  is  established  based  upon  historical
experience and management estimates. These estimates are revised as necessary to
reflect actual experience and market conditions.

     Subscription  revenues  generally  are  collected in advance for a one year
subscription  and  are  recognized  as  income  on a pro  rata  basis  over  the
subscription period.

     Income from  distribution  fees and  licensing of  characters  owned by the
Company are recorded in accordance  with the  distribution  agreement and at the
time  characters  are  available to the licensee and  collection  is  reasonably
assured.  Receivables  from  licensees due more than one year beyond the balance
sheet  date are  discounted  to  their  present  value.  Income  related  to the
production and licensing of the Company's episodic television series is recorded
in accordance with AICPA Statement of Position 00-2  "Accounting by Producers or
Distributors of Films." Under these  guidelines,  revenue is recognized when the
animated  television  series is  available to the  licensee  and  collection  is
reasonably assured.

Advertising Costs

     Advertising  production costs are expensed when the  advertisement is first
run. For the years ended December 31, 2000, 2001, and 2002, advertising expenses
were approximately  $36,211,000,  $6,637,000, and $5,777,000,  respectively.  At
December 31, 2001, the Company had approximately $148,000 of prepaid advertising
costs,  principally related to production of advertisement that was first run in
fiscal 2002. There are no prepaid advertising costs at December 31, 2002.

Royalties

     Minimum  guaranteed  royalties,  as well as  royalties in excess of minimum
guarantees,  are expensed based on sales of related products.  The realizability
of minimum  guarantees  committed  are  evaluated  by the  Company  based on the
projected sales of the related products.  The Company records  impairment losses
on minimum guaranteed royalties when events and circumstances  indicate that the
sales will not be sufficient to recover the minimum guaranteed royalty.

Income Taxes

     The Company uses the liability method of accounting for income taxes. Under
this  method,  deferred  tax  assets and  liabilities  are  determined  based on
differences  between  financial  reporting  and  the tax  bases  of  assets  and
liabilities  and are measured  using tax rates and laws that are scheduled to be
in effect when the differences are scheduled to reverse.

     Income tax expense  includes U.S. and foreign income taxes,  including U.S.
Federal taxes on  undistributed  earnings of foreign  subsidiaries to the extent
that such earnings are planned to be remitted.


                                       F-10


                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

Foreign Currency Translation

     The financial position and results of operations of the Company's Hong Kong
and Mexican  subsidiaries  are measured using the U.S.  dollar as the functional
currency.  Assets and  liabilities are translated at the exchange rate in effect
at year end.  Income  statement  accounts and cash flows are  translated  at the
average rate of exchange prevailing during the period.  Translation  adjustments
have not been material.

Stock Based Compensation

     On December 31, 2002,  the Financial  Accounting  Standards  Board ("FASB")
issued SFAS 148  "Accounting  for  Stock-Based  Compensation  -  Transition  and
Disclosure"  ("SFAS 148"), which provided  alternative  methods of transition to
the fair value method of accounting  for  stock-based  compensation  of SFAS 123
"Accounting  for Stock Based  Compensation"  ("SFAS  123).  SFAS No.  148,  also
amended the disclosure  provisions of SFAS 123 and Accounting  Principles  Board
("APB") Opinion No. 28, Interim Financial  Reporting,  to require  disclosure in
the  summary of  significant  accounting  policies of the effects of an entity's
accounting  policy with  respect to  stock-based  compensation  on reported  net
income and earnings per share in annual and interim statements.

     In accordance  with the  provisions of SFAS 148, the Company has elected to
continue to account for its stock options under APB Opinion No. 25,  "Accounting
for Stock Issued to Employees" ("APB 25") and related Interpretations. Under APB
25,  because the exercise  price of the Company's  employee stock options equals
the  market  price of the  underlying  stock on date of grant,  no  compensation
expense is  recognized.  For the purposes of SFAS 148 pro forma
disclosures,  the  estimated  fair value of the options is  amortized to expense
over the options' vesting periods. The Company's pro forma information follows:



                                                                                                   Years Ended December 31,
                                                                                               2000           2001           2002
                                                                                                (in thousands, except per share
                                                                                                                data)
                                                                                                                 
Net (loss) income, as reported ........................................................     $ (89,858)     $   5,265      $  22,610
Net loss attributable to common stock as reported .....................................     $(105,253)     $ (10,769)     $ (45,522)
Net loss per share attributable to common stock - diluted as reported .................     $   (3.13)     $   (0.31)     $   (1.18)
Stock based employee compensation cost, net of tax, if SFAS 123 was applied ...........     $   3,764      $   5,226      $   3,935
Pro forma net (loss) income ...........................................................     $ (93,622)     $      39      $  18,675
Pro forma net loss attributable to common stock .......................................     $(109,017)     $ (15,995)     $ (49,457)
Pro forma net loss per share attributable to common stock - diluted ...................     $   (3.24)     $   (0.47)     $   (1.28)



     The fair  value for each  option  grant  under the stock  option  plans was
estimated at the date of grant using a  Black-Scholes  option pricing model with
the following  weighted-average  assumptions  for the various grants made during
2000:  risk free interest rates ranging from 6.12% to 6.72%;  no dividend yield;
expected  volatility of 0.550;  and expected  life of three years.  The weighted
average  assumptions  for the 2001 grants are: risk free interest  rates ranging
from 2.91% to 4.90%;  no  dividend  yield;  expected  volatility  of 0.920;  and
expected  life of three years.  The weighted  average  assumptions  for the 2002
grants are:  risk free interest  rates ranging from 3.19% to 4.92%;  no dividend
yield;  expected  volatility of 0.83;  and expected  life of 5 years.  The Black
Scholes  option pricing model was developed for use in estimating the fair value
of traded options which have no vesting restrictions and are fully transferable.
In addition,  the option valuation model requires the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics  significantly  different from those
traded  options,  and because  changes in the subjective  input  assumptions can
materially affect the fair value estimate in management's  opinion, the existing
model does not  necessarily  provide a reliable single measure of the fair value
of its employee stock options.

     The effects of applying SFAS 123 for providing  pro forma  disclosures  are
not likely to be  representative of the effects on reported net income in future
years.


                                      F-11


                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

Fair Value of Financial Instruments

     The estimated fair value of certain of the Company's financial instruments,
including cash and cash  equivalents,  current  portion of accounts  receivable,
accounts payable and accrued expenses  approximate their carrying amounts due to
their short term maturities. The non-current portion of accounts receivable have
been discounted to their net present value,  which  approximates fair value. The
carrying  amount of  borrowings  under the  credit  facility  are  estimated  to
approximate  their fair value as the stated interest rates  approximate  current
rates.

     The estimated fair values of the Company's  Senior Notes and outstanding 8%
Cumulative  Convertible  Exchangeable  Preferred Stock, per value $.01 per share
(8% Preferred Stock") is based on market prices,  where available.  The carrying
amounts  and  estimated  fair  values  of these  financial  instruments  were as
follows:




                                                                Carrying      Estimated      Carrying   Estimated
                                                                 Amount       Fair Value      Amount    Fair Value
                                                                --------      ----------      ------    ----------
                                                                                        (in thousands)

                                                                                                 
Senior Notes ............................................       $150,962       $ 80,010       $150,962       $150,962
8% preferred stock ......................................       $207,975       $ 72,786       $ 32,780       $ 32,541



Concentration of Risk

     Substantially  all of the Company's toy products are manufactured in China,
which  subjects  the  Company  to  risks  of  currency  exchange   fluctuations,
transportation delays and interruptions, and political and economic disruptions.
The  Company's  ability to obtain  products  from its Chinese  manufacturers  is
dependent upon the United States' trade relationship with China.

     Marvel  distributes  its comic books to the direct  market  through a major
comic  book  distributor.  Termination  of  this  distribution  agreement  could
significantly disrupt publishing operations.

Loss Per Share

     In accordance with SFAS No. 128 "Earnings Per Share",  basic loss per share
is computed by dividing  net loss  attributable  to common stock by the weighted
average  number of shares of common stock  outstanding  during the periods.  The
computation  of diluted  loss per share is similar to the  computation  of basic
loss per share,  except the number of shares is increased  assuming the exercise
of dilutive  stock options and warrants  using the treasury stock method and the
conversion  of 8%  Preferred  Stock using the  if-converted  method,  unless the
effect is  anti-dilutive.  For the years ended December 31, 2000, 2001 and 2002,
any dilution arising from the Company's  outstanding  employee stock options and
warrants as well as the assumed  conversion  of the 8%  Preferred  Stock was not
included as their effect would have been anti-dilutive.

Recent Accounting Pronouncements

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or Disposal of Long-Lived  Assets" (SFAS 144),  effective for fiscal
years beginning after December 15, 2001. This standard  supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", and provides a single accounting model for long-lived assets to
be disposed of. The new standard also  supersedes  the provisions of APB Opinion
No. 30 with  regard to  reporting  the  effects of a disposal  of a segment of a
business  and  required  expected  future  operating  losses  from  discontinued
operations  to be displayed in  discontinued  operations in the periods in which
the losses are incurred.  SFAS No. 144 was  effective for the Company  beginning
with the first  quarter of 2002 and its adoption did not have a material  impact
on the Company's results of operations or financial position.


                                       F-12


                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

     In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44
and 64,  Amendment of SFAS No. 13, and Technical  Corrections as of April 2000".
SFAS No. 145 revises the criteria for classifying the  extinguishment of debt as
extraordinary and the accounting treatment of certain lease modifications.  SFAS
No.  145 is  effective  in fiscal  2003 and is not  expected  to have a material
impact on the Company's consolidated financial statements.

     In July  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal  Activities"  (SFAS 146). SFAS No. 146 provides
guidance  on the  timing of the  recognition  of costs  associated  with exit or
disposal  activities.  The new guidance  requires costs  associated with exit or
disposal  activities to be recognized when incurred.  Previous guidance required
recognition  of costs at the date of commitment to an exit or disposal plan. The
provisions of the statement are to be adopted  prospectively for exit activities
after  December 31, 2002.  Although SFAS No. 146 may impact the  accounting  for
costs related to exit or disposal  activities  the Company may enter into in the
future,  particularly  the timing of recognition of these costs, the adoption of
the  statement  will not  have an  impact  on the  Company's  present  financial
condition or results of operations.

3.   Goodwill and Cumulative Effect of Change in Accounting Principle

     Effective  January 1, 2002,  the Company  adopted  SFAS 142 which  requires
companies  to stop  amortizing  goodwill and certain  intangible  assets with an
indefinite  useful life.  SFAS 142 requires that goodwill and intangible  assets
deemed  to have an  indefinite  useful  life be  reviewed  for  impairment  upon
adoption  of SFAS 142  (January  1, 2002) and  annually  thereafter  or upon the
occurrence  of an  impairment  indicator.  The Company  will  perform its annual
impairment  review as of December 31st of each year, which commenced at December
31, 2002.

     Under  SFAS  142,  goodwill  impairment  is deemed to exist if the net book
value of a reporting  unit  exceeds its  estimated  fair  value.  The  Company's
reporting units are consistent with the operating segments identified in Note 15
to the Consolidated  Financial  Statements.  This methodology of evaluating each
reporting  unit  separately  differs  from the  Company's  previous  policy,  as
permitted  under   accounting   standards   existing  at  that  time,  of  using
undiscounted cash flows on an enterprise-wide basis to determine if goodwill was
recoverable.  The  Company  determines  if the  carrying  amount of  goodwill is
impaired based on discounted anticipated cash flows.

     Upon  adoption  of SFAS  142 in the  first  quarter  of 2002,  the  Company
initially  recorded a one-time,  non-cash charge of approximately  $4.6 million,
(net of income tax of  approximately  $2.6 million) or $0.12 per share to reduce
the carrying value of its goodwill,  with respect to its toy  merchandising  and
distribution  reporting  unit.  In the third and fourth  quarters  of 2002,  the
Company recorded adjustments of $0.2 million and $0.2 million,  respectively, to
the income tax  provision  related to this charge so as to properly  reflect the
full year effective tax rate.  Such charge is  non-operational  in nature and is
reflected  as a  cumulative  effect  of change in  accounting  principle  in the
accompanying  Consolidated  Statement of Operations  for the year ended December
31, 2002. For the year ended  December 31, 2002,  the net  cumulative  effect of
this change in accounting principle was $4.2 million ($0.11 per share).


                                       F-13


                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

A summary of the Company's  goodwill  before and after the  application  of SFAS
142, and total assets as of December 31, 2002, by reporting  unit, is as follows
(in thousands):



                                                    Goodwill                                 Total Assets
                      --------------------------------------------------------------       -----------------
                                                      Utilization of
                                                      Pre-Acquisition
                       January 1,                      Net Operating        December 31,      December 31,
                          2002     Impairments             Loss                2002              2002

                                                                                
Licensing             $ 324,193    $     --             $         --         $ 324,193         $  397,735
Publishing               49,316          --                   (7,905)           41,411             75,637
Toy Merchandising
   And Distributing       7,166       (7,166)                     --                --             44,147
                      ---------    -----------       ------------------     ------------      ---------------
Total                  $380,675     $ (7,166)           $      (7,905)       $ 365,604          $  517,519
                      =========    ===========       ==================     ============      ===============


     Had the Company  adopted SFAS 142 on January 1, 2000, the  historical  loss
attributable  to common  stockholders  and basic and diluted net loss per common
share would have changed to the adjusted  amounts  indicated below (in thousands
except per share amounts):



                                                                 Year Ended
                                                                December 31,
                                                          ----------------------
                                                             2000         2001
                                                          ---------     --------
                                                           (in thousands, except
                                                               per share data)

                                                                
Loss before extraordinary gain, as reported ............  $ (89,858)  $ (27,473)
Net loss attributable to common stock, as reported .....   (105,253)    (10,769)
Loss per share before extraordinary gain attributable
   to common stock, as reported ........................      (3.13)      (1.27)
Net loss per share attributable to common stock, as
reported ...............................................      (3.13)      (0.31)
Goodwill amortization ..................................     23,769      23,465
Pro forma loss before extraordinary gain ...............    (66,089)     (4,008)
Pro forma net (loss) income attributable to common
stock ..................................................    (81,484)     12,696
Pro forma loss per share before extraordinary gain
  attributable to common stock .........................      (2.42)      (0.58)
Pro forma net loss per share attributable to common
  stock ................................................  $   (2.42)  $    0.37
                                                          =========   =========


     For the years ended  December  31, 2000,  2001,  and 2002  amortization  of
goodwill and other intangibles was approximately $24,012,000,  $23,764,000,  and
$339,000, respectively.



                                       F-14


                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002



4.   Details of Certain Balance Sheet Accounts
                                                                         December 31,
                                                                      2001        2002
                                                                       (in thousands)
Accounts receivable, net, consists of the following:
                                                                         
   Accounts receivable ..........................................  $  52,761   $  62,835
   Less allowances for:
     Doubtful accounts ..........................................     (5,275)     (7,459)
     Advertising, markdowns, returns, volume discounts and other     (11,838)    (11,956)
                                                                   ---------   ---------
          Total .................................................  $  35,648   $  43,420
                                                                   =========   =========
Inventories, net, consists of the following:
   Toys:
     Finished goods .............................................  $  12,039   $   7,566
     Component parts, raw materials and work-in-process .........      3,849         706
                                                                   ---------   ---------
          Total toys ............................................     15,888       8,272
   Publishing:
     Finished goods .............................................      1,411       1,786
     Editorial and raw materials ................................      3,617       5,978
                                                                   ---------   ---------
          Total publishing ......................................      5,028       7,764
                                                                   ---------   ---------
          Total .................................................  $  20,916   $  16,036
                                                                   =========   =========
Molds, tools and equipment, net, consists of the following:
   Molds, tools and equipment ...................................  $   3,410   $   4,971
   Office equipment and other ...................................     12,096      11,676
   Less accumulated depreciation and amortization ...............     (7,430)     (9,650)
                                                                   ---------   ---------
          Total .................................................  $   8,076   $   6,997
                                                                   =========   =========
Product and package design costs, net, consists of the following:
   Product design costs .........................................  $   2,255   $   2,720
   Package design costs .........................................        864       1,138
   Less accumulated amortization ................................       (901)     (2,999)
                                                                   ---------   ---------
          Total .................................................  $   2,218   $     859
                                                                   =========   =========
Goodwill, net, consists of the following:
   Goodwill .....................................................  $ 459,012   $ 441,903
   Less accumulated amortization ................................    (78,337)    (76,299)
                                                                   ---------   ---------
          Total .................................................  $ 380,675   $ 365,604
                                                                   =========   =========
Intangibles, net, consists of the following
   Patents ......................................................  $   3,185   $   3,186
   Trademarks ...................................................      1,264       1,264
   Less accumulated amortization ................................     (3,461)     (3,801)
                                                                   ---------   ---------
          Total .................................................  $     988   $     649
                                                                   =========   =========
Accounts receivable, non -current portion are due as follows:
    2003 ........................................................  $   7,927      $   --
    2004 ........................................................      3,050       6,538
    2005 ........................................................      1,250       6,293
    2006 and thereafter .........................................      1,600       6,981
    Discounting .................................................     (1,937)     (2,528)
                                                                   ---------   ---------
          Total .................................................  $  11,890   $  17,284
                                                                   =========   =========
Accrued expenses and other current liabilities consists
 of the following:
   Accrued advertising costs ....................................  $   1,817   $   3,009
   Royalties ....................................................      2,737      12,800
   Inventory purchases ..........................................      1,443       4,130
   Income taxes payable .........................................      2,051       2,218
   Bonuses ......................................................         --       4,302
   MEG acquisition accruals .....................................      1,857       1,184
   Accrued expenses - Fleer sale including pension benefits .....      3,946       4,982
   Pre-acquisition litigation charge ............................      3,000       3,000
   Litigation and legal accruals ................................        541       4,564
   Interest expense .............................................      9,971         926
   Other accrued expenses .......................................      7,783       7,256
                                                                   ---------   ---------
          Total .................................................  $  35,146   $  48,371
                                                                   =========   =========


                                       F-15

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

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  'Securities  Act") pursuant to Rule 144A under the
Securities  Act. On August 20, 1999,  the Company  completed  an exchange  offer
under which it exchanged  virtually all of those senior notes,  which  contained
restrictions  on  transfer,   for  an  equal  principal  amount  of  registered,
transferable  senior notes (the "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 June 15, 2007. Principal and
interest  on the Senior  Notes are  guaranteed  on a senior  basis  jointly  and
severally by each of the Company's domestic subsidiaries.

     During 2001, the Company,  through a series of transactions,  reacquired an
aggregate  $99.0  million  principal  amount of its Senior Notes at an aggregate
cost of $54.4  million,  including $2.5 million of accrued  interest.  The $99.0
million  principal  amount  includes  $39.2  million with a fair market value of
approximately  $20.0 million  (including  approximately  $0.3 million of accrued
interest) received in satisfaction of advanced licensing fees from a third party
as described in Note 9 to the Consolidated  Financial Statements.  The principal
amount also  includes  $46.6 million  purchased  from Mr.  Perlmutter  for $26.8
million (including  approximately $1.9 million of accrued interest). The Company
recorded an extraordinary  gain of $32.7 million,  net of write-offs of deferred
financing fees of $3.2 million and income taxes of $11.3 million.

     On  October 5, 2001,  the  Company  terminated  its  credit  facility  with
Citibank and replaced $12.4 million of letters of credit  outstanding  under the
facility  with  letters  of  credit   guaranteed  by  Object  Trading  Corp.,  a
corporation wholly owned by Isaac Perlmutter. Mr. Perlmutter is Vice Chairman of
the Company's  Board of Directors,  an employee of the Company and the Company's
largest stockholder.

     On  November  30,  2001,  the  Company  and HSBC Bank USA  entered  into an
agreement for a senior credit facility (the "HSBC Credit Facility") comprised of
a $20.0 million revolving letter of credit facility renewable annually for up to
three years and a $37.0 million  multiple draw three year  amortizing  term loan
facility, which was used to finance the repurchase of a portion of the Company's
Senior Notes. The term loan bore interest at the lender's reserve adjusted LIBOR
rate plus a margin of 3.5%.  On August  30,  2002,  the  Company  prepaid  $10.0
million of the term loan.  In connection  with this early  repayment of the term
loan,  the  Company  recorded a charge of $4.1  million for the  write-off  of a
proportionate share of unamortized  deferred financing costs associated with the
facility.  On December 12, 2002, the Company prepaid the remaining $22.4 million
of the term loan and  recorded  an  additional  charge of $7.7  million  for the
write-off of the remaining  unamortized deferred financing costs associated with
this  facility.  Approximately  $15.8  million of  letters of credit  previously
issued  by  Object  Trading  Corp.   were  replaced,   in  connection  with  the
establishment of the HSBC Credit  Facility,  by letters of credit issued by HSBC
Bank USA. On December 18, 2002, the Company  amended the HSBC Credit Facility to
provide for a $15.0 million revolving credit facility and a $15.0 million letter
of credit  facility.  As of December 31, 2002, $8.9 million of letters of credit
were outstanding and there were no borrowings under the HSBC revolver.  The HSBC
Credit Facility  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  tangible net worth and minimum free cash flow. The HSBC
Credit Facility is secured by (a) a first priority  perfected lien in all of the
assets of the Company;  and (b) a first  priority  perfected  lien in all of the
capital stock of each of the Company's domestic  subsidiaries.  Borrowings would
bear interest at prime or LIBOR-plus-2 per annum.

     In consideration for the HSBC Credit Facility,  the Company issued warrants
to HSBC to purchase up to 750,000  shares of the Company's  common stock.  These
warrants had 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
option pricing model with the following assumptions:  risk free interest rate of
4.16%;


                                       F-16

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

no dividend  yield;  expected  volatility  of 0.924;  and expected  life of five
years. The aggregate value of approximately  $2.0 million was initially included
in deferred financing costs. Due to the prepayment of the term loan, the related
unamortized deferred financing costs which were being amortized over the initial
three year term of the HSBC Credit Facility using the effective  interest method
were  subsequently  written off on an accelerated basis as of December 31, 2002.
In December 2002, HSBC exercised 500,000 warrants and received 295,110 shares of
common stock under a Cashless  Exercise Ratio  provision of the warrants.  As of
December  31,  2002,   warrants  to  purchase  250,000  common  shares  remained
outstanding with HSBC and were exercised in February 2003.

     In  connection  with  the HSBC  Credit  Facility,  the  Company  and  Isaac
Perlmutter   entered  into  a  Guaranty  and   Security   Agreement   ("Security
Agreement").  Under the terms of the Guaranty, Mr. Perlmutter has guaranteed the
payment of the Company's obligations under the HSBC Credit Facility in an amount
equal to 25% of all principal  obligations  relating to the HSBC Credit Facility
plus an amount, not to exceed $10.0 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 $30.0 million.  Under the terms of the Security  Agreement,  Mr.
Perlmutter  has provided the  creditors  under the HSBC 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. This guaranty continues with the current HSBC
revolving and letter of credit facilities.

     In  consideration  for the  Security  Agreement,  the  Company  issued  Mr.
Perlmutter  immediately  exercisable  warrants on November  30, 2001 to purchase
3,867,708 shares of the Company's common stock.  These warrants have an exercise
price of $3.11 and a life of five years.  The aggregate value of the exercisable
warrants was  approximately  $10.5  million and is included in the  Consolidated
Balance Sheet at December 31, 2001 as deferred financing costs.  During February
2002,  Mr.  Perlmutter  guaranteed  approximately  $4.4 million  relating to the
Company's  corporate office lease agreement as well as certain letters of credit
totaling  approximately  $0.2  million,  which are  included  within his maximum
guarantee  of $30.0  million,  for which the  Company  granted  him  warrants to
purchase 735,601 shares of common stock at an exercise price of $3.11 and a life
of five years.  Based on the cumulative  amounts  guaranteed by Mr.  Perlmutter,
4,603,309  warrants were  exercisable as of December 31, 2002. The fair value of
the  warrants  was  estimated  at the date of issuance  using the  Black-Scholes
option pricing model with the following assumptions:  risk free interest rate of
4.16%; no dividend yield; expected volatility of 0.92; and expected life of five
years. The aggregate value of the exercisable  warrants of  approximately  $13.0
million was included in the Consolidated Balance Sheet starting in November 2001
as deferred  financing  costs. Due to the prepayment of the Company's term loan,
all related  deferred  financing  costs,  have initially been amortized over the
initial three year term of the HSBC Credit Facility using the effective interest
method and were subsequently  written off on an accelerated basis as of December
31, 2002.

6.   8% Cumulative  Convertible  Exchangeable  Preferred Stock and Stockholders'
     Equity

     Each share of the 8% Preferred  Stock is convertible  into 1.039 fully paid
and non-assessable  shares of common stock of the Company. On November 18, 2002,
the Company completed an Exchange Offer whereby 17.6 million shares (85%) of its
8% Preferred  Stock were  tendered in exchange  for 24.5  million  shares of its
common stock  utilizing a 1.39 exchange  rate.  In connection  with the Exchange
Offer,  the Company  recorded a non-cash charge of  approximately  $55.3 million
(representing  the fair  value of the  additional  common  shares  issued in the
Exchange  Offer) as a  preferred  dividend  in the fourth  quarter  of 2002,  in
accordance  with SFAS No. 84,  "Induced  Conversion  of  Convertible  Debt." The
Company is required to redeem the remaining  outstanding  shares of 8% Preferred
Stock on  October  1,  2011 at $10.00  per share  plus all  accrued  and  unpaid
dividends. The 8% Preferred Stock generally votes together with the common stock
on all  matters.  The Company  has the option to pay the  dividend in cash or as
additional 8% Preferred  Stock. On March 31, June 30,  September 30 and December
31,  2002,  the Company  issued  413,067,  400,538,  407,971 and 64,239  shares,


                                       F-17

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

respectively, of 8% Preferred Stock in payment of dividends declared and payable
to stockholders of record on those dates.  Conversions of preferred  shares into
common shares totaled 1,024,282,  and 18,805,122 during the years ended December
31, 2001 and 2002, respectively.

As of December  31, 2002,  the Company had  reserved  shares of common stock for
issuance as follows:




                                                                 
Conversion of 8% Preferred Stock .............................         3,404,329
Exercise of common stock purchase warrants ...................         4,853,309
Exercise of common stock options .............................        15,386,418
                                                                      ----------
Total ........................................................        23,644,056


7.   Stock Option Plans

     Under the terms of the  Company's  1998  Stock  Incentive  Plan (the  "1998
Plan"),   incentive   stock  options,   non-qualified   stock  options,   stock
appreciation rights,  restricted stock, performance units and performance shares
may be granted to officers, employees,  consultants and directors of the Company
and its  subsidiaries.  In  November  1998,  the  Company  authorized  a maximum
aggregate number of shares of common stock as to which options and rights may be
granted under the Stock Incentive Plan of 6.0 million shares,  including options
described below,  provided that the number of shares of common stock that may be
the subject of awards granted to any individual during any calendar year may not
exceed one million shares.

     In 2001, the Company  determined that the number of shares  remaining under
the 1998  Plan was  insufficient  to  continue  to meet the  Company's  needs of
attracting and retaining executive officers,  directors and other key employees.
The  Company  also  determined  that the limit on the number of shares of common
stock  that may be the  subject  of awards  granted  to an  individual  during a
calendar  year  should  also be  increased  to allow the  Company to attract and
retain  individuals  of exceptional  talent and importance to the Company.  As a
result,  on November 28, 2001, the Company adopted an amendment to the 1998 Plan
increasing the number of shares of common stock that may be issued upon exercise
of  awards  under  the  1998  Plan by an  additional  10.0  million  shares  and
increasing  the number of such shares that may be the subject of awards  granted
to any individual during any calendar year to four million shares.

     Information  with  respect to options  under the stock  option plans are as
follows:


                                                                            Weighted
                                                                             Average
                                                                            Exercise
                                                          Shares              Price
                                                         ---------         ---------
                                                                      
Outstanding at December 31, 1999 ..............          5,284,750         $   6.22
Canceled ......................................           (763,250)        $   6.13
Exercised .....................................            (64,750)        $   5.88
Granted .......................................            676,000         $   5.63
                                                         ---------         --------
Outstanding at December 31, 2000 ..............          5,132,750         $   6.21

Canceled ......................................         (1,035,209)        $   5.63
Exercised .....................................                 --         $     --
Granted .......................................          5,685,000         $   3.37
                                                         ---------         --------
Outstanding at December 31, 2001 ..............          9,782,541         $   4.61

Canceled ......................................           (284,208)        $   6.25
Exercised .....................................           (363,832)        $   4.69
Granted .......................................          1,709,001         $   7.35
                                                       ===========         ========
Outstanding at December 31, 2002 ..............         10,843,502         $   5.00
                                                       ===========         ========


     For the years ended December 31, 2000, 2001 and 2002, there were 2,598,167,
8,205,040 and 8,807,666  exercisable  options with a weighted  average  exercise
price of $6.18, $4.67 and $4.68, respectively.


                                       F-18


                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

     Stock options outstanding at December 31, 2002 are summarized as follows:



                                                 Weighted
                                                  Average         Weighted                            Weighted
                              Outstanding        Remaining        Average         Exercisable          Average
           Range of           Options at        Contractual       Exercise             at             Exercise
       Exercise Prices     December 31, 2002    Life-Years         Price       December 31, 2002        Price
       ---------------     -----------------    ----------        --------     -----------------      --------
                                                                                   
        $2.38 - $3.27          1,471,501            8.41           $ 2.78          1,075,166            $ 2.88
        $3.62 - $5.00          4,496,667            5.28           $ 3.73          4,342,667            $ 3.70
        $5.59 - $8.30          4,875,334            7.22           $ 6.83          3,389,833            $ 6.50



     The weighted  average fair value of options  granted during 2000,  2001 and
2002 was $2.68, $2.46 and $4.96, respectively.

     Options  granted in 1998 under the 1998 Plan vest  generally  in four equal
installments beginning with the date of the grant. Options granted subsequent to
1998, vest generally in three equal  installments  beginning 12 months after the
date of grant. At December 31, 2002,  4,542,916 shares were available for future
grants of options and  rights.  At  December  31,  2002,  the  weighted  average
remaining contractual life of the options outstanding is 6.58 years.

     On  November  30 2001,  the  Company  entered  into a six  year  employment
agreement with Mr. Perlmutter.  The agreement, among other things provides for a
minimal  salary and six year options to purchase  3,950,000  common  shares at a
price of $3.62 per share.  The  options  may be  exercised  at any time.  Shares
obtained  under the options are  restricted  shares  until they fully vest.  The
vesting  period  for the  shares  is one  third on the  fourth,  fifth and sixth
anniversary  of the  agreement.  At December  31, 2002,  these  options were not
exercised in whole or in part.

8. Sales to Major Customers and International Operations

     The Company primarily sells its merchandise to major retailers, principally
throughout the United  States.  Credit is extended based on an evaluation of the
customer's financial condition and generally, collateral is not required. Credit
losses are provided for in the financial  statements and have been  consistently
within management's expectations.

     During the year ended  December  31,  2000,  the  Company's  largest  three
customers accounted for approximately 19%, 11% and 6% of total net sales. During
the year  ended  December  31,  2001,  the  Company's  largest  three  customers
accounted for approximately  9%, 9 % and 4% of total net sales.  During the year
ended December 31, 2002,  the Company's  largest three  customers  accounted for
approximately 15%, 9% and 4% of total net sales.

     The   Company's   Hong  Kong   wholly-owned   subsidiary   supervises   the
manufacturing  of the  Company's  products  in China  and  sells  such  products
internationally. All sales by the Company's Hong Kong subsidiary are made F.O.B.
Hong Kong against  letters of credit.  During the years ended December 31, 2000,
2001,  and 2002  international  sales  were  approximately  28%,  23%,  and 23%,
respectively,  of total net toy sales. During the years ended December 31, 2000,
2001,  and 2002 the Hong Kong  operations  reported  operating  income (loss) of
approximately $7,198,000,  $519,000 and ($28,000) and income before income taxes
of approximately $7,410,000, $888,000, and $3,000, respectively. At December 31,
2001 and 2002, the Company had assets in Hong Kong of  approximately  $1,602,000
and $5,480,000,  respectively  excluding amounts due from the Company.  The Hong
Kong  subsidiary   represented   approximately   $45,022,000  and   $45,024,000,
respectively,  of the Company's  consolidated retained earnings during the years
ended December 31, 2001 and 2002.


                                       F-19

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

9.   Restructuring of Toy Biz Operations

     During 2001, the Company entered into a license agreement with TBW covering
the  manufacture  and sale of toy action  figures and  accessories of all Marvel
characters  other than those based upon  movies or  television  shows  featuring
Spider-Man and produced by Sony Pictures.  TBW opted to use the Toy Biz name for
marketing purposes, but Marvel has neither an ownership in TBW nor any financial
obligations  or guarantees  related to TBW. The license  agreement has a term of
five and  one-half  years and  included  the  payment  to Marvel of an  advanced
royalty of approximately  $20.0 million.  In addition,  the Company and TBW have
entered into other  agreements  which require Marvel to provide TBW with certain
administrative  and management  support for which TBW reimburses Marvel. For the
six months  ended  December 31, 2001 and the year ended  December 31, 2002,  the
Company  was   reimbursed   approximately   $1.7   million  and  $8.2   million,
respectively,  for  administrative  and management  support.  As of December 31,
2002,  the Company had  recognized  the total $20.0 million  minimum  guaranteed
royalty into  revenue.  The Company  will  receive cash  payments for the future
royalties, as earned, under this agreement.

     During 2001,  the Company  sold the rights and  inventory to a FCC approved
toy component to a company controlled by TBW for $3.5 million.

     During 2001,  the Company  entered into a license  agreement to manufacture
and distribute a line of toys based on the Lord of the Rings'  characters.  This
agreement  requires  minimum royalty  payments to New Line Cinema over the three
year term of $15.0 million,  $10.0 million of which has been paid as of December
31, 2002.  Through  December 31, 2002, the Company has recognized $11.9 million,
classified as selling, general and administrative expenses, associated with this
license agreement. Under the present agreement, the Company may continue to sell
Lord of the Rings toys through December 31, 2004.

     In  addition  to toys  related to  Spider-Man:  The Movie  characters,  the
Company  continues to distribute  toys based on characters  from the Lord of the
Rings.  These operations are not affected by the license and other  arrangements
with TBW.

10.   Income Taxes

     Income tax expense is summarized as follows:



                                                Years Ended December 31,
                                              2000         2001            2002
                                           ---------     --------        -------
                                                    (in thousands)
Current:
                                                                    
     Federal ......................            $--            $--            $--
     State ........................            431            384            590
     Foreign ......................          1,698            263            405
                                           -------        -------        -------
                                             2,129            647            995
                                           -------        -------        -------
Deferred:
     Federal ......................            642             --         10,907
     State ........................            156             --             --
                                           -------        -------        -------
                                               798             --         10,907
                                           -------        -------        -------
Income tax expense ................        $ 2,927        $   647        $11,902
                                           =======        =======        =======



                                       F-20

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

     The  differences  between  the  statutory  Federal  income tax rate and the
effective tax rate are  attributable to the following:



                                                               Years Ended December 31,
                                                                2000    2001    2002
                                                               -----    ----    -----
                                                                       
Federal income tax provision computed at the statutory rate   (35.0)% (35.0)%   35.0%
State taxes, net of Federal income tax effect .............     0.4%    1.0%     0.6%
Non-deductible amortization ...............................     9.2%   31.5%      --
Foreign taxes .............................................     1.5%    1.0%     1.0%
Purchase accounting .......................................    27.6%    4.5%    (5.6)%
Other .....................................................    (0.3)%  (0.5)%   (0.2)%
                                                               -----   -----    -----
Total provision for income taxes ..........................     3.4%    2.5%    30.8%
                                                               =====   =====    =====


     For financial statement purposes,  the Company records income taxes using a
liability  approach which results in the recognition and measurement of deferred
tax assets  based on the  likelihood  of  realization  of tax benefits in future
years.  Deferred taxes result from temporary  differences in the  recognition of
income  and  expenses  for  financial  and  income tax  reporting  purposes  and
differences  between the fair value of assets acquired in business  combinations
accounted for as purchases and their tax bases.  The  significant  components of
the Company's deferred tax assets and liabilities are as follows:


                                                              December 31,
                                                            2001       2002
                                                            (in thousands)
Deferred tax assets:
                                                                     
     Accounts receivable .........................     $   5,599      $   6,208
     Inventories .................................         2,973          4,085
     Sales returns reserves ......................         2,443          2,169
     Employment reserves .........................         4,073          4,100
     Restructuring and other reserves ............         2,866          5,527
     Reserve related to investments ..............         4,293          4,902
     Net operating loss carryforwards ............        75,928         78,399
     Tax credit carryforwards ....................         3,145          1,776
     Other .......................................           222             79
                                                       ---------      ---------
     Gross deferred tax assets ...................       101,542        107,245
     Less valuation allowance ....................       (92,851)       (96,737)
                                                       ---------      ---------
     Net deferred tax assets .....................         8,691         10,508
                                                       ---------      ---------
Deferred tax liabilities:
     Depreciation and amortization ...............         3,620            830
     Licensing, net ..............................         5,071          9,678
                                                       ---------      ---------
     Gross deferred tax liabilities ..............         8,691         10,508
                                                       ---------      ---------
     Net deferred tax asset (liability) ..........           $--            $--
                                                       =========      =========


     During 2001 and 2002, the Company  recorded a valuation  allowance  against
its deferred tax assets as it was not assured that such assets would be realized
in the future.  During 2001 and 2002, the Company  recorded  deferred income tax
provisions of  approximately  $10,671,000  and  $7,905,000,  reducing  goodwill,
related to  pre-acquisition  net operating  losses.  The valuation  allowance at
December 31, 2002 includes $25.1 million which,  if realized,  will be accounted
for as a reduction  of  goodwill.  The  valuation  allowance  was  approximately
$67,119,000 and $106,594,000 at December 31, 1999 and 2000, respectively.


                                       F-21

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

     At  December  31,  2002,   the  Company  has  Federal  net  operating  loss
carryforwards of approximately $132.0 million,  which are scheduled to expire in
the  years  2017  through  2020.  Of  the  total  Federal  loss   carryforwards,
approximately   $39.8   million  is  subject  to  a  Section   382   limitation.
Additionally,  the  Company  has  various  state and local  net  operating  loss
carryforwards  of  approximately  $365.4  million,  which will expire in various
jurisdictions in years 2005 through 2021. The state and local loss carryforwards
are also  generally  subject to the Section 382  limitation.  As of December 31,
2002, no value has been ascribed in the  accompanying  financial  statements for
either the Federal or state and local net operating loss carryforwards.

11. Quarterly Financial Data (Unaudited)




     Summarized quarterly financial information for the years ended December 31,
2001 and 2002 is as follows:

                                ------------------------2001----------------- -------------------2002--------------------
    Quarter Ended               March 31    June30  September 30 December 31  March 31* June 30 September 30 December 31**
    -------------               --------    ------  ------------ -----------  --------  ------- ------------ ------------
                                                                        (in thousands, except per share data)
                                                                                    
Net sales ....................  $ 42,672   $ 45,932   $ 43,026   $ 49,594   $ 57,222   $ 70,939  $ 84,378   $ 86,507
Gross profit .................    18,349     23,529     19,838     30,799     28,418     36,680    43,278     48,567
(Loss) income before
extraordinary gain and
cumulative effect of
change in accounting principle    (8,687)    (7,404)   (14,749)     3,367        760      8,381    10,636      6,997
Extraordinary gain ...........        --         --     13,645     19,093         --         --        --         --
Cumulative effect of
change in accounting principle        --         --         --         --      4,561         --      (175)      (222)
Net (loss) income ............    (8,687)    (7,404)    (1,104)    22,460     (3,801)     8,381    10,811      7,219
Preferred dividend requirement     3,968      3,983      4,006      4,077      4,131      4,005     4,080     55,916
Net (loss) income attributable
to common stock ..............   (12,655)   (11,387)    (5,110)    18,383     (7,932)     4,376     6,731    (48,697)
Dilutive net (loss) income
per common share before
extraordinary gain and
cumulative effect of change
in accounting principle ......  $ ( 0.37)  $  (0.33)  $ ( 0.54)  $  (0.02)  $  (0.23)  $   0.10  $   0.17   $  (1.03)



     * Quarterly  financial  data for the quarter  ended March 31, 2002 reflects
the  adoption  of SFAS  142 as a  cumulative  effect  of  change  in  accounting
principle of $4.6 million.

**Quarterly  financial  data for the quarter  ended  December 31, 2002  reflects
approximately  $9.2  million in  amortization  of  non-cash  bank loan costs and
senior note offering costs (see Note 5), an inventory write-down of $2.2 million
related to the shutdown of its Spectra Star product line,  $4.8 million  related
to the  accelerated  write-off of prepaid  royalties  related to the Lord of the
Rings toy  license,  and  approximately  $4.4 million for  estimated  settlement
values associated with litigation matters (see Note 13).

     The  quarterly  period  ended  December  31, 2001  includes the reversal of
$3,474,000 of  Administration  Expense Claims  Payable no longer  required and a
gross profit effect of $1,713,000  related to inventory  reserves  provided in a
previous year.

     The  loss per  common  share  computation  for  each  quarter  and year are
separate calculations.  Accordingly,  the sum of the quarterly (loss) income per
common share amounts may not equal the loss per common share for the year.


                                       F-22


                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

12.   Related Party Transactions

     An affiliate of the Company,  which is  wholly-owned by Mr.  Perlmutter,  a
major  stockholder,  acts as the  Company's  media  consultant  in  placing  the
Company's  advertising and receives  certain fees and  commissions  based on the
cost of the placement of such  advertising.  During the years ended December 31,
2000,  2001,  and 2002,  the Company paid fees and  commissions to the affiliate
totaling approximately $966,000, $159,000, and, $102,000, respectively, relating
to such advertisements.

     Avi Arad is an officer, member of the Board of Directors,  and stockholder.
The  Company  incurred  royalty  expense due to Mr. Arad for toys he invented or
designed of  approximately  $1,551,000,  $866,000 and $684,000  during the years
ended  December  31, 2000,  2001,  and 2002,  respectively.  An affiliate of the
Company,  which is wholly-owned  by Mr. Arad,  provides  production  services in
connection with the Company's animated television series. During the years ended
December  31, 2000,  2001 and 2002,  the Company  paid  production  fees to this
affiliate of  approximately  $20,000,  $180,000 and $300,000,  respectively.  At
December  31,  2001 and 2002,  the  Company  had an  obligation  to Mr.  Arad of
approximately $182,000 and $171,000,  respectively, for unpaid royalties as well
as an  obligation  of  approximately  $120,000  and $90,000,  respectively,  for
production fees.

     The Company  shares  office  space and certain  general and  administrative
costs with affiliated entities. Rent allocated to affiliates for the years ended
December 31, 2000, 2001 and 2002 was approximately $67,000, $80,000 and $83,000,
respectively.  While  certain costs are not  allocated  among the entities,  the
Company believes that it bears its proportionate share of these costs.

     The Company paid  producer  fees in regards to its  television  series to a
Company  wholly  owned by an officer  and  employee of  approximately  $155,000,
$168,000 and $202,000  during the years ended December 31, 2000,  2001 and 2002,
respectively.

     During 2001, the Company reimbursed Mr. Perlmutter for $7,927 in legal fees
in  connection  with  the  Security  Agreement   disclosed  in  Note  5  to  the
Consolidated Financial Statements.

13.  Commitments and Contingencies

     In June 2000,  the Company  entered into a lease  agreement for a corporate
office facility.  The lease term, which is approximately 5 1/2 years,  commenced
on or about April 1, 2001 and terminates on July 31, 2006. At December 31, 2002,
approximately  $4.4  million  of lease  payments  are  being  guaranteed  by Mr.
Perlmutter  (See Note 5 to the  Consolidated  Financial  Statements  for further
details.)  Rent expense  amounted to  approximately  $2,382,000,  $3,439,000 and
$3,173,000 for the years ended December 31, 2000, 2001 and 2002, respectively.

The following table sets forth the Company's  Contractual Cash Obligations as of
December 31, 2002:



   Contractual
 Cash Obligations                Payments Due By Period
- ------------------      --------------------------------------------------------
                                        Less than                         After
(Amounts in thousands)       Total       1 Year   1-3 Years  4-5 Years  5 Years
- ---------------------   ------------   --------   ---------  ---------  --------
                                                         
Long Term Debt              $150,962      $  --      $  --       $ --   $150,962
Operating Leases              13,739      3,383      6,810      2,556        990
                            --------   --------   --------   --------   --------
Total Contractual
Cash Obligations            $164,701   $  3,383   $  6,810   $  2,556   $151,952
                            ========   ========   ========   ========   ========


                                       F-23

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

     The Company is a party to a lease agreement for a public warehouse in Fife,
Washington  . The  lease  payments  associated  with this  warehouse,  which are
estimated to average  between  $72,000 and $120,000 per year, are based on cubic
feet,  measured  monthly,  and are subject to change  depending  on the capacity
devoted to the inventory stored at this location.

     The Company has a contractual  obligation under a studio agreement to spend
approximately $1.5 million and $1.0 million in advertising for the 2002/2003 and
2003/2004 broadcast year, respectively.




The following table sets forth the Company's Other Commercial Commitments as of
December 31, 2002:

- ------------------------        ------------------------------------------------
 Other Commercial                                    Amount of Commitment
   Commitments                   Total              Expiration Per Period
- ------------------------        ------  ----------------------------------------
                                        Less than                        Over
(Amounts in thousands)                   1 Year  1-3 Years 4-5 Years  5 Years
- ------------------------                -------- --------- ---------  --------
                                                        
Standby Letters of Credit       $8,894   $  250   $8,644    $  --      $   --
                                ------  -------- --------- ---------  --------



     The Company is obligated to make payments under various royalty  agreements
of  approximately  $5,296,000 and $35,000  during the years ending  December 31,
2003 and 2004, respectively.

     The Company remains liable in connection  with  businesses  previously sold
and has been  indemnified  against  such  liabilities  by the  purchaser of such
businesses.

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 Court's  decision and the hearing on the
appeal was held in June 2002.  On November 7, 2002,  the United  States Court of
Appeals  for the Second  Circuit  reversed  the  decision  of the United  States
District  Court for the  Southern  District  of New York,  which had granted the
Company's  motion for summary  judgment  and remanded the action to the District
Court for trial. A non-jury trial is scheduled to begin on July 16, 2003.

     X-Men  Litigation.  In April 2001,  Twentieth  Century Fox Film Corporation
("Fox") 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 tortious interference with a 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

                                       F-24

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

consolidated.  The case was settled in February 2003. The settlement included an
extension  of time  during  which Fox may  exploit  its  rights in the  "X-Men",
"Daredevil",  and  "Fantastic  Four"  properties.  Additionally,  the settlement
expanded  the  relationship  between Fox and Marvel  whereby  the  parties  will
negotiate  up to three  new film and  television  deals  for  additional  Marvel
properties during the next two years.

     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 an appeal. The Company entered into negotiations and
settled the case in early 2003 at an amount not in excess of the amount provided
for in the accompanying consolidated financial statements.

     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 vigorously to defend against the claims made
in this action on their merits.

     Stan Lee v. Marvel. On November 12, 2002, Stan Lee commenced his previously
threatened  action in the United States District Court for the Southern District
of New York,  alleging  claims for  breach of his  November  1, 1998  employment
agreement.  Mr. Lee claims the right to a 10% profit participation in connection
with the Spider-Man movie and other film and television productions that utilize
Marvel  characters.  Pursuant  to the  terms of the  Employment  Agreement,  the
Company  is  currently  paying  Mr.  Lee a salary of $1.0  million  per year and
believes  that Mr.  Lee's  claim is  without  merit.  Marvel  has  answered  the
complaint and denied all of its material allegations.

     Adminstration  Expense  Claims  Litigation.  While the  Company has settled
substantially  all  Administration  Expense  Claims,  litigation  brought by the
Company to contest some of those claims is still pending.  The Company estimates
that  it may be  required  to  pay  approximately  $1.3  million  of  additional
Administration  Expense  Claims,  although  there can be no  assurance as to the
amount the Company will be required to pay. At December  31,  2002,  the Company
had reserves (established in 1998) of $1.3 million for this purpose.

     General.  In 2002,  the Company  provided  reserves of  approximately  $4.4
million for estimated  settlement  amounts  associated  with certain  litigation
matters.

14.  Benefits Plans

     The Company has a 401(k) Plan covering  substantially all of its employees.
In  addition,  in  connection  with the 1999 sale of a  subsidiary,  the Company
retained  certain  liabilities  related to a defined  benefit  pension  plan for
certain of such subsidiaries employees. In prior years, this plan was amended to
freeze the accumulation of benefits and to prohibit new participants. Assuming a
discount rate of 7.00% and an expected rate of return of 9.00%,  the accumulated
benefit obligation is approximately $18.7 million  (approximately  $18.2 million
as of December 31, 2001) of which approximately $4.5 million (approximately $3.3
million as of December 31,  2001) is unfunded at December  31,  2002.  Given the
current market  conditions,  the Company has lowered the future discount rate to
6.75% and the expected rate of return to 8.00% for the 2003 fiscal period.  This
amount is recorded as a component of accumulated other comprehensive loss and is
being amortized over


                                       F-25

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

the estimated  remaining lives of the participants.  Plan expenses for the years
ended December 31, 2000, 2001 and 2002 were not significant.

15.  Segment Information

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

Toy Merchandising and Distribution Segment

     The toy merchandising and distribution segment designs,  develops,  markets
and  distributes  a  limited  line  of toys to the  worldwide  marketplace.  The
Company's  toy products  are based upon movies and  television  shows  featuring
Spider-Man and produced by Sony Pictures, and upon the movie trilogy Lord of the
Rings (New Line  Cinema).  The Spectra  Star  product  line (which is  presently
scheduled to be closed mid-2003)  designed,  produced & sells kites in both mass
market  stores and  specialty  hobby shops.  Spectra  Star's  sales  amounted to
approximately  $11.6  million for the year ended  December 31,  2002.  Its total
assets of approximately $11.5 million consist principally of inventory, land and
buildings.

Publishing Segment

     The  publishing  segment  creates  and  publishes  comic  books  and  trade
paperbacks principally in North America.  Marvel 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,  the
Incredible Hulk,  Daredevil,  newly developed  Marvel  Characters and characters
created by other entities and licensed to the Company.


                                       F-26

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

Licensing Segment

     The  licensing  segment  relates  to the  licensing  of or  joint  ventures
involving the Marvel Characters for use in a wide variety of products, including
toys,  electronic  games,  apparel,  accessories,   footwear,  collectibles  and
novelties;  in a variety of media, including feature films, television programs,
and  destination-based  entertainment  (e.g.,  theme parks); and for promotional
use.




                                                                   Toys       Publishing     Licensing       Corporate       Legal
                                                                  -------     ----------     ---------       ---------       ------
                                                                                                    (in thousands)
Year  ended December 31, 2000
                                                                                                              
Net sales ................................................     $ 167,309      $  45,183     $  19,159             --      $ 231,651
Gross profit .............................................        61,651         22,857        18,612             --        103,120
Operating (loss) income ..................................       (45,296)         9,099       (15,485)        (7,571)       (59,253)

Total capital expenditures ...............................        15,038             41             5             --         15,084

Identifiable assets for continuing operations ............     $ 109,939      $  76,808     $ 367,210           $  -      $ 553,957
Total identifiable assets ................................     $ 109,939      $  76,808     $ 367,210           $  -      $ 553,957




                                                                   Toys       Publishing     Licensing       Corporate       Legal
                                                                  -------     ----------     ---------       ---------       ------
                                                                                                    (in thousands)
Year  ended December 31, 2001
                                                                                                              
Net sales .................................................     $  91,708      $  49,504     $  40,012            --      $ 181,224
Gross profit ..............................................        26,932         25,577        40,006            --         92,515
Pre-acquisition litigation charge .........................            --             --            --        (3,000)        (3,000)
Operating (loss) income ...................................        (5,807)        14,453         5,168       (12,521)         1,293

Total capital expenditures ................................         7,201             30            14            --          7,245

Identifiable assets for continuing operations .............     $  90,856      $  74,213     $ 352,501          $  -      $ 517,570
Total identifiable assets .................................     $  90,856      $  74,213     $ 352,501          $  -      $ 517,570





                                                                   Toys       Publishing     Licensing       Corporate       Legal
                                                                  -------     ----------     ---------       ---------       ------
                                                                                                    (in thousands)
Year  ended December 31, 2002
                                                                                                                
Net sales ..............................................       $154,983       $ 64,501       $ 79,562             --        $299,046
Gross profit ...........................................         48,788         33,060         75,095             --         156,943
Operating income (loss) ................................          8,857         19,495         69,294        (17,303)         80,343

Total capital expenditures .............................          2,973             22             --             --           2,995

Identifiable assets for continuing operations ..........       $ 44,147       $ 75,637       $397,735           $  -        $517,519
Total identifiable assets ..............................       $ 44,147       $ 75,637       $397,735           $  -        $517,519




                                       F-27

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002

16.  Supplemental Financial Information

     The  following   represents  the   supplemental   consolidating   financial
statements of Marvel Enterprises, Inc., which is the issuer of the Senior Notes,
and its  wholly-owned  subsidiaries  that  guarantee  the  Senior  Notes and the
non-guarantor  subsidiaries as of December 31, 2001 and 2002 and for each of the
three years in the period ended  December 31, 2002.



                                             Issuer And      Non-
                                             Guarantors    Guarantors     Total
                                             ----------    ----------    -------
                                                        (in thousands)
For The Year Ended December 31, 2000
                                                             
Net sales ...............................   $ 181,554    $  50,097    $ 231,651
Gross profit ............................      84,244       18,876      103,120
Operating (loss) income .................     (67,115)       7,862      (59,253)
Net (loss) income .......................     (96,655)       6,797      (89,858)

For The Year Ended December 31, 2001
Net sales ...............................   $ 157,893    $  23,331    $ 181,224
Gross profit ............................      85,339        7,176       92,515
Operating income ........................         242        1,051        1,293
Net income ..............................       3,592        1,673        5,265

For The Year Ended December 31, 2002
Net sales ...............................   $ 261,154    $  37,892    $ 299,046
Gross profit ............................     148,778        8,165      156,943
Operating income ........................      80,324           19       80,343
Net income (loss) .......................      22,688          (78)      22,610





                                     Issuer
                                      And        Non-        Inter-
                                   Guarantors  Guarantors    Company     Total
                                   ----------  ----------  ---------   ---------
December 31, 2001
                                                           
Current assets ...................  $  98,481  $   1,746   $     ---   $ 100,227
Non-current assets ...............    414,772     41,019     (38,448)    417,343
                                    ---------  ---------   ---------   ---------
Total assets .....................  $ 513,253  $  42,765   $ (38,448)  $ 517,570
                                    =========  =========   =========   =========
Current liabilities ..............    105,033  $   3,652   $ (38,448)     70,237
Non-current liabilities ..........    197,400         --          --     197,400
8% Preferred Stock ...............    207,975         --          --     207,975
Stockholders' equity .............      2,845     39,113          --      41,958
                                    ---------  ---------   ---------   ---------
                                    $ 513,253  $  42,765   $ (38,448)  $ 517,570
                                    =========  =========   =========   =========

December 31, 2002
Current assets ...................  $ 116,169  $   6,446      $  ---   $ 122,615
Non-current assets ...............    392,857     38,945     (36,898)    394,904
                                    ---------  ---------   ---------   ---------
Total assets .....................  $ 509,026  $  45,391   $ (36,898)  $ 517,519
                                    =========  =========   =========   =========
Current liabilities ..............  $ 120,551  $   6,358   $ (36,898)  $  90,011
Non-current liabilities ..........    151,859         --          --     151,859
8% Preferred Stock ...............     32,780         --          --      32,780
Stockholders' equity .............    203,836     39,033          --     242,869
                                    ---------  ----------  ---------   ---------
                                    $ 509,026  $  45,391   $ (36,898)  $ 517,519
                                    =========  =========   =========   =========



                                       F-28

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

                                December 31, 2002



                                                                     Issuer
                                                                       and        Non-
                                                                    Guarantors  Guarantors  Total
                                                                    ----------  ----------  -----
                                                                            (in thousands)

                                                                                 
Year Ended December 31, 2000
Cash flows from operating activities:
Net (loss) income ................................................  $(96,154)  $  6,296   $(89,858)
                                                                    ========   ========   ========
     Net cash used in operating activities .......................   (22,599)    (1,630)   (24,229)
     Net cash used in investing activities .......................   (18,647)       (21)   (18,668)
     Net cash provided by financing activities ...................       886         --        886
                                                                    --------   --------   --------
Net decrease in cash .............................................   (40,360)    (1,651)   (42,011)
Cash, at beginning of year .......................................    62,651      2,163     64,814
                                                                    --------   --------   --------
Cash, at end of year .............................................  $ 22,291   $    512   $ 22,803
                                                                    ========   ========   ========

Year Ended December 31, 2001
Cash flows from operating activities:
Net income .......................................................  $  3,872   $  1,393   $  5,265
                                                                    ========   ========   ========
     Net cash provided by operating activities ...................     8,181        632      8,813
     Net cash used in investing activities .......................    (8,896)       (15)    (8,911)
     Net cash used in financing activities .......................    (1,114)        --     (1,114)
                                                                    --------   --------   --------
Net (decrease) increase in cash ..................................    (1,829)       617     (1,212)
Cash, at beginning of year .......................................    22,291        512     22,803
                                                                    --------   --------   --------
Cash, at end of year .............................................  $ 20,462   $  1,129   $ 21,591
                                                                    ========   ========   ========

Year Ended December 31, 2002
Cash flows from operating activities:
Net income .......................................................  $ 22,688   $    (78)  $ 22,610
                                                                    ========   ========   ========
     Net cash provided by operating activities ...................    71,924      3,062     74,986
     Net cash used in investing activities .......................    (7,398)        --     (7,398)
     Net cash used in financing activities .......................   (35,489)        --    (35,489)
                                                                    --------   --------   --------
Net increase in cash .............................................    29,037      3,062     32,099
Cash, at beginning of year .......................................    20,462      1,129     21,591
                                                                    --------   --------   --------
Cash, at end of year .............................................  $ 49,499   $  4,191   $ 53,690
                                                                    ========   ========   ========

17.     Subsequent Event (Unaudited)

     In March 2003, the Company was enabled to elect,  and did elect, to convert
all outstanding  shares of 8% Preferred Stock into an aggregate of approximately
3.5 million shares of the Company's common stock.


                                       F-29



                            MARVEL ENTERPRISES, INC.


                 SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS




                                                          Balance         Charged to Sales     Charged to                   Balance
                                                        At Beginning        or Costs and          Other                     at End
                                                         of Period            Expenses          Accounts     Deductions    of Period
                                                        -----------      ----------------      ----------    ----------    ---------
        Description                                                                                            (5)
- --------------------------------                                           (in thousands)
                                                                                                                
Year Ended December 31, 2000
Allowances included in Accounts
   Receivable. Net:
Doubtful accounts--current .........................         $ 3,951         $    899(3)          --         $   308         $ 4,542
Doubtful accounts--non-current .....................         $   980         $   (980)(2)         --              --              --
Advertising, markdowns, returns,
   volume discounts and other ......................         $24,561         $ 32,779(1)          --         $37,947         $19,393

Year Ended December 31, 2001
Allowances included in Accounts
   Receivable. Net:

Doubtful accounts--current .........................         $ 4,542         $  3,470(4)          --         $ 2,737         $ 5,275
Doubtful accounts--non-current .....................              --               --             --              --              --
Advertising, markdowns, returns,
   volume discounts, and other .....................         $19,393         $ 15,037(1)          --         $22,592         $11,838

Year Ended December 31, 2002
Allowances included in Accounts
   Receivable. Net:

Doubtful accounts--current .........................         $ 5,275         $  3,335(2)          --         $ 1,151         $ 7,459
Doubtful accounts--non-current .....................              --               --             --              --              --
Advertising, markdowns, returns,
   volume discounts and other ......................         $11,838         $ 15,718(1)          --         $15,600         $11,956



(1) Charged to sales.
(2) Charged to costs and expenses.
(3) $962 charged to costs and expenses and $(63) charged to sales.
(4) $3,693 charged to costs and expenses and $(223) charged to sales.
(5) Allowances utilized and/or paid.