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, 1996

                                       OR

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

For the transition period from __________ to __________

Commission file number 1-10779


                       MARVEL ENTERTAINMENT GROUP, INC.

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            (Exact name of registrant as specified in its charter)


DELAWARE                                                 94-3024816

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



387 PARK AVENUE SOUTH, NEW YORK, NY                            10016

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(Address of principal executive offices)                    (Zip Code)


                                 212-696-0808

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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 8, 1996, the number of outstanding shares of the registrant's
common stock, par value $.01 per share, was 101,809,657 shares, of which
82,628,392 shares were held by indirect wholly owned subsidiaries of Mafco
Holdings Inc.






     
<PAGE>







                       MARVEL ENTERTAINMENT GROUP, INC.
             INDEX TO CONTENTS OF THE THIRD QUARTER 1996 FORM 10-Q

<TABLE>
<CAPTION>

                                                                                                        Page
                                                                                                        ----
<S>                                                                                                    <C>
Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 ................    3



Condensed Consolidated Statements of Operations for the quarters and nine months ended
  September 30, 1996 and 1995 .......................................................................    4



Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1995    5



Notes to Condensed Consolidated Financial Statements ................................................    6



Management's Discussion and Analysis of Financial Condition and Results of Operations ...............   12



Other Information ...................................................................................   19



Signatures ..........................................................................................   20

</TABLE>
                                      2




     

<PAGE>

                        MARVEL ENTERTAINMENT GROUP, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in millions)
                                  (unaudited)
                                                     September 30,  December 31,
                                                         1996           1995
                                                     -------------  ------------
ASSETS
Current assets:
   Cash..............................................    $35.9          $53.6
   Accounts receivable, net..........................    257.2          236.7
   Inventories, net..................................     99.1           82.4
   Deferred income taxes.............................     32.5           50.4
   Income tax receivable.............................     18.2           24.6
   Prepaid expenses and other........................     58.2           42.9
                                                      --------       --------
      Total current assets...........................    501.1          490.6

Property, plant and equipment, net...................     87.7           71.3
Goodwill and other intangibles, net..................    595.7          604.0
Deferred charges and other...........................     75.9           60.4
                                                      --------       --------
      Total  Assets.................................. $1,260.4       $1,226.3
                                                      ========       ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable..................................    $95.8         $104.8
   Accrued expenses and other .......................    170.1          194.8
   Short term borrowings   (See Note 3) .............     28.7           13.3
   Current portion of long-term debt   (See Note 4)..    625.8            5.2
                                                      --------       --------
     Total current liabilities.......................    920.4          318.1

Long-term debt   (See Note 4)........................        0          581.3
Other long-term liabilities..........................     56.6           48.7
                                                      --------       --------
     Total Liabilities...............................    977.0          948.1
                                                      --------       --------
Minority interest in Toy Biz.........................    102.9           70.5

Stockholders' equity:
   Common Stock......................................      1.0            1.0
   Additional paid-in capital........................     93.1           92.4
   Retained earnings ................................     86.1          114.0
   Cumulative translation adjustment ................      0.3            0.3
                                                      --------       --------
     Total Stockholders' Equity......................    180.5          207.7
                                                      --------       --------
     Total Liabilities and Stockholders' Equity...... $1,260.4       $1,226.3
                                                      ========       ========



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

                                       3






     
<PAGE>

                                    MARVEL ENTERTAINMENT GROUP, INC.
                            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                              (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
                                              (UNAUDITED)
<TABLE>
<CAPTION>

                                                                       Three Months                Nine Months
                                                                    Ended September 30,         Ended September 30,
                                                                --------------------------    -----------------------
                                                                    1996          1995           1996         1995
                                                                ------------- ------------    ----------   ----------
<S>                                                               <C>          <C>            <C>          <C>
Net revenues.................................................      $209.4       $  269.0       $  581.2     $  596.1
                                                                   ------       --------       --------     --------
Operating Expenses:
Cost of sales................................................       143.1          138.8          372.4        352.6
Selling, general & administrative expenses...................        60.5           62.4          168.1        156.0
Depreciation and amortization................................         6.3            4.9           15.6         12.4
                                                                   ------       --------       --------     --------
                                Total Operating Expenses.....       209.9          206.1          556.1        521.0

Amortization of goodwill, intangibles and deferred charges...         5.8            5.3           16.8         12.6

Interest expense, net........................................        15.2           11.9           42.7         30.2

Foreign exchange loss/(gain), net............................         0.6             --            2.1         (0.8)

Gain on sale of Toy Biz common stock   (See Notes 6 and 8)...        22.0             --           22.0         14.3

Equity in net (loss) income of unconsolidated subsidiaries...        (0.8)           0.8           (0.6)         1.6
                                                                   ------       --------       --------     --------
(Loss) income before provision (benefit) for income taxes,
  minority interest and extraordinary item...................        (0.9)          46.5          (15.1)        49.0

Provision (benefit) for income taxes.........................         3.0           21.0           (0.7)        25.6
                                                                   ------       --------       --------     --------
(Loss) income before minority interest and extraordinary
  item.......................................................        (3.9)          25.5          (14.4)        23.4

Minority interest in earnings of Toy Biz.....................         8.6            5.9           13.5         10.0
                                                                   ------       --------       --------     --------
(Loss) income before extraordinary item......................       (12.5)          19.6          (27.9)        13.4

Extraordinary item, net of taxes.............................          --             --             --         (3.3)
                                                                   ------       --------       --------     --------
Net (loss) income............................................      ($12.5)         $19.6         ($27.9)       $10.1
                                                                   ======       ========       ========     ========
(Loss) earnings per share:
(Loss) income before extraordinary item......................      ($ .12)         $ .19         ($ .27)       $ .13
Extraordinary item...........................................          --             --             --       ($ .03)
                                                                   ------       --------       --------     --------
Net (loss) income ...........................................      ($ .12)         $ .19         ($ .27)       $ .10
                                                                   ======       ========       ========     ========
Weighted average number of common and common equivalent shares
  outstanding (in millions)..................................       101.8          104.2          101.8        104.0
                                                                   ======       ========       ========     ========
</TABLE>

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

                                       4





     
<PAGE>

                        MARVEL ENTERTAINMENT GROUP, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN MILLIONS)
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                    Nine Months Ended
                                                                                       September 30,
                                                                               ---------------------------
                                                                                  1996           1995
                                                                               -----------    ------------
<S>                                                                             <C>            <C>
Cash flows from operating activities:
Net (loss) income.............................................................. ($ 27.9)        $ 10.1
                                                                                -------         ------
 Adjustments to reconcile net (loss) income to net cash used in operating
  activities:

   Depreciation and amortization ..............................................    32.8           24.8
   Provision for deferred income taxes ........................................     8.5           19.6
   Extraordinary item, net.....................................................      --            3.3
   Undistributed earnings of unconsolidated subsidiaries.......................     0.6           (1.6)
   Distributions from unconsolidated subsidiary................................      --            3.0
   Gain from sale of Toy Biz common stock......................................   (22.0)         (14.3)
   Minority interest in earnings of Toy Biz....................................    13.5           10.0
   Changes in assets and liabilities, net of effect in 1995 of previously
      unconsolidated subsidiary and SkyBox Acquisition.........................   (75.5)         (73.6)
                                                                                -------         ------
Total adjustments..............................................................   (42.1)         (28.8)
                                                                                -------         ------
     Net cash used in operating activities.....................................   (70.0)         (18.7)
                                                                                -------         ------
Cash flows from investing activities:
  Capital expenditures (including product development and package design costs)   (33.0)         (26.1)
  Net proceeds from sale of investment in Toy Biz..............................    35.7             --
  Acquisition of SkyBox, net of cash and cash equivalents acquired.............      --         (159.5)
  Other acquisitions...........................................................      --          (14.4)
  Other investing activities...................................................    (8.0)          (5.6)
                                                                                -------         ------
     Net cash used in investing activities.....................................    (5.3)        (205.6)
                                                                                -------         ------
Cash flows from financing activities:
  Net (repayments) borrowings under term portion of credit agreements..........    (5.3)         184.9
  Net borrowings (repayments) under revolving portion of credit agreement......    17.0           (2.0)
  Borrowings related to Adespan adhesives facility.............................     6.3             --
  Net borrowings (repayments) of other debt....................................    30.5           (5.8)
  Net proceeds to Toy Biz from common stock offerings..........................     9.7           44.2
  Proceeds from exercise of stock options......................................     0.5            8.3
  Debt issuance costs..........................................................    (1.4)          (8.1)
  Other financing activities...................................................    (1.0)            --
                                                                                -------         ------
     Net cash provided by financing activities.................................    56.3          221.5
                                                                                -------         ------
Effect of exchange rate changes on cash .......................................     1.3            1.9
                                                                                -------         ------
Cash balance from previously unconsolidated subsidiary ........................      --            7.5
                                                                                -------         ------
Net (decrease) increase in cash ...............................................   (17.7)           6.6

Cash, at beginning of period...................................................    53.6           18.1
                                                                                -------         ------
Cash, at end of period.........................................................  $ 35.9         $ 24.7
                                                                                =======         ======
Supplemental disclosures of cash flow information:
     Interest paid during the period...........................................  $ 45.9         $ 27.3
     Income taxes paid, net of refunds, during the period...................... ($  2.4)        $  7.9

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

                                       5





     
<PAGE>



                       MARVEL ENTERTAINMENT GROUP, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)





1.       BACKGROUND AND BASIS OF FINANCIAL STATEMENT PRESENTATION

         The accompanying condensed consolidated financial statements of Marvel
Entertainment Group, Inc. and its subsidiaries (the "Company") are unaudited.
In the opinion of management, all adjustments and intercompany eliminations
necessary for a fair presentation of the results of operations, financial
position and cash flows have been made and were of a normal recurring nature.
The Company's operations consist of (i) the publication and sale of comic books
and children's magazines, (ii) the marketing and distribution of sports and
entertainment trading cards and activity sticker collections, (iii) consumer
products, media and advertising promotions licensing of the various characters
owned by the Company, (iv) the design, marketing and distribution of toys and
(v) the manufacture and distribution of adhesives and confectionery products.
These interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
thereto contained in the Company's 1995 Annual Report on Form 10-K. Certain
prior year amounts have been reclassified to conform with the current year
presentation.

         During the quarter ended September 30, 1996, the Company continued to
experience significant losses in its trading card and publishing businesses. As
a result, the Company has failed to satisfy certain financial covenants
contained in its Credit Agreements (as defined below) (see Note 4). The Company
has reclassified long-term debt to current liabilities as a result of the
Company's failure to satisfy certain financial covenants and the absence of
waivers as of this date relating thereto. Given the unfavorable market
conditions in trading cards and publishing, the Company is evaluating whether
there has been an impairment to goodwill and other intangible assets and is
considering restructuring and other actions, all of which could result in
substantial 1996 year end charges. See further discussion in Management's
Discussion and Analysis of Financial Condition and Results of Operations.

2.       DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

ACCOUNTS RECEIVABLE, NET:
                                        September 30,        December 31,
                                            1996                 1995
                                        -------------        --------------
Accounts receivable...................      $292.3               $314.5
Less:  Allowances.....................       (35.1)               (77.8)
                                            ------               ------
                                            $257.2               $236.7
                                            ======               ======
INVENTORIES, NET:


Finished goods .......................      $ 79.6               $ 58.8
Work in process.......................        19.3                 22.3
Raw materials ........................        23.7                 23.7
Less:  Reserve for obsolescence ......       (23.5)               (22.4)
                                            ------               ------

                                            $ 99.1               $ 82.4
                                            ======               ======
GOODWILL AND OTHER INTANGIBLES, NET:

Goodwill and other intangibles .......      $649.7               $645.7
Less:  Accumulated amortization ......       (54.0)               (41.7)
                                            ------               ------
                                            $595.7               $604.0
                                            ======               ======





Goodwill and other intangibles, net related to the trading card operations of
the Company was approximately $365.0 and $375.0 as of September 30, 1996 and
December 31, 1995, respectively.

                                      6







     
<PAGE>


                       MARVEL ENTERTAINMENT GROUP, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)



ACCRUED EXPENSES AND OTHER:

                                                September 30,      December 31,
                                                     1996             1995
                                                -------------     -------------

Royalties and incentives...................       $ 29.1            $ 21.4
Reserve for returns .......................         40.3              59.0
Income taxes payable ......................          4.0              19.7
Other .....................................         96.7              94.7
                                                  ------            ------
                                                  $170.1            $194.8
                                                  ======            ======


3.    SHORT-TERM BORROWINGS

         Under line of credit arrangements for short-term borrowings with a
group of banks, Panini may borrow up to Italian Lire 73.2 billion
(approximately $48.0 based on exchange rates at September 30, 1996) on such
terms as Panini and the banks may mutually agree upon. These arrangements do
not have termination dates but are reviewed annually for renewal. At September
30, 1996, the unused portion of the credit lines was Italian Lire 29.4 billion
(approximately $19.3 based on exchange rates at September 30, 1996). The
weighted average interest rate on short-term borrowings as of September 30,
1996 was 7.74%.

4.       DEBT

Debt consists of the following:

                                                     September 30,  December 31,
                                                         1996          1995
                                                     -------------  ------------

U.S. Term Loan Agreement ...........................    $350.0         $350.0
Term Loan Agreement ................................     139.9          139.5
Amended and Restated Credit Agreement:
     Revolving credit facility .....................     104.5           87.5
Capital lease obligations and other long term debt .      31.4            9.5
                                                        ------         ------
Less current maturities ............................     625.8          586.5
Long-term debt .....................................     625.8            5.2
                                                        ------         ------
                                                        $  --          $581.3
                                                        ======         ======


         The Company has experienced greater than expected operating losses,
and as a result has failed to satisfy certain financial covenants contained in
the Credit Agreements (as defined below) and has commenced discussions with its
agent bank seeking waivers of these covenants and a restructuring of the Credit
Agreements to provide for its cash requirements. The Company believes that the
restructuring of the Credit Agreements will require an infusion of new equity
capital and has received a proposal from Andrews Group Incorporated ("Andrews
Group"), a parent corporation, regarding such equity infusion, which is subject
to a number of significant conditions, (see Note 8). As a result of the
Company's failure to satisfy certain financial covenants and in the absence of
waivers as of this date relating thereto, the balance of long-term debt has
been reclassified to current liabilities. In addition, as a result of the
Company's failure to satisfy the financial covenants contained in the Credit
Agreements, rollovers of existing Eurocurrency Rate Loans will be made as
Alternate Base Rate Loans or Negotiated Rate Loans thereby likely increasing
the Company's borrowing costs. There can be no assurance that the debt can be
restructured on favorable terms to the Company or that an additional capital
infusion will be received by the Company.

         The Company's indebtedness is principally represented by the
outstanding balance under the U.S. Term Loan Agreement, as defined below, the
Amended and Restated Credit Agreement effective August 30, 1994 between the
Company, a syndicate of banks, the Co-Agents and The Chase Manhattan Bank
(formerly named Chemical Bank), as administrative agent (the "Amended and
Restated Credit Agreement"), and the outstanding balance of the Term Loan

                                      7





     
<PAGE>



                       MARVEL ENTERTAINMENT GROUP, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

Agreement, as defined below. The Applicable Margin under the Amended and
Restated Credit Agreement for Alternate Base Rate loans range from 0% to 1% and
for Eurodollar Rate loans range from 5/8 of 1% to 2%, in each case depending on
the Company's financial performance. The interest rate on Eurodollar Rate Loans
at September 30, 1996 was approximately 7 5/16% to 7 23/32% per annum,
depending upon the length of the relevant interest period. The proceeds of
loans incurred under the revolving credit portion of the Amended and Restated
Credit Agreement may be used for general corporate purposes of the Company and
for investments within an aggregate limit.

         In April 1995, the Company entered into a $350.0 term loan agreement
with a syndicate of banks, the Co- Agents and The Chase Manhattan Bank
(formerly named Chemical Bank), as administrative agent (the "U.S. Term Loan
Agreement"). Loans under the U.S. Term Loan Agreement bear interest at a rate
per annum equal to the Eurodollar Rate (as defined in the U.S. Term Loan
Agreement), or the Alternate Base Rate (as defined in the U.S. Term Loan
Agreement) plus, in each case, the Applicable Margin (as defined in this
paragraph). Eurodollar Rate Loans will, at the option of the Company, have
interest periods of one, two, three or six months. Applicable Margin means (a)
with respect to Eurodollar Rate loans, 2% to 2 1/2% through the first
Anniversary Date (as defined in the U.S. Term Loan Agreement) and 1 1/8% to
2 1/2% thereafter, to be determined based on the Company's financial performance
and (b) with respect to Alternate Base Rate loans, 1% to 1 1/2% through the
first Anniversary Date and 1/8 of 1% to 1 1/2% thereafter, to be determined
based on the Company's financial performance. The interest rate on Eurodollar
Rate Loans at September 30, 1996, was approximately 8 1/16% to 8 3/16%
depending upon the length of the relevant interest period. Interest on
Alternate Base Rate Loans is payable quarterly in arrears, and interest on
Eurodollar Rate Loans is payable at the end of the applicable interest period,
except that if the interest period is six months, interest is payable ninety
days after the commencement of the interest period and at the end of the
interest period.

         On August 30, 1994, the Company, Marvel Italia Srl (now Panini S.p.A.)
and Instituto Bancario San Paolo Di Torino S.p.A. (the "Lender"), entered into
a term loan and guarantee agreement (the "Term Loan Agreement") providing for a
term loan credit facility of Italian Lire 244.5 billion (approximately $154.0
based on exchange rates in effect on the date of acquisition) (the "Term Loan
Facility"). Through September 30, 1996 the Company paid Italian Lire 31.2
billion (approximately $20.5) due under the Term Loan Facility.

         The Term Loan Facility bears interest at a rate per annum equal to the
Eurocurrency Rate (as defined in the Term Loan Agreement) or, in certain
limited circumstances, the Negotiated Rate (as defined in the Term Loan
Agreement), in each case plus the Applicable Margin (as defined in this
paragraph). Eurocurrency Rate Loans have, at the option of Panini, interest
periods of one, two, three or six months. Applicable Margin means (a) with
respect to Eurocurrency Loans, 5/8 of 1% to 2%, to be determined based on the
Company's financial performance and (b) with respect to Negotiated Rate Loans,
1%. The interest rate on Eurocurrency Rate Loans at September 30, 1996, was
approximately 10.46%. Interest on Negotiated Rate Loans is payable quarterly in
arrears and interest on Eurocurrency Rate Loans is payable at the end of the
applicable interest period, except that if the interest period is six months,
interest is payable ninety days after the commencement of the interest period
and at the end of the interest period.

        The U.S. Term Loan Agreement (through incorporation by reference to the
Amended and Restated Credit Agreement), the Amended and Restated Credit
Agreement and the Term Loan Agreement include various restrictive covenants
prohibiting the Company from, among other things, incurring additional
indebtedness, with certain limited exceptions, and making dividend, redemption
and certain other payments on its capital stock. The U.S. Term Loan Agreement,
the Amended and Restated Credit Agreement and the Term Loan Agreement also
contain certain customary financial covenants and events of default for
financing of this type, including a change of control covenant. Mandatory
prepayments are required to be made out of net proceeds from sales of assets by
the Company, with certain exceptions, and from certain excess cash flow (as
defined in the Amended and Restated Credit Agreement).

         During March 1996 and August 1996, the Company amended the U.S. Term
Loan Agreement, the Amended and Restated Credit Agreement and the Term Loan
Agreement to, among other things; 1) provide for an additional $25.0 revolving
credit facility which will expire on December 31, 1996; 2) secure the
borrowings with substantially all

                                      8




     
<PAGE>


                       MARVEL ENTERTAINMENT GROUP, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

of the Company's domestic assets, other than the Company's investment in common
stock of Toy Biz, and all of the capital stock of the Company's domestic
subsidiaries and 65% of the capital stock of the Company's first tier foreign
subsidiaries; and 3) amend certain financial covenants. The additional
revolving credit facility is pari passu with the loans extended by the banks
pursuant to the Company's existing loan agreements (collectively with the U.S.
Term Loan Agreement, the Amended and Restated Credit Agreement and the Term
Loan Agreement, the "Credit Agreements"). The additional revolving credit
facility bears interest at a rate per annum equal to the Eurodollar Rate (as
defined in the Term Loan Agreement), plus 2 3/4%, or the Alternate Base Rate
(as defined in the Term Loan Agreement) plus 1 3/4%. The interest rate on the
additional revolving credit facility at September 30, 1996 was 8 7/16%.

         In conjunction with the Toy Biz IPO (as defined below), Toy Biz
entered into a three year $30.0 revolving line of credit with a syndicate of
banks for which The Chase Manhattan Bank (formerly named Chemical Bank) serves
as administrative agent. Substantially all of the assets of Toy Biz have been
pledged to secure borrowings under the Toy Biz 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, in each case, the
applicable margin. The applicable margin is 1% unless Toy Biz meets specific
financial operating levels, in which case the applicable margin decreases to
3/4 of 1%. The credit facility requires Toy Biz to pay a commitment fee of 3/8
of 1% per annum on the average daily unused portion of the credit facility.

         The Toy Biz credit facility contains various financial covenants, as
well as restrictions, on the incurrence of 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 that (a) the Company control Toy Biz and (b) that the exclusive,
royalty free perpetual worldwide license agreement between Toy Biz and the
Company remain in effect. The Toy Biz credit facility is not guaranteed by the
Company.

5.       RESTRUCTURING OF OPERATIONS

         In the fourth quarter of 1995, the Company recorded restructuring
charges of $25.0 related primarily to publishing and confections operations. As
part of the restructuring, the Company has terminated approximately 275
employees, covering editorial, production, distribution and administrative
employee groups and, accordingly, provided for $10.7 of termination benefits,
of which $6.5 has been paid as of September 30, 1996. Additionally,
approximately $6.7 of the restructuring charges relates to facility closure and
consolidation costs, of which $5.4 has been paid as of September 30, 1996, and
$7.6 of the restructuring charges relates to other costs, of which $4.6 has
been paid as of September 30, 1996. A substantial portion of the remaining
amount of $8.5 as of September 30, 1996, which is included in accrued expenses
and other, is scheduled to be paid in the fourth quarter of 1996 with the
remainder to be paid in accordance with the terms of various agreements.

6.       TOY BIZ COMMON STOCK OFFERINGS

         On March 2, 1995, Toy Biz, Inc. ("Toy Biz") completed an initial
public offering (the "Toy Biz IPO") in which it issued and sold 2,750,000
shares of class A common stock at $18 per share. As part of the Toy Biz IPO, a
stockholder sold 700,000 shares of class A common stock at $18 per share. The
net proceeds to Toy Biz, after deducting commissions and offering expenses, of
$44.1 were used to pay outstanding amounts due under subordinated notes held by
the Company and the sole stockholder of the predecessor to Toy Biz and for
working capital and general corporate purposes. In 1995, the Company recorded a
gain of $14.3 on the Toy Biz IPO in recognition of the net increase in value of
the Company's investment in Toy Biz. In August, 1996, Toy Biz sold in an
offering 700,000 shares of its class A common stock at a price to the public of
$15 per share. As part of the Toy Biz offering, the Company sold 2.5 million
shares of its Toy Biz class A common stock. In the third quarter of 1996, the
Company recorded a gain on the sale of this common stock of approximately
$22.0. The net proceeds to Toy Biz and the Company were approximately $9.1 and
$35.7, respectively, after deducting amounts accrued for estimated fees and
expenses.

                                      9




     
<PAGE>



                       MARVEL ENTERTAINMENT GROUP, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

         In conjunction with the Toy Biz IPO, the Company's equity ownership
percentage of Toy Biz decreased to 36.6% and its voting control increased to
85.3% and, as a result of the increase in voting control, the condensed
consolidated financial statements of the Company include the result of
operations, financial position and cash flows of Toy Biz. For periods prior to
the Toy Biz IPO, Toy Biz was accounted for under the equity method. As a result
of the Company's sale of class A common stock of Toy Biz in August 1996, the
Company's ownership percentage of Toy Biz decreased to 26.7% and its voting
control decreased to 78.4% (See Note 8).

7.       SKYBOX ACQUISITION

         On April 27, 1995, the Company acquired all of the issued and
outstanding shares of SkyBox common stock for $165.0. The SkyBox Acquisition
was accounted for using the purchase method of accounting. The purchase price
has been allocated to the identified assets and liabilities based on their
respective fair values. The total purchase price exceeded the fair value of the
net assets of SkyBox by $158.4 and has been assigned to goodwill, which is
currently being amortized over forty years on the straight-line basis.

         The following unaudited pro forma consolidated financial information
gives effect to the SkyBox Acquisition as if it had occurred at the beginning
of 1995. The pro forma results include certain adjustments, primarily increased
amortization and interest expense, and are not necessarily indicative of what
the results would have been had the SkyBox Acquisition occurred at the
beginning of the period. In addition, Toy Biz net revenues were $117.0 for the
nine months ended September 30, 1995, of which $102.3 is included in the
Company's consolidated net revenues.

                           For the Nine Months Ended
                              September 30, 1995
                              ------------------


  Net revenues .....................................     $ 621.1
  Income before extraordinary item .................     $   8.8
  Net income .......................................     $   5.5


Earnings per share:
  Income before extraordinary item .................     $   .09
  Extraordinary item ...............................     $  (.03)
                                                         -------
  Net income .......................................     $   .06
                                                         =======


8.       SUBSEQUENT EVENT

         The Company has experienced greater than expected operating losses in
the third quarter of 1996, and as a result has failed to satisfy certain
financial covenants contained in the Credit Agreements. The Company has
commenced discussions with The Chase Manhattan Bank, the agent bank under the
Credit Agreements, seeking waivers of these covenants and a restructuring of
the Credit Agreements to provide for the Company's cash requirements. The
Company believes that such a restructuring will require an infusion of new
equity capital and has received a proposal from Andrews Group regarding such
equity infusion, which is subject to a number of significant conditions. As a
result of the Company's failure to satisfy certain financial covenants and in
the absence of waivers as of this date relating thereto, the balance of
long-term debt has been reclassified to current liabilities.

         On October 17, 1996, Andrews Group announced that it had reached
agreement with each of Isaac Perlmutter and Avi Arad to purchase approximately
67% of the class A common stock of Toy Biz for cash and debt of Andrews Group.
On November 12, 1996, the Company received a proposal from Andrews Group to
acquire from the Company a number of shares of Marvel common stock (or its
equivalent) that would represent 80.1% of the shares of Marvel common stock
after giving effect to such acquisition. Based on the approximately 101.8
million shares of Marvel common stock outstanding, this would require the
issuance of approximately 410 million

                                      10




     
<PAGE>



                       MARVEL ENTERTAINMENT GROUP, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)



shares of Marvel common stock (or its equivalent). The purchase price for the
acquisition would be $350 in cash or, at the option of Andrews Group, an equal
value of the shares of class A common stock of Toy Biz or a combination of the
foregoing (the "Andrews Investment"). The Andrews Group proposal states that
the shares of Toy Biz class A common stock so transferred would be valued on
the basis of the cost to Andrews Group of acquiring such stock. The Andrews
Group proposal states that any contribution by Andrews Group to the Company of
shares of Toy Biz class A common stock would be made in the context of Toy Biz
becoming a wholly owned subsidiary of the Company.

         The Andrews Group proposal states that the consummation of the Andrews
Group Investment would be subject to a number of significant conditions,
including the satisfaction of the conditions set forth in the agreements
between Andrews Group and Messrs. Perlmutter and Arad, an agreement for the
acquisition of Toy Biz having been executed and all condition to that agreement
having been satisfied, receipt of certain consents and amendments under the
Credit Agreements, including to provide for the additional borrowing capacity
that the Company requires, the satisfactory resolution by Andrews Group of a
number of issues under the Marvel parent holding company indentures, including
that any Marvel common stock (or its equivalent) purchased by Andrews Group not
be subject to the liens thereunder, and the execution of a definitive agreement
for the Andrews Group Investment which contains appropriate representations,
warranties, covenants and conditions customary for transactions of the nature
of the Andrews Group Investment. There can be no assurance that agreement will
be reached on the terms of any of the foregoing transactions or that any of the
foregoing transactions will be consummated. See Management Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources.

         A copy of the Andrews Group proposal has been forwarded to a special
committee of the Company's board of directors comprised of outside directors,
who are not affiliated with Andrews Group, for consideration. In addition, in
anticipation of receiving a proposal, the board of directors of Toy Biz formed
a special committee of outside directors who are not affiliated with Andrews
Group or the Company to consider, on behalf of the minority stockholders of Toy
Biz, any proposal that may be made.

                                      11






     
<PAGE>








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

GENERAL

         The Company is a leading creator, publisher and distributor of youth
entertainment products for domestic and international markets based on action
adventure characters owned by the Company, licenses from professional athletes,
sports teams and leagues and popular entertainment characters and other
properties owned by third parties. The Company also licenses its characters and
properties for consumer products, television and film and advertising
promotions. The Company's products include comic book and other publications,
sports and entertainment trading cards, activity stickers, toys, adhesives and
confectionery products.

RESULTS OF OPERATIONS

         Over the past five years, the Company has diversified into a broadly
based youth entertainment company. As a result, an increasing portion of the
Company's net revenues have been derived from businesses other than comic book
publishing. The Company's business has been augmented by the marketing and
distribution of sports and entertainment trading cards and activity stickers
and the licensing of the Company's characters for consumer products, television
and film, advertising promotions and toys. Although the Company's consolidated
net revenues have increased as a result of diversification, certain changes in
market conditions, primarily associated with its publishing and trading card
businesses, have adversely affected the Company's net revenues and operating
results in recent periods.

         In recent years there has been an overall decline in the comic book
specialty store industry, and more specifically, a significant reduction in
speculative purchases of comic books, which has adversely affected the
Company's publishing revenues. In response, the Company has undertaken several
strategic actions including: eliminating unprofitable and marginally profitable
titles to create a strong line-up comprising Marvel's most popular and most
profitable titles; focusing its comic books more on editorial content and less
on physical product features and enhancements; and streamlining operations
through introduction of new technology and consolidation of facilities.
However, to date these actions have not been sufficient to overcome the overall
decline in the comic book specialty store industry.

         Similarly, there has been a significant contraction in the sports
trading card market related in part to lower speculative purchases. This
contraction was compounded by the baseball, hockey and basketball labor
situations in 1994 and 1995, which adversely affected sports trading card sales
and increased returns for those periods. Although Major League Baseball resumed
in April 1995, there still is no collective bargaining agreement in effect
between the owners and players as the owners rejected in early November 1996 a
proposed collective bargaining agreement. The level of fan interest, although
showing some signs of improvement during 1996, has not returned to the levels
experienced prior to the 1994 strike and the failure to enter into a new
collective bargaining agreement could result in a disruption of play in 1997.
Along with decreased fan interest, the Company believes that the labor
situations in professional sports have contributed to decreased trading card
consumer interest and, therefore, generally decreased levels of consumer
purchases of all trading cards. The Company believes that all of these factors
have negatively affected the overall trading card industry, causing the Company
to experience lower sales, higher returns and higher inventory obsolescence.

         The level of demand for entertainment trading cards is dependent on
the commercial success and media exposure of the Company's characters and third
party licensed products, as well as the market conditions in the comic book
specialty stores. In 1994, the sale of entertainment cards based on Marvel's
characters and third party licensed characters offset and in 1995 such sales
substantially offset the decline in sports trading cards. However, in 1996, the
Company's sales of entertainment trading cards has been adversely affected by
lower sales of cards based on properties licensed from third parties as well as
significantly lower sales of cards based on comic book characters.


                                      12





     
<PAGE>







         Throughout 1995, the lower sales and higher returns of the Company's
trading cards primarily related to distribution channels other than trading card
specialty stores. The Company has revamped its trading card business to
concentrate its distribution of trading card products in trading card specialty
stores and in select mass market accounts. The combination of the contraction
in the overall trading card industry, the lack of commercial success of certain
of the third party and Marvel licensed products, in part driven by the softness
in market conditions in the comic book specialty store market, and the
Company's change in distribution mentioned above have resulted in substantially
lower trading card sales by the Company in 1996.

         In response to the significant contraction in the sports trading card
market, the adverse conditions related to the sale of entertainment trading
cards and the overall decline in the comic book specialty store industry and
their negative effect on the Company's operating results, the Company is
considering further actions to mitigate these declines and their effect on
future operating results. Given the unfavorable market conditions in trading
cards and publishing, the Company is evaluating whether there has been an
impairment to goodwill and other intangible assets and is considering
restructuring and other actions, all of which could result in substantial 1996
year end charges.

THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
         The Company's net revenues were $209.4 million and $269.0 million in
the 1996 and 1995 periods, respectively, an decrease of $59.6 million or 22.2%.
This reflects a decrease of $59.0 million in net trading card and sticker
revenues, $16.6 million in licensing revenues, and $13.5 million in net
publishing revenues. This decrease was partially offset by a $26.2 million
increase in toy revenues and a $3.3 million increase in other revenues. The
decrease in trading card net revenues was primarily due to the continued
general decline in the demand for trading cards as well as the change in the
Company's distribution of its trading cards to concentrate in trading card
specialty stores and select mass market accounts which generally resulted in
lower gross sales in 1996. In addition, entertainment card sales decreased due
to lower sales of cards based on comic book characters due in part to market
conditions in the comic book specialty store market, as well as lower sales of
cards based on properties licensed from third parties resulting from lower
commercial success of such properties in 1996 as compared to 1995. However, as
compared to 1995, provisions for trading card sales returns were significantly
lower, reflecting the change in distribution. These decreases in trading card
net revenues were partially offset by a slight increase in net revenues of
stickers. This increase was due to the 1996 European Cup soccer tournament and
expansion into new markets such as Brazil and Russia, and was partially offset
by higher provisions for returns for stickers in 1996. In addition, the Company
experienced lower net revenues in certain European markets principally due to
lower net revenues from entertainment stickers based on properties licensed
from third parties as a result of lower commercial success of such properties
in 1996 as compared to 1995. Licensing revenues, which vary from period to
period, decreased primarily as a result of an insufficient amount of new media
exposure of the Company's characters. The Company and Fox Kid's Worldwide
("FKW") entered into an arrangement under which the Company expects to have a
new animation series on the Fox Children's Network in the 1997-1998 broadcast
seasons. Licensing revenues will vary depending on the volume and extent of
licensing agreements entered into during any particular financial period, as
well as the level and commercial success of the media exposure of the Company's
characters. The decrease in net publishing revenues was due to the impact on
the Company of the decline in the comic book specialty store industry and the
reduction of titles resulting from implementation of the Company's business
strategy. The increase in toy revenues was principally due to Toy Biz's
expanded product offerings and an increased international distribution of
products. The improvement in other revenues was due to increased sales of
adhesive paper by Panini.

         Gross profit was $66.3 million and $130.2 million in the 1996 and 1995
periods, respectively, an decrease of $63.9 million. As a percentage of net
revenues, gross profit was 31.7% in the 1996 period as compared to 48.4% in the
1995 period. The decrease in gross profit as a percentage of net revenues was
due primarily to the effect of higher return provisions for stickers, the
effect of lower licensing revenues, an unfavorable product mix for trading
cards and toys as compared to 1995 and the effect of lower net revenues without
a corresponding decrease in royalty expense and advertising and promotion
expense given minimum payment obligations for trading cards in 1996.

         Selling and general administrative expenses ("SG&A") were $61.3
million and $62.4 million in the 1996 and 1995 periods, respectively. The
decrease of $1.1 million was mainly attributable to a general reduction in

                                      13




     
<PAGE>


overhead expenses associated with the restructuring of the trading card,
publishing and confectionery operations partially offset by the increase in Toy
Biz's and Panini's advertising, promotion and selling costs. As a percentage of
net revenues, SG&A was 29.3% in the 1996 period as compared to 23.2% in the
1995 period. The increase in SG&A as a percentage of net revenues was due
primarily to lower publishing and licensing net revenues without a
corresponding reduction in SG&A.

         Depreciation and amortization was $6.3 million and $4.9 million in the
1996 and 1995 periods, respectively. The increase of $1.4 million was due to
higher depreciation primarily resulting from an increased investment in product
tooling to support Toy Biz's expanded product line.

         Interest expense, net was $15.2 million and $11.9 million in the 1996
and 1995 periods, respectively. The increase in interest expense of $3.3
million primarily reflects increased borrowings under the Credit Agreements
including the $25.0 million revolving credit facility, borrowings for the
expansion of Panini's Adespan adhesives facility, and higher average borrowing
rates.

         The gain on the sale of Toy Biz common stock was $22.0 million in the
1996 period (see Note 6).

         Provision for income taxes was $3.0 million and $21.0 million in the
1996 and 1995 periods, respectively. The provision for income taxes in 1996
primarily represents a provision for income taxes related to the sale of common
stock of Toy Biz and the operations of Toy Biz partially offset by a benefit
for the Company's operating losses. The provision for income taxes in 1995
represents foreign, federal, state and local income taxes.

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1995

         The Company's net revenues were $581.2 million and $596.1 million in
the 1996 and 1995 periods, respectively, an decrease of $14.9 million or 2.5%.
This reflects a decrease of $37.4 million in net publishing revenues, $31.0
million in net trading card and sticker revenues, and $20.4 million in
licensing revenues, partially offset by a $66.6 million increase in toy
revenues and a $7.3 million increase in other revenues. The decrease in net
publishing revenues was due to the impact on the Company of the decline in the
comic book specialty store industry, the reduction of titles resulting from
implementation of the Company's business strategy, and the discontinuance
commencing in July 1995 of the distribution by Heroes World of comic book
publications other than the Company's titles. The decrease in trading card net
revenues was primarily due to the continued general decline in the demand for
trading cards as well as the change in the Company's distribution of its
trading cards to concentrate in trading card specialty stores and select mass
market accounts which generally resulted in lower gross sales in 1996. In
addition, entertainment card sales decreased due to lower sales of cards based
on comic book characters due in part to market conditions in the comic book
specialty store market, as well as lower sales of cards based on properties
licensed from third parties resulting from lower commercial success of such
properties in 1996 as compared to 1995. However, as compared to 1995,
provisions for trading card sales returns were significantly lower, reflecting
the change in distribution and the inclusion in the second quarter of 1995 of a
significant increase in sales returns reserves. Such lower sales return
provisions, combined with the inclusion of net revenues from SkyBox for nine
months in 1996 versus only five months in 1995 (the SkyBox Acquisition was
consummated on April 27, 1995), partially offset the lower sales discussed
above. These decreases in trading card net revenues were partially offset by an
increase in net revenues of stickers. This increase was due to the 1996
European Cup soccer tournament and expansion into new markets such as Brazil
and Russia, and was partially offset by higher provisions for returns for
stickers in 1996. In addition, the Company experienced lower net revenues in
certain European markets principally due to lower net revenues from
entertainment stickers based on properties licensed from third parties as a
result of lower commercial success of such properties in 1996 as compared to
1995. Licensing revenues, which vary from period to period, decreased primarily
as a result of an insufficient amount of new media exposure of the Company's
characters. The Company and FKW entered into an arrangement under which the
Company expects to have a new animation series on the Fox Children's Network in
the 1997-1998 broadcast seasons. Licensing revenues will vary depending on the
volume and extent of licensing agreements entered into during any particular
financial period, as well as the level and commercial success of the media
exposure of the Company's characters. The increase in toy revenues was
principally due to Toy Biz's expanded product offerings, increased
international distribution of products and the consolidation of Toy Biz for
nine months in 1996 as

                                      14




     
<PAGE>


compared to seven months in 1995. The improvement in other revenues was due to
increased sales of adhesive paper by Panini.

         Gross profit was $208.8 million and $243.5 million in the 1996 and
1995 periods, respectively, a decrease of $34.7 million. As a percentage of net
revenues, gross profit was 35.9% in the 1996 period as compared to 40.8% in the
1995 period. The decrease in gross profit as a percentage of net revenues was
due primarily to the effect of higher return provisions for stickers, the
effect of lower licensing revenues, an unfavorable product mix for trading
cards and toys as compared to 1995 and the effect of lower net revenues without
a corresponding decrease in royalty expense and advertising and promotion
expense given minimum payment obligations for trading cards in 1996.

         SG&A were $169.2 million and $156.0 million in the 1996 and 1995
periods, respectively. The increase of $13.2 million was mainly attributable to
the increase in advertising, promotion and selling expenses of Panini and Toy
Biz, the consolidation of Toy Biz's results for nine months in 1996 as compared
to seven months in 1995, and the inclusion of Sky Box for nine months in 1996
as compared to five months in 1995. This increase was partially offset by a
general reduction in overhead expenses associated with the restructuring of the
trading card, publishing and confectionery operations. As a percentage of net
revenues, SG&A was 29.1% in the 1996 period as compared to 26.2% in the 1995
period. The increase in SG&A as a percentage of net revenues was due primarily
to lower publishing and licensing net revenues without a corresponding
reduction in SG&A.

         Depreciation and amortization was $15.6 million and $12.4 million in
the 1996 and 1995 periods, respectively. The increase of $3.2 million was
primarily due to the consolidation of Toy Biz for nine months in 1996 as
compared to only seven months in 1995 and higher depreciation primarily
resulting from an increased investment in product tooling to support Toy Biz's
expanded product line.

         Amortization of goodwill, intangibles and deferred charges was $16.8
million and $12.6 million in the 1996 and 1995 periods, respectively. The
increase of $4.2 million mainly reflects the amortization related to the SkyBox
Acquisition in April 1995.

         Interest expense, net was $42.7 million and $30.2 million in the 1996
and 1995 periods, respectively. The increase in interest expense of $12.5
million primarily reflects increased borrowings under the U.S. Term Loan
Facility in connection with the SkyBox Acquisition, increased borrowings under
the Credit Agreements including the $25.0 million revolving credit facility,
borrowings for the expansion of Panini's Adespan adhesives facility, and higher
average borrowing rates.

         The gain on sale of Toy Biz common stock was $22.0 million in 1996
compared with $14.3 million from the Toy Biz IPO in 1995 (see Note 6).

         (Benefit) provision for income taxes was ($0.7) million and $25.6
million in the 1996 and 1995 periods, respectively. The net tax benefit in 1996
primarily represents a benefit for the Company's operating losses partially
offset by a provision for income taxes related to the sale of common stock of
Toy Biz and the operations of Toy Biz. The provision for income taxes in 1995
represents foreign, federal, state and local income taxes.

         In 1995, the Company recorded a $3.3 million extraordinary loss, net
of taxes of $2.1 million, which represented a write-off of the related deferred
financing costs associated with the term loan portion of the Amended and
Restated Credit Agreement.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has experienced greater than expected operating losses in
the third quarter of 1996, and as a result has failed to satisfy certain
financial covenants contained in the Credit Agreements. The Company has
commenced discussions with The Chase Manhattan Bank, the agent bank for the
Credit Agreements, seeking waivers of these covenants and a restructuring of
the Credit Agreements to provide for the Company's cash requirements. The
Company believes that such a restructuring will require an infusion of new
equity capital and has received a proposal from Andrews Group regarding such
equity infusion, which is subject to a number of significant conditions. As a
result

                                      15




     
<PAGE>


of the Company's failure to satisfy certain financial covenants and in the
absence of waivers as of this date relating thereto, the balance of long-term
debt has been reclassified to current liabilities.

         At November 8, 1996, the Company's outstanding bank indebtedness was
approximately $665 million, of which $16.5 million relates to the borrowings
for Panini's Adespan adhesives facility. Until the Company receives waivers of
the failure to satisfy financial covenants contained in the Credit Agreements,
it will not be able to borrow additional amounts under its domestic credit
facilities. Panini S.p.A. had approximately $11 million available under its
foreign credit facilities at November 8, 1996. In addition, there was $30.0
million available under the Toy Biz line of credit at November 8, 1996.

         If the Transactions (as defined below) are not consummated or if
consummated, are not consummated on satisfactory terms, then the Company
anticipates that it will be required to adopt one or more extraordinary
transactions in order to meet its consolidated cash requirements, including
debt service and repayment, for the foreseeable future. However, there can be
no assurance that such extraordinary transactions could be consummated or if
consummated, would be sufficient to allow the Company to meet its consolidated
cash requirements.

         On October 17, 1996, Andrews Group announced that it had reached
agreement with each of Isaac Perlmutter and Avi Arad to purchase approximately
67% of the class A common stock of Toy Biz for cash and debt of Andrews Group.
On November 12, 1996, the Company received a proposal from Andrews Group for
the Andrews Investment whereby Andrews Group would acquire from the Company a
number of shares of Marvel common stock (or its equivalent) that would
represent 80.1% of the shares of Marvel common stock after giving effect to
such acquisition. Based on the approximately 101.8 million shares of Marvel
common stock outstanding, this would require the issuance of approximately 410
million shares of Marvel common stock (or its equivalent). The purchase price
for the Andrews Investment would be $350 million in cash or, at the option of
Andrews Group, an equal value of the shares of class A common stock of Toy Biz
or a combination of the foregoing. The Andrews Group proposal states that the
shares of Toy Biz class A common stock so transferred would be valued on the
basis of the cost to Andrews Group of acquiring such stock. The Andrews Group
proposal states that any contribution by Andrews Group to the Company of shares
of Toy Biz class A common stock would be made in the context of Toy Biz
becoming a wholly owned subsidiary of the Company.

         The Andrews Group proposal states that the consummation of the Andrews
Group Investment would be subject to a number of significant conditions,
including the satisfaction of the conditions set forth in the agreements
between Andrews Group and Messrs. Perlmutter and Arad, an agreement for the
acquisition of Toy Biz having been executed and all conditions to that
agreement having been satisfied, receipt of certain consents and amendments
under the Credit Agreements, including to provide for the additional borrowing
capacity that the Company requires, the satisfactory resolution by Andrews
Group of a number of issues under the Marvel parent holding company indentures,
including that any Marvel common stock (or its equivalent) purchased by Andrews
Group not be subject to the liens thereunder, and the execution of a definitive
agreement for the Andrews Group Investment which contains appropriate
representations, warranties, covenants and conditions customary for
transactions of the nature of the Andrews Group Investment. There can be no
assurance that agreement will be reached on the terms of any of the foregoing
transactions or that any of the foregoing transactions will be consummated.

         A copy of the Andrews Group proposal has been forwarded to a special
committee of the Company's board of directors comprised of outside directors,
who are not affiliated with Andrews Group, for consideration. In addition, in
anticipation of receiving a proposal, the board of directors of Toy Biz formed
a special committee of outside directors who are not affiliated with Andrews
Group or the Company to consider, on behalf of the minority stockholders of Toy
Biz, any proposal that may be made. (The restructuring of the Credit
Agreements, the proposed purchase of the Company's equity capital by Andrews
Group (or an affiliate) and the proposed Toy Biz acquisition are collectively
referred to as the "Transactions".)

         As of November 8, 1996, 79,407,725 shares, or 78.0%, of the Company's
Common Stock were pledged by subsidiaries of Mafco Holdings Inc. ("Mafco"),
other than the Company and its subsidiaries, to secure indebtedness or letters
of credit of such subsidiaries. In addition, 2,932,167 shares, or 2.9%, of the
Company's Common Stock are subject to a negative pledge under the terms of the
Marvel Holdings Notes indenture. The indentures governing this

                                      16





     
<PAGE>


indebtedness contain various covenants relating to the Company, including
certain limitations on the Company's indebtedness.

         Although there can be no assurance, the Company anticipates that if
the Transactions are consummated on satisfactory terms, internally generated
funds, borrowings under the various credit facilities of the Company and Toy
Biz, other borrowings and refinancings of existing indebtedness should be
sufficient to enable the Company to meet its consolidated cash requirements,
including debt service and repayment, for the foreseeable future.

          For the nine months ended September 30, 1996, the Company used $73.0
million of cash as a result of its operating activities. The use of funds was
principally due to an increase in accounts receivable, a reduction in accrued
expenses, a reduction in accounts payable and increased investments in
inventory and prepaid expenses. Cash shown on the Consolidated Balance Sheets
at September 30, 1996 of $35.9 million and December 31, 1995 of $53.6 million,
includes $7.3 million and $22.5 million, respectively, of Toy Biz cash.

         Cash used for investing activities for the nine months ended September
30, 1996, was $5.3 million. The primary use of these funds was for capital
expenditures for Panini's Adespan adhesives facility and tooling and molds and
capitalized product development costs primarily related to Toy Biz partially
offset by net proceeds from the Company's sale of a portion of its investment
in Toy Biz.

         Cash provided by financing activities for the nine months ended
September 30, 1996, was $59.3 million, primarily consisting of increased
borrowings under the Company's credit facilities for working capital and
investment requirements, including the expansion of Panini's Adespan adhesives
facility and the net proceeds from Toy Biz's sale of shares of its class A
common stock in an offering.

         In August 1996, Toy Biz sold in an offering 700,000 shares of its
Class A common stock at a price to the public of $15 per share. As part of Toy
Biz's offering, the Company sold 2.5 million shares of Toy Biz Class A common
stock. The net proceeds to Toy Biz and the Company were approximately $9.1
million and $35.7 million, respectively, after deducting amounts accrued for
estimated fees and expenses. As a result of the offering by Toy Biz and the
sale of Class A common stock of Toy Biz by the Company, the Company's ownership
percentage of Toy Biz decreased to 26.7% and its voting control decreased to
78.4%.

         The Company expects to incur approximately $4 million in net
production costs for The Hulk animated series (which costs would be partially
offset by any sales of video cassettes and international distribution rights to
the series). In addition, with respect to the Company's agreement with FKW, the
Company will be required to reimburse FKW a portion of its production costs.
The Hulk animated series, which began broadcasting on United Paramount Network
in September 1996 and the Company's projects with FKW, which will involve the
development and production of a variety of the Company's characters to be
broadcast over the Fox Children's Network over a period of seven years (which
could be extended to ten years in certain circumstances), are expected to be
projects of Marvel Studios.

          The Company, along with its joint venture partner, is continuing
development of Marvel theme restaurants. Five restaurants are currently under
development, with the first restaurant expected to open in the first half of
1997. The Company expects to invest approximately $36 million over the next
three years to fund the development of such restaurants.


                                      17







     
<PAGE>



                          FORWARD-LOOKING STATEMENTS

         Statements in this quarterly report on Form 10-Q for the quarter ended
September 30, 1996 such as "intend", "estimated", "believe", "expect",
"anticipate" and similar expressions which are not historical are
forward-looking statements that involve risks and uncertainties. Such
statements include, without limitation, the Company's expectation as to
financial performance for the remainder of 1996 and for 1997. In addition to
factors that may be described in the Company's Securities and Exchange
Commission filings, including this filing, 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) continued weakness in the comic book market which cannot be
overcome by the Company's new editorial and production initiatives in comic
publishing; (ii) continued general weakness in the trading card market; (iii)
the failure of fan interest in baseball to return to traditional levels that
existed prior to the 1994 baseball strike and the potential for decreased fan
interest due to a possible disruption of play in 1997 as a result of the
failure of the owners and players to agree on a collective bargaining
agreement, thereby negatively impacting the Company's baseball card business;
(iv) the effectiveness of the Company's changes to its trading card and
publishing distribution; (v) a decrease in the level of media exposure or
popularity of the Company's characters resulting in declining revenues based on
such characters; (vi) the lack of continued commercial success of properties
owned by major licensors which have granted the Company licenses for its sports
and entertainment trading card and sticker businesses; (vii) unanticipated
costs or delays in completing projects associated with the Company's new
ventures including media, interactive software and on-line services and theme
restaurants; (viii) consumer acceptance of new product introductions, including
those for toys; (ix) imposition of tariffs or import quotas on toys
manufactured in China as a result of a deterioration in trade relations between
the U.S. and China; and (x) the outcome of the Company's discussions for the
restructuring of the Company's Credit Agreements and related anticipated
transactions.

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<PAGE>


                                   PART II.
                              OTHER INFORMATION.

ITEM 1.           LEGAL PROCEEDINGS.

         The Company is a defendant in a purported class action filed on July
26, 1996 in the United States District Court for the Eastern District of New
York entitled Fishman, et al v. Marvel Entertainment Group, Inc., CV-96-3757
(SJ), by four persons who allegedly purchased sports and entertainment cards
manufactured by Fleer and SkyBox. The action is directed against standard
business practices in the trading card industry, including the practice of
randomly placing insert cards in packages of sports and entertainment trading
cards, and alleges that these practices constitute illegal gambling activity in
violation of state and federal law. Each of Fleer and SkyBox's principal
competitors in the trading card industry has been separately sued for employing
the same or similar practices. In addition, certain of the various sports
organizations and entertainment companies that issue licenses to Fleer and
SkyBox (as well as the other major trading card companies) in connection with
the manufacture of sports and entertainment trading cards have also been
separately sued and are alleged to be engaged in aspects of the purportedly
illegal gambling operations. Plaintiffs seek certification of a class of
persons who within four years prior to the filing of the complaint purchased
packages of trading cards that might contain randomly inserted cards, and
recovery of treble damages. On September 30, 1996, the Company filed a motion
to dismiss the complaint. No discovery has commenced. Plaintiffs have not
specified the amount of damages sought, but generally allege that members of
the purported class have been damaged as a result of their purchases of trading
cards during the four years preceding the commencement of the action. It is not
possible at this early stage of the case to predict the outcome with certainty.
In the opinion of the Company, the action lacks merit and the Company intends
to defend it vigorously.

         In addition, the Company is a party to various legal proceedings
described in previous filings. During the quarter ended September 30, 1996
there were no material developments in any of such proceedings. Other than the
item described above there were no new reportable legal proceedings. Although
it is impossible to predict the outcome of any outstanding legal proceeding,
the Company believes that all legal proceedings and claims, individually and in
the aggregate, are not likely to have a material effect on its financial
condition or results of operations.

ITEM 3.                    DEFAULTS UPON SENIOR SECURITIES

         The information required by Part II, Item 3, of Form 10-Q is
incorporated by reference from Notes 4 and 8 of the Condensed Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources, set
forth herein.

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

         (A)      Exhibits

                   3.2  Amended and Restated By-Laws.

                  10.1  Consent, dated as of September 24, 1996 to the (a)
                        Participation Agreement, dated as of August 30,1994,
                        among Instituto Bancario San Paolo Di Torino, S. p. A.,
                        New York Limited Branch ("San Paolo"), the financial
                        institutions party thereto and The Chase Manhattan Bank
                        (formerly named Chemical Bank), as administrative agent
                        and (b) the Term Loan and Guarantee Agreement among
                        Panini S. p. A. (formerly named Marvel Comics Italia
                        S. r. L.), the Registrant and San Paolo.

                  10.2  Employment Agreement dated as of August 13, 1996,
                        between the Registrant and David J. Schreff.

                  10.3  Amendment dated February 7, 1996, to License Agreement
                        dated December 22, 1994, between Major League Baseball
                        Players Association and Fleer Corp. Confidential
                        treatment has been granted for portions of this
                        document.

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<PAGE>







                  10.4  Retail Product License Agreement dated July 21, 1995,
                        between NBA Properties, Inc. and the Registrant.
                        Confidential treatment has been granted for portions of
                        this document.

                  10.5  License Agreement dated June 30, 1995, between SkyBox
                        International Inc. and National Football League Players
                        Incorporated, as amended June 30, 1995. Confidential
                        treatment has been granted for portions of this
                        document.

         (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, thereunto duly authorized.


                                     MARVEL ENTERTAINMENT GROUP, INC.
                                              (Registrant)





                                             By:  /s/    August J. Liguori
                                                  -----------------------------
Dated:  November 14, 1996                         August J. Liguori
                                                  Vice President, Finance
                                                  Principal Accounting Officer

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