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

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 1-13638

TOY BIZ, INC.
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(Exact name of registrant as specified in its charter)

DELAWARE 13-3711775
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

685 THIRD AVENUE, NEW YORK, NY 10017
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

212-588-5100
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(Registrant's telephone number, including area code)

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

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

At November 1, 1997, the number of outstanding shares of the registrant's
common stock, par value $.01 per share, was 27,746,127 shares of Class A Common
Stock.

TOY BIZ, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

September 30, December 31,
1997 1996 *
(unaudited)
------------ ------------

ASSETS
Current Assets:
Cash and cash equivalents....................... $6,454 $6,022
Accounts receivable, net........................ 77,900 95,591
Inventories, net................................. 26,393 20,935
Income tax receivable............................ 9,340 -
Deferred income taxes............................ 7,238 6,173
Prepaid expenses and other....................... 5,646 6,067
------------ ------------

Total current assets......................... 132,971 134,788

Molds, tools and equipment, net................... 20,892 17,680
Product and package design costs, net............. 8,472 9,283
Goodwill and other intangibles, net............... 13,976 9,981
------------ ------------

Total assets................................. $176,311 $171,732
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................ $9,030 $10,237
Accrued expenses and other....................... 32,093 22,359
Borrowings under credit facility................. 12,000
------------ ------------

Total current liabilities..................... 53,123 32,596
------------ ------------

Redeemable preferred stock......................... 1,752 1,681
------------ ------------

Stockholders' equity:
Common stock..................................... 277 277
Additional paid-in capital....................... 70,578 70,587
Retained earnings................................ 50,581 66,591
------------ ------------

Total stockholders' equity.................... 121,436 137,455
------------ ------------

Total liabilities and stockholders' equity.... $176,311 $171,732
============ ============

* Derived from the audited Financial Statements for the year ended
December 31, 1996.

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

TOY BIZ, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(unaudited)

Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------ --------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------

Net sales.............................. $40,765 $83,437 $109,631 $167,620

Cost of sales.......................... 30,520 40,449 72,678 83,121
------------ ------------ ------------ ------------

Gross profit........................... 10,245 42,988 36,953 84,499

Operating expenses:

Selling, general and administrative.. 22,454 20,060 50,284 44,390
Depreciation and amortization........ 6,296 4,044 13,085 8,630
------------ ------------ ------------ ------------

Total operating expenses.......... 28,750 24,104 63,369 53,020
------------ ------------ ------------ ------------

Operating (loss) income................ (18,505) 18,884 (26,416) 31,479

Interest expense (income), net......... 194 (144) 267 (494)
------------ ------------ ------------ ------------

(Loss) income before income taxes.... (18,699) 19,028 (26,683) 31,973

(Benefit) provision for income taxes. (7,480) 7,611 (10,673) 12,790
------------ ------------ ------------ ------------

Net (loss) income...................... ($11,219) $11,417 ($16,010) $19,183
============ ============ ============ ============

(Loss) earnings per share............. ($0.41) $0.42 ($0.58) $0.70
============ ============ ============ ============

Weighted average number of common and
common equivalent shares outstanding,
(in thousands)....................... 27,746 27,398 27,746 27,233
============ ============ ============ ============

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

TOY BIZ, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)

Nine Months
Ended September 30,
----------------------------
1997 1996
------------ ------------

Cash flows from operating activities:
Net (loss) income......................................... ($16,010) $19,183
------------ ------------
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization............................ 13,085 8,630
Benefit for deferred income taxes........................ (1,065) -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net......... 17,691 (33,260)
Increase in inventories, net............................ (5,185) (12,432)
Increase in income tax receivable....................... (9,340) -
Decrease (increase) in prepaid expenses and other....... 421 (4,455)
(Decrease) increase in accounts payable................. (1,207) 3,837
Increase in accrued expenses and other.................. 8,943 12,252
------------ ------------

Total adjustments.......................................... 23,343 (25,428)
------------ ------------

Net cash provided by (used in) operating activities... 7,333 (6,245)
------------ ------------

Cash flows from investing activities:
Purchases of molds, tools and equipment.................. (11,473) (11,246)
Expenditures for product and package design costs........ (3,403) (6,236)
Acquisition of Colorforms................................ (3,982) -
Other investments........................................ (103) (213)
------------ ------------

Net cash used in investing activities................. (18,961) (17,695)
------------ ------------

Cash flows from financing activities:
Redemption of preferred stock............................ - (1,440)
Exercise of stock option................................. 60 438
Proceeds from secondary offering......................... - 9,726
Net borrowings under credit agreement.................... 12,000 -
------------ ------------

Net cash provided by financing activities............. 12,060 8,724
------------ ------------

Net increase (decrease) in cash............................ 432 (15,216)

Cash, at beginning of period............................... 6,022 22,484
------------ ------------

Cash, at end of period..................................... $6,454 $7,268
============ ============

Supplemental disclosures of cash flow information:
Interest paid during the period......................... $559 $83
Income taxes, net paid during the period................ $265 $10,511

Other non-cash transactions:
Accretion of preferred dividend.......................... $71 $81

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

TOY BIZ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
Toy Biz, Inc. and its subsidiaries (collectively, the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instruction to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The results of operations for the three
and nine month periods ended September 30, 1997 are not necessarily indicative
of those for the full year ending December 31, 1997. For further information,
refer to the consolidated financial statements and footnotes thereto contained
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, as filed with the Securities and Exchange Commission.

2. COMMON STOCK OFFERINGS

On August 13, 1996, the Company completed a public offering of 700,000
shares of its Class A Common Stock at $15.00 per share. In connection with
such offering, Marvel Entertainment Group, Inc. ("Marvel"), a principal
stockholder of the Company, also sold 2,500,000 shares of Class A Common Stock.
The approximately $9.1 million net proceeds to the Company was intended to fund
the working capital of the Company and a portion of the Company's capital
commitment to Marvel Studios ("Marvel Studios"), the Company's proposed joint
venture with Marvel. At this time, because of the circumstances surrounding
Marvel's bankruptcy proceedings, the Company has no plans to invest a material
amount of funds in Marvel Studios. Before the Company makes any material
investment in Marvel Studios, the Company intends to assess the developments in
Marvel's bankruptcy proceedings. See Notes 6, 7 and 8.

3. ACQUISITION

On March 25, 1997, pursuant to an Asset Purchase Agreement between the
Company and Colorforms, Inc. ("Colorforms"), the Company acquired certain
assets and assumed certain liabilities of Colorforms (the "Acquisition"). The
purchase price, including estimated fees related to the Acquisition, totaled
approximately $5.9 million. The Company utilized cash available under its
credit facility to finance the Acquisition. The Acquisition was accounted for
as a purchase and the results of Colorforms are included in the Company's
consolidated financial statements from the date of acquisition. On September
23, 1997, the Company entered into a Memorandum of Understanding to transfer
substantially all of the assets and liabilities relating to the business
purchased from Colorforms for approximately $5.4 million. A number of
conditions exist to the consummation of the sale of these assets including the
negotiation of definitive agreements with the potential purchaser.

TOY BIZ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (Dollars in thousands)

September 30, December 31,
1997 1996
---------- ----------

Accounts receivable, net:

Accounts receivable .............. $102,747 $110,932
Less allowances .................. (24,847) (15,341)
---------- ----------
Total ........................ $77,900 $ 95,591
========== ==========

Inventories, net:

Finished goods, net .............. $ 18,558 $ 16,918
Component parts, raw materials and
work-in-process, net .......... 7,835 4,017
---------- ----------
Total ........................ $ 26,393 $ 20,935
========== ==========

Goodwill and other intangibles, net:

Goodwill ......................... $ 14,117 $ 9,815
Patents and other intangibles .... 795 692
Less accumulated amortization .... (936) (526)
---------- ----------
Total ........................ $ 13,976 $ 9,981
========== ==========

Accrued expenses and other:

Accrued advertising costs ........ $ 8,969 $ 7,330
Income taxes payable ............. 3,808 4,343
Accrued inventory purchases ...... 10,821 7,366
Other accrued expenses ........... 8,495 3,320
---------- ----------
Total ........................ $ 32,093 $ 22,359
========== ==========

5. EARNINGS PER SHARE

Earnings per share have been computed based on the weighted average number
of common and common equivalent shares. In February, 1997, the Financial
Accounting Standards Board issued Statement No. 128 (SFAS 128), "Earnings Per
Share," which establishes new standards for computing and presenting earnings
per share. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. The Company does not
anticipate the effect of adopting this new standard will have a material effect
on the Company's earnings (loss) per share information as currently presented.

TOY BIZ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

6. CHANGE OF CONTROL

On June 20, 1997, as a result of proceedings in the bankruptcy cases of
Marvel Holdings Inc. ("Marvel Holdings"), Marvel (Parent) Holdings Inc.
("Marvel (Parent)"), Marvel III Holdings Inc. ("Marvel III" and together with
Marvel Holdings and Marvel (Parent), the "Marvel Holding Companies") and
Marvel and certain of its subsidiaries, all of which are currently pending in
the United States Bankruptcy Court for the District of Delaware, creditors of
the Marvel Holding Companies (the "Marvel Holding Companies Creditors")
obtained the right to vote the shares of the common stock of Marvel which had
been pledged to secure indebtedness held by them to replace Marvel's board of
directors with persons nominated by the Marvel Holding Companies Creditors.
Accordingly, on June 20, 1997, the board of directors of Marvel Holdings,
which was previously elected by the Marvel Holding Companies Creditors, voted
its majority of Marvel's common stock to elect a new board of directors of
Marvel. As a result of the proceedings in those bankruptcy cases, culminating
in the election of nine new members to Marvel's board of directors replacing
Ronald O. Perelman and the other then incumbent directors of Marvel, Marvel's
voting power as a stockholder of the Company was reduced from approximately
78.4% to approximately 26.6%. With this reduction in voting power, Marvel lost
the ability to control, subject to the terms of the Stockholders' Agreement,
dated as of March 2, 1995 (the "Stockholders' Agreement"), the election of
directors to the Company's board of directors and to control the affairs and
operations of the Company.

The reduction in Marvel's stockholder voting power from 78.4% to 26.6%
resulted from the automatic conversion of all of the shares of class B common
stock, par value $.01 per share ("Class B Common Stock"), of the Company held
by Marvel into shares of class A common stock, par value $.01 per share
("Class A Common Stock" and together with the Class B Common Stock, the
"Common Stock"), of the Company. Under the Stockholders' Agreement, by and
among the Company, Marvel and the Company's two other principal stockholders,
Isaac Perlmutter (including two affiliates of Mr. Perlmutter) and Avi Arad,
the loss of control of Marvel by Mr. Perelman triggered the automatic
conversion of the shares of Class B Common Stock held by Marvel into an equal
number of shares of Class A Common Stock. Prior to the conversion of its shares
of Class B Common Stock, which afforded Marvel ten votes per share, Marvel
held approximately 78.4% of the voting power of the Company's Common Stock. As
a result of the conversion, Marvel holds approximately 26.6% of the voting
power of the Company, while Mr. Perlmutter and Mr. Arad each hold
approximately 33.4% and approximately 15%, respectively, of the voting power
of the Company.

Marvel disputes the enforceability of the automatic conversion provisions
of the Stockholders Agreement and maintains that it continues to own its
shares of Class B Common Stock. Marvel has purported to exercise the 78.4%
voting power associated with those shares to remove a majority of the
Company's directors and to replace them with Marvel nominees. On June 23, 1997,
the Company, Zib Inc., Isaac Perlmutter T.A., Isaac Perlmutter and Avi Arad
commenced adversary

TOY BIZ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

6. CHANGE OF CONTROL (continued)

proceedings in the United States Bankruptcy Court for the District of Delaware
in the Marvel bankruptcy cases against Marvel, its wholly-owned subsidiary,
Marvel Characters, Inc. and one of Marvel's parents, Marvel Holdings Inc., for
a declaration that the Class B Common Stock owned of record by Marvel
Characters, Inc. converted to Class A Common Stock on or before June 20, 1997
and that the incumbent board of the Company is the Company's duly constituted
board and for an injunction enjoining the Marvel defendants from interfering
with the proper and orderly functioning of the Company's incumbent board of
directors. On July 7, 1997 the bankruptcy court issued an order indicating
that it intended to abstain from determining the issues presented in favor of
the matter being submitted to the Delaware Chancery Court. On the same date the
defendants filed a motion to dismiss the proceedings. On October 30, 1997,
Marvel and certain of its subsidiaries filed suit against the Company, its
directors and a number of other defendants in the United States District Court
for the District of Delaware and claimed, among other things, that the
Company's board of directors properly consists of Marvel's nominees and that
the actions of the incumbent board were unauthorized. As part of this suit,
Marvel is also seeking to enjoin the Company's pursuit of a reorganization plan
for the resolution of Marvel's bankruptcy that would result in a combination of
the Company with Marvel and is also seeking damages against the Company for
pursuing the reorganization plan. See Note 8.

On July 1, 1997, Andrews Group, Incorporated and Andrews Acquisition Corp.
terminated agreements entered into in 1996 (the "1996 Andrews Acquisition
Agreements") pursuant to which they would have acquired all of the equity
interests in the Company not already owned by Marvel. Andrews Group,
Incorporated and Andrews Acquisition Corp. are both entities controlled by Mr.
Perelman.

The change in control of the Company described above is an event of
default under the Company's credit facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources".

7. POSSIBLE REORGANIZATION PLANS

Due to the significance of the Marvel toy business on the Company's
overall boys' toys business and the negative impact that Marvel's bankruptcy
has had on such business, during the first three quarters of 1997, the Company
had participated in discussions concerning a number of proposed plans of
reorganization that would have resulted in a combination of the Company and
various segments of Marvel's business and that would have facilitated a
resolution of Marvel's bankruptcy proceedings. In connection with these
proposals, the Company had reached tentative agreements with various parties
interested in the bankruptcy proceedings including Marvel, the largest holders
of the Marvel Holding Companies bonds and Marvel's senior secured lenders.
Except as described in Note 8, none of the transactions contemplated by these
proposals is being pursued or has been consummated.

TOY BIZ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

8. SUBSEQUENT EVENT

On October 8, 1997, the Company announced a further proposal for the
combination of Toy Biz and Marvel. In connection with the proposed combination,
Toy Biz stockholders, other than Marvel, currently would receive 41% of the
capital stock of the combined company (on a fully diluted basis) and the
senior secured creditors of Marvel would receive a combination of cash and
common and preferred securities issued by the combined company. The proposal
is subject to a number of conditions including acceptance by the holders of no
less than two thirds of the Marvel's senior secured debt by November 21, 1997
and bankruptcy court approval. Holders of more than one third of Marvel's
senior secured debt have accepted the proposal.

On October 30, 1997, Marvel and its subsidiaries filed an action against
the Company, its directors and a number of other defendants in the United
States District Court for the District of Delaware. The complaint against the
Company and its directors alleges that the Company and its directors have
breached their fiduciary duty to Marvel, as a minority stockholder in Toy Biz,
and have otherwise wrongfully acted, in making the Company's October 8, 1997
reorganization proposal to combine with Marvel in attempting to conclude
Marvel's bankruptcy proceedings and by refusing to recognize Marvel's designees
to the Company's board of directors. The complaint also alleges that the
Company's proposed reorganization plan violates certain provisions of the
bankruptcy code and is therefore invalid. The complaint further alleges that
the Company has breached an agreement with Marvel by failing to contribute any
amounts to the operations of Marvel Studios. Finally, the complaint alleges
that the Company has wrongfully interfered with Marvel's efforts to negotiate
with the Marvel secured lenders for the resolution of the bankruptcy
proceedings. The Company believes that the claims against it and the Company's
directors are without merit and the Company intends to defend this action
vigorously.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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 under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" could cause actual results to differ materially from those
contained in forward-looking statements made in this Form 10-Q Quarterly Report
and in oral statements made by authorized officers of the Company. When used in
this Form 10-Q, the words "intend", "estimate", "believe", "expect" and similar
expressions are intended to identify forward-looking statements. In addition,
the following factors, among others, could cause the Company's financial
performance to differ materially from that expressed in any forward-looking
statements made by, or on behalf of, the Company: (i) developments in the
Marvel bankruptcy proceedings (including the Company's proposal with respect
thereto); (ii) a decrease in the level of media exposure or popularity of
Marvel characters resulting in declining revenues of toys based on such
characters; (iii) the lack of commercial success of properties owned by major
entertainment companies that have granted the Company toy licenses; (iv)
consumer acceptance of new toy product introductions; (v) the impositon of
quotas or tariffs on toys manufactured in China as a result of a deterioration
in trade relations between the U.S. and China; (vi) changing consumer
preferences; (vii) production delays or shortfalls; and (viii) general economic
conditions.

GENERAL

The Company designs, markets and distributes in the United States and
internationally new and traditional toys in the boys', girls', preschool, and
activity toy categories featuring major entertainment and consumer brand name
properties. The Company also designs, markets, and distributes its own line of
proprietary toys. The Company's believes that its business in the boys' toys
category domestically and internationally continues to be negatively impacted
as a result of the proceedings surrounding Marvel's bankruptcy. This includes
decreased retailer interest in Marvel brand products and reduced consumer
interest in these products due to reduced promotional activity by Marvel. The
Company believes that the Marvel bankruptcy has had and will continue to have
an adverse impact on the Company in various ways including, but not limited to,
the following: concerns among retailers about the future of the Marvel brand,
the status of the Company, potential impact on the Company's relationship with
its distributors, difficulty in obtaining new licenses and excess legal and
administrative expenses. The Company has set forth below estimates of its
results of operations after making certain adjustments for the effects of the
Marvel bankruptcy. There can be no assurance that these estimates could have
been achieved had the circumstances surrounding Marvel's bankruptcy not
existed.

On March 25, 1997, pursuant to an Asset Purchase Agreement between the
Company and Colorforms, the Company acquired certain assets and assumed
certain liabilities of Colorforms. The purchase price, including estimated
fees related to the Acquisition, totaled approximately $5.9 million. The
Company utilized cash available under its credit facility to finance the
Acquisition. The Acquisition was accounted for as a purchase and the results
of Colorforms are included in the Company's consolidated financial statements
from the date of acquisition. On September 23, 1997, the Company entered into
a Memorandum of Understanding to transfer substantially all of the assets and
liabilities relating to the business purchased from Colorforms for
approximately $5.4 million. A number of conditions exist to the consummation of
the sale of these assets including the negotiation of definitive agreements
with the potential purchaser.

RESULTS OF OPERATIONS

Three months ended September 30, 1997 compared with the three months ended
September 30,1996

The Company's net sales decreased to approximately $40.8 million for the
three months ended September 30, 1997 from approximately $83.4 million in the
1996 period. Net sales in the domestic boys' toys category, including
sublicense income, decreased approximately $13.3 million to approximately $13.5
million in the third quarter of 1997. The Company's sales of domestic boys'
toys have decreased since the first quarter of 1996 as compared to the
respective prior periods. The Company believes that the decrease in this
category has been accelerated as a result of concerns among retailers as to
the impact of the Marvel bankruptcy on the future of the Marvel brand. Net
sales in the domestic girls' toys category decreased approximately $7.2 million
to $16.4 million in the third quarter of 1997 compared to the third quarter of
1996. The decrease was due primarily to the Company's decision to reduce the
number of promotional dolls offered for sale by the Company during 1997 as
compared to 1996. Domestic activity toy net sales increased approximately
$150,000 from the third quarter of 1996 to the third quarter of 1997 due
primarily to the introduction of a ride-on product in the 1997 period, offset
by decreased sales in a game table product which was introduced in the 1996
period. International net sales decreased approximately $16.1 million to
approximately $3.8 million in the third quarter of 1997 from approximately
$19.9 million in the third quarter of 1996 due primarily to the decreased
interest in Marvel products in the international markets. Sales by the
Company's import division, which was established in late 1996, accounted for
approximately $8.4 million in sales in the 1997 period. Net sales of other
products decreased approximately $6.6 million to approximately $200,000 due
primarily to a reduction in sales in the preschool category which was
transferred to the import division in 1997. The Company recorded an additional
$8.0 million of sales allowances in the 1997 period that the Company believes
is attributable to the impact of the Marvel bankruptcy on the Company's
relationships with its distributors.

Gross profit decreased 76% to approximately $10.2 million for the third
quarter of 1997 from approximately $43.0 million in the third quarter of 1996.
Gross profit as a percentage of net sales decreased to approximately 25% in
the third quarter of 1997 from approximately 52% in the third quarter of 1996
due to additional sales allowances, changes in the Company's product mix and
increased activity from the import division which generally has a lower gross
margin than average domestic sales. The Company estimates that without the
$8.0 million of additional sales allowances relating to the Marvel bankruptcy
and approximately $3 million of additional product cost to compensate customers
due to poor sell-through of the Marvel products, gross profit for the third
quarter of 1997 would have been approximately $21.2 million and gross profit as
a percentage of net sales would have been approximately 44%.

Selling, general and administrative expenses increased 12% to
approximately $22.5 million (approximately 55% of net sales) in the third
quarter of 1997 from approximately $20.1 million (approximately 24% of net
sales) in the third quarter of 1996. The increase in expenses consisted
primarily of approximately $1.0 million of additional professional fees,
approximately $3.1 million of additional advertising expenses and approximately
$1.0 million of additional royalties expensed in the 1997 period that are the
result of the effects of the Marvel bankruptcy on the Company. This increase
was partially offset by a net reduction in selling expenses due to a decrease
in sales in the 1997 period, offset by additional salaries and related
expenses attributable to the Company's expanded product lines. Without those
Marvel related expenses, the Company estimates that selling, general and
administrative expenses would have been approximately $17.4 million
(approximately 36% of net sales before the $8 million of additional sales
allowances relating to the Marvel bankruptcy) in the third quarter of 1997.

Depreciation and amortization expense increased to approximately $6.3
million in the third quarter of 1997 from approximately $4.0 million in the
third quarter of 1996. The increase was primarily attributable to approximately
$1.5 million of additional amortization expense resulting from early write-offs
of discontinued Marvel products that were the result of the effects of the
Marvel bankruptcy on the Company.

Interest expense (income), net was $194,000 and ($144,000) for the three
months ended September 30, 1997 and 1996, respectively. The net change was due
primarily to the Company's borrowing funds in the 1997 period compared with
investing excess cash in the 1996 period.

The Company reported a net loss of approximately $11.2 million and a loss
per share of $0.41 for the three months ended September 30, 1997. Without the
approximately $8.0 million in additional sales allowances, the approximately
$6.6 million in additional expenses and approximately $3.0 million in
additional product cost that are the result of the effects of the Marvel
bankruptcy on the Company, and without regard to other effects of the Marvel
bankruptcy on the Company, the Company estimates that it would have had a net
loss of $659,000 and a loss per share of $0.02 for the three months ended
September 30, 1997.

Nine months ended September 30, 1997 compared with the nine months ended
September 30,1996

The Company's net sales decreased to approximately $109.6 million for the
nine months ended September 30, 1997 from approximately $167.6 million in the
1996 period. Net sales in the domestic boys' toys category, including
sublicense income, decreased approximately $26.0 million to approximately $28.5
million in the first nine months of 1997. The Company's sales of domestic
boys' toys have decreased since the first quarter of 1996 as compared to the
respective prior periods. The Company believes that the decrease in this
category has been accelerated as a result of concerns among retailers as to the
impact of the Marvel bankruptcy on the future of the Marvel brand. Net sales
in the domestic girls' toys category decreased approximately $21.8 million to
approximately $20.8 million in the nine months ended September 30, 1997
compared to the nine months ended September 30, 1996. The decrease was due
primarily to the Company's decision to reduce the number of promotional dolls
offered for sale by the Company during 1997 as compared to 1996. Domestic
activity toy net sales decreased approximately $900,000 from the first nine
months of 1996 as compared to the first nine months of 1997 due primarily to
decreased sales in a game table product offset by sales from the new Colorforms
division and the introduction of a ride-on product line in the 1997 period.
International net sales decreased approximately $12.0 million to approximately
$28.3 million in the first nine months of 1997 from approximately $40.3 million
in the first nine months of 1996 due primarily to the decreased interest in
Marvel products in the international markets. Sales by the Company's import
division, which was established in late 1996, accounted for approximately
$23.3 million in sales in the 1997 period. Net sales of other products
decreased approximately $10.6 million to approximately $900,000 due primarily
to a reduction in sales in the preschool category which was transferred to the
import division in 1997. The Company recorded an additional $10.0 million of
sales allowances in the 1997 period that the Company believes is attributable
to the impact of the Marvel bankruptcy on the Company's relationships with its
distributors.

Gross profit decreased 56% to approximately $37.0 million for the nine
months ended September 30, 1997 from approximately $84.5 million in the nine
months ended September 30, 1996. Gross profit as a percentage of net sales
decreased to approximately 34% in the first nine months of 1997 from
approximately 50% in the first nine months of 1996 due to changes in the
Company's product mix, additional sales allowances and the introduction of the
import division which generally has a lower gross margin than average domestic
sales. The Company estimates that without the $10.0 million of additional sales
allowances relating to the Marvel bankruptcy and approximately $3 million of
additional product cost to compensate customers due to poor sell-through of the
Marvel products, gross profit for the nine months ended September 30, 1997
would have been approximately $50.0 million and gross profit as a percentage of
net sales would have been approximately 42%.

Selling, general and administrative expenses increased 13% to
approximately $50.3 million (approximately 46% of net sales) in the nine
months ended September 30, 1997 from approximately $44.4 million (approximately
26% of net sales) in the nine months ended September 30, 1996. The increase in
expenses consisted primarily of approximately $5.6 million of additional
professional fees, approximately $3.1 million of additional advertising
expenses and approximately $1.0 million of additional royalties expensed in the
1997 period that are the result of the effects of the Marvel bankruptcy on the
Company. This increase was partially offset by a net reduction in selling
expenses due to a decrease in sales in the 1997 period, offset by additional
salaries and related expenses attributable to the Company's expanded product
lines. Without these Marvel related expenses, the Company estimates that
selling, general and administrative expenses would have been approximately
$40.6 million (approximately 34% of net sales before the $10.0 million of
additional sales allowances relating to the Marvel bankruptcy) in the nine
months ended September 30, 1997.

Depreciation and amortization expense increased to approximately $13.1
million in the first nine months of 1997 from approximately $8.6 million in
the first nine months of 1996. The increase was primarily attributable to
increased amortization expense resulting from an increased investment in
product tooling and product design to support the Company's expanded product
line and approximately $1.5 million of additional expense resulting from early
write-offs of discontinued Marvel products that were the result of the effects
of the Marvel bankruptcy on the Company.

Interest expense (income), net was $267,000 and ($494,000) for the nine
months ended September 30, 1997 and 1996, respectively. The net change was due
primarily to the Company's borrowing funds in the 1997 period compared with
investing excess cash in the 1996 period.

The Company reported a net loss of approximately $16.0 million and a loss
per share of $0.58 for the nine months ended September 30, 1997. Without the
approximately $10.0 million in additional sales allowances, the approximately
$11.2 in additional expenses and approximately $3.0 million in additional
product cost that are the result of the effects of the Marvel bankruptcy on the
Company, and without regard to other effects of the Marvel bankruptcy on the
Company, the Company estimates that it would have had a net loss of
approximately $1.5 million and a loss per share of $0.06 for the nine months
ended September 30, 1997.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was approximately $7.3 million
with a net loss of approximately $16.0 million in the nine months ended
September 30, 1997, while net cash used in operating activities was
approximately $6.2 million with a net income of approximately $19.2 million in
the nine months ended September 30, 1996. The decrease in net income was more
than offset by, among other things, higher depreciation, improved accounts
receivable balances as a result of increased collections of receivables and
decreased sales in 1997 as compared to 1996, slower growth in prepaid expenses
and a reduction in inventory levels.

In March, 1995, the Company entered into a three year $30 million
revolving line of credit with a syndicate of banks for which The Chase
Manhattan Bank serves as administrative agent. Substantially all of the assets
of the Company were pledged to secure borrowings under this credit facility.
Borrowings under the credit facility bear interest at either The Chase
Manhattan Bank's alternate base rate or at the Eurodollar rate plus the
applicable margin. The applicable margin is 3/4 of 1% to 1% to be determined
based on the Company's financial performance. The credit facility requires the
Company to pay a commitment fee of 3/8 of 1% per annum on the average daily
unused portion of the credit facility. The Company had $12.0 million in
outstanding borrowings under the line of credit as of November 1, 1997.

The credit facility contains various financial covenants, as well as
restrictions, on new indebtedness, prepaying or amending subordinated debt,
acquisitions and similar investments, the sale or transfer of assets, capital
expenditures, limitations on restricted payments, dividends, issuing
guarantees and creating liens. The credit facility also requires an annual
reduction of outstanding borrowings to zero for a period of 45 consecutive
days, commencing during the first six months of each calendar year. In
addition, the credit facility also requires that (a) Marvel continue to control
the Company and (b) the toy license agreement between the Company and Marvel
remain in effect. The credit facility is not guaranteed by Marvel. Proceedings
in the Marvel bankruptcy have resulted in a change in control in the Company
(See Note 6) which could cause the credit facility to be terminated. The
Company did not reduce its borrowings to zero for a period of 45 consecutive
days commencing during the first six months of 1997 and the Company did not
satisfy certain of the financial covenants. On October 21, 1997, the Company
and The Chase Manhattan Bank agreed that the Company would not seek to borrow
any additional funds under the credit facility and the banks agreed not to
demand immediate repayment of the amounts outstanding.

The Company believes that the funds available from cash and cash
equivalents and cash flow from operating activities will allow the Company to
meet its anticipated working capital needs and capital expenditure
requirements. The Company believes that it could obtain a replacement credit
facility if the syndicate of banks demanded immediate repayment of the amounts
outstanding, although there can be no assurance of the Company's ability to do
so or the terms of such a replacement facility.

In March, 1996, the Company acquired, pursuant to a put right, 53,030
shares of Series A Preferred Stock of the Company for approximately $1.4
million. In October, 1997, the Company acquired, pursuant to a put right,
31,818 shares of Series A Preferred Stock of the Company for $939,000. The
balance of the shares of Series A Preferred Stock were retired in October 1997
in conjunction with the final settlement of the acquisition of Spectra Star.

PART II. OTHER INFORMATION.

ITEM 1. LEGAL PROCEEDINGS

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits
None

(b) Reports on Form 8-K
None

SIGNATURES

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

TOY BIZ, INC.
(Registrant)

Dated: November 14, 1997 By: /s/ David J. Fremed
----------------------------
David J. Fremed
Chief Financial Officer
and Treasurer