<PAGE>

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

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

For the quarterly period ended March 31, 1997

                                      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.
------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


DELAWARE                                                        94-3024816
------------------------------------------------------------------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                              Identification No.)



387 PARK AVENUE SOUTH, NEW YORK, NY                            10016
------------------------------------------------------------------------------
(Address of principal executive offices)                     (Zip Code)

                                 212-696-0808
------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)




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


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

Yes X  No
    --    ----

As of May 5, 1997, there were 101,809,657 shares of the registrant's Common
Stock, par value $.01 per share, outstanding, of which 31,696,225 shares are
beneficially owned by indirect wholly owned subsidiaries of Mafco Holdings
Inc.



<PAGE>





                       MARVEL ENTERTAINMENT GROUP, INC.
                            (DEBTOR-IN-POSSESSION)
             INDEX TO CONTENTS OF THE FIRST QUARTER 1997 FORM 10-Q


                                                                          Page
                                                                          ----
Condensed Consolidated Balance Sheets as of March
 31, 1997 and December 31, 1996  ........................................    3

Condensed Consolidated Statements of Operations for 
 the quarters ended March 31, 1997 and 1996 .............................    4

Condensed Consolidated Statements of Cash Flows 
 for the quarters ended March 31, 1997 and 1996 .........................    5

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

Management's Discussion and Analysis of Financial 
Condition and Results of Operations .....................................   18

Other Information .......................................................   24

Signatures ..............................................................   24


                                      2



<PAGE>



                       MARVEL ENTERTAINMENT GROUP, INC.
                            (DEBTOR-IN-POSSESSION)
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN MILLIONS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                  March 31,           December 31,
                                                    1997                 1996
                                              ---------------      --------------   
<S>                                               <C>                 <C>    
ASSETS
Current assets:
     Cash ...............................         $  21.7             $  25.1
     Accounts receivable, net ...........           215.7               229.1
     Inventories, net ...................            78.2                78.1
     Deferred income taxes ..............             6.2                 6.2
     Income tax receivable ..............            11.8                11.8
     Prepaid expenses and other .........            51.3                49.2
                                              ---------------      --------------   
          Total current assets ..........           384.9               399.5


Property, plant and equipment, net ......            77.4                79.5
Goodwill and other intangibles, net .....           309.3               317.6
Deferred charges and other ..............            47.3                47.4
                                              ---------------      --------------   
          Total Assets ..................        $  818.9            $  844.0
                                             ================      -=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable ...................        $   85.8             $  98.5
     Accrued expenses and other .........           168.9               174.7
     Short term borrowings ..............            87.0                47.3
     Current portion of long-term debt ..             9.7                10.6
     Liabilities subject to settlement
          under reorganization ..........            28.8                29.7
                                              ---------------      --------------   
          Total current liabilities .....           380.2               360.8
 
Long-term debt ..........................           127.5               145.0
Other long-term liabilities .............            21.7                20.4
Liabilities subject to settlement
     under reorganization ...............           473.5               473.5
                                             ---------------      --------------   
          Total Liabilities .............         1,002.9               999.7

Minority interest in Toy Biz ............           101.0               100.6
                                              ---------------      --------------   

Stockholders' deficit:
     Common Stock .......................             1.0                 1.0
     Additional paid-in capital .........            93.1                93.1
     Accumulated deficit ................          (378.1)             (350.3)
     Cumulative translation adjustment ..            (1.0)               (0.1)
                                              ---------------      --------------   

          Total Stockholders' Deficit ...          (285.0)             (256.3)
                                              ---------------      --------------   
          Total Liabilities and 
            Stockholders' Deficit .......          $818.9               $844.0
                                              ===============      =============-   
</TABLE>

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


                                     3



<PAGE>



                       MARVEL ENTERTAINMENT GROUP, INC.
                            (DEBTOR-IN-POSSESSION)
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)



<TABLE>
<CAPTION>
                                                             For the
                                                       Three Montns Ended
                                                            March 31,
                                              ----------------------------------
                                                    1997                 1996
                                              ---------------      --------------   
<S>                                               <C>                 <C>    
Net revenues .............................            $156.7            $  189.6
Cost of sales ............................             104.5               113.9
Selling, general & administrative expenses              48.5                52.3
Depreciation and amortization ............               4.8                 4.4
Amortization of goodwill, intangibles 
  and deferred charges ...................               4.3                 5.5
Interest expense, net ....................              15.6                13.7
Foreign exchange loss/(gain), net.........              (0.7)                0.6 
Equity in net income of unconsolidated 
  subsidiaries and other, net ............               0.1                 0.1
                                              ---------------      --------------   
Loss before reorganization items, 
  provision for income taxes, 
  and minority interest ..................             (20.2)               (0.7)
Reorganization items .....................               3.4                  --
                                              ---------------      --------------   
Loss before provision for income 
  taxes and minority interest ............             (23.6)               (0.7) 
Provision for income taxes ...............               3.8                 1.7
                                              ---------------      --------------   
Loss before minority interest ............             (27.4)               (2.4)
Minority interest in earnings of Toy Biz .               0.4                 2.0
                                              ---------------      --------------
Net loss .................................            $(27.8)              $(4.4)
                                              ===============      ==============
Loss per share ...........................            $( .27)              $( .04)
                                              ===============      ==============   
Common shares outstanding (in millions) ..              101.8               101.8
                                              ===============      ==============   
</TABLE>


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


                                     4
<PAGE>

                       MARVEL ENTERTAINMENT GROUP, INC. 
                            (DEBTOR-IN-POSSESSION) 
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
                            (DOLLARS IN MILLIONS) 
                                 (UNAUDITED) 

<TABLE>
<CAPTION>
                                                                             For the 
                                                                        Three Months Ended 
                                                                            March 31, 
                                                                       ------------------ 
                                                                          1997      1996 
                                                                       --------- -------- 
<S>                                                                    <C>       <C>
Cash flows from operating activities: 
Net loss ..............................................................  $(27.8)    $(4.4)
                                                                      ---------   -------
 Adjustments to reconcile net loss to net cash (used in) provided by 
  operating activities: 
   Depreciation and amortization ......................................     9.2       9.9 
   Provision (benefit) for deferred income taxes ......................     2.7       3.8 
   Undistributed earnings of unconsolidated subsidiaries  .............    (0.1)     (0.1) 
   Minority interest in earnings of Toy Biz ...........................     0.4       2.0 
   Other ..............................................................     0.3        -- 
   Changes in assets and liabilities: 
    Decrease in accounts receivable, net ..............................     9.7      21.4 
    Increase in inventories ...........................................    (2.0)     (8.0) 
    Increase in other assets ..........................................    (5.2)     (2.9) 
    (Decrease) increase in accounts payable ...........................    (7.8)      4.5 
    Decrease in accrued expenses and other ............................    (3.3)    (48.5) 
                                                                       --------  -------- 
Total adjustments .....................................................     3.9     (17.9) 
                                                                       --------  -------- 
    Net cash used in operating activities .............................   (23.9)    (22.3) 
                                                                       --------  -------- 
Cash flows from investing activities: 
 Capital expenditures (including product development and package 
 design  costs) .......................................................    (7.3)    (11.1) 
 Other acquisitions, net of cash and cash equivalents acquired  .......    (4.2)       -- 
 Other investing activities ...........................................    (1.1)     (1.7) 
                                                                       --------  -------- 
    Net cash used in investing activities .............................   (12.6)    (12.8) 
                                                                       --------  -------- 
Cash flows from financing activities: 
 Net repayments under Term Loan Agreement .............................    (5.1)     (2.6) 
 Net borrowings under Toy Biz credit facility .........................     5.0        -- 
 Net borrowings under DIP Loan ........................................    40.0        -- 
 Net (repayments) borrowings under other debt .........................    (4.7)     13.4 
 Proceeds from exercise of stock options ..............................      --       0.4 
 Other financing activities ...........................................     0.1       0.2 
                                                                       --------  -------- 
  Net cash provided by financing activities ...........................    35.3      11.4 
                                                                       --------  -------- 
Effect of exchange rate changes on cash ...............................    (2.2)     (0.1) 
                                                                       --------  -------- 
Net decrease in cash ..................................................    (3.4)    (23.8) 
Cash, at beginning of period ..........................................    25.1      53.6 
                                                                       --------  -------- 
Cash, at end of period ................................................  $ 21.7    $ 29.8 
                                                                       ========  ======== 
Supplemental disclosures of cash flow information: 
 Interest paid during the period ......................................  $ 17.3    $ 18.6 
 Income taxes paid, net of refunds, during the period .................  $  1.4    $  7.8 
</TABLE>

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


                                      5

<PAGE>

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

1. BACKGROUND AND BASIS OF FINANCIAL STATEMENT PRESENTATION

         The accompanying unaudited condensed consolidated financial
statements include the accounts of Marvel Entertainment Group, Inc. ("Marvel")
and its subsidiaries (collectively, the "Company"). 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 manufacture and distribution of sports and entertainment
trading cards and children's activity sticker collections, (iii) consumer
products, media and advertising-promotion licensing of the various characters
owned by the Company, (iv) the design, marketing and distribution of toys and
(v) the manufacture and distribution of adhesive paper 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 Annual Report on Form 10-K for the
year ended December 31, 1996. Certain prior year amounts have been
reclassified to conform with the current year presentation.

2. CHAPTER 11 REORGANIZATION

     On December 27, 1996, Marvel along with certain of its operating and
inactive subsidiaries, Fleer Corp. ("Fleer"); SkyBox International, Inc.
("SkyBox"); Marvel Characters, Inc.; Heroes World Distribution, Inc. ("Heroes
World"); The Asher Candy Company; Malibu Comics Entertainment, Inc.
("Malibu"); Frank H. Fleer Corp. and Marvel Direct Marketing Inc. (along with
Marvel, the "Debtor Companies") filed petitions for relief and a plan of
reorganization under chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). Panini S.p.A. ("Panini"), Marvel Restaurant
Venture Corp. ("Marvel Restaurants") (a general partner in the joint venture
developing the Marvel Mania restaurants) and Toy Biz, Inc. ("Toy Biz"), all of
which are active, as well as certain other subsidiaries did not file petitions
under the Bankruptcy Code.

          The Plan of Reorganization, filed on December 27, 1996 (as amended,
the "Plan"), contemplated that pursuant to the Stock Purchase Agreement dated
December 26, 1996, between Andrews Group Incorporated ("Andrews") and Marvel,
Andrews Group, or an affiliate thereof, would acquire from Marvel, a number of
shares of Common Stock (or its equivalent) that would represent 80.1% of the
shares of reorganized Marvel after giving effect to such acquisition, in
consideration for $365 in cash or, at the option of Andrews Group, shares of
class A common stock, par value $.01 per share of Toy Biz (the "Class A Common
Stock") or a combination of the foregoing (the "Andrews Investment"). The Plan
contemplated that in connection with the Andrews Investment, the Company would
acquire the Class A Common Stock not owned by Marvel, Andrews Group or their
affiliates pursuant to a Merger Agreement between Andrews Group and Toy Biz
and a Stock Purchase Agreement with the two other principal stockholders of
Toy Biz. The Plan also contemplated a new $160 credit facility for Toy Biz to
be used for working capital purposes of the Company, including Toy Biz, and to
fund the Company's strategic initiatives. As of March 31, 1997, the Company
owned 7,394,000 shares of class B common stock of Toy Biz (the "Class B Common
Stock"), representing 26.6% of the equity of Toy Biz, and 78.4% of the voting
power relating to Toy Biz. This plan has since been withdrawn as described
below.

         The Debtor Companies received approval from the Bankruptcy Court to
pay on time and in full undisputed pre-petition obligations including
salaries, wages and benefits to all of its employees, trade creditors and
independent contractors and to continue funding its strategic initiatives. On
January 24, 1997 the Bankruptcy Court approved a $100 debtor-in-possession
financing facility (the "DIP Loan"), which is provided by a syndicate of
lenders, including The Chase Manhattan Bank, as agent bank. The DIP Loan
matures on June 30, 1997. The DIP Loan is subject to covenants and events of
default including a change of control of Marvel (as defined therein).
See Note 4.

         In 1993, Marvel Holdings Inc. ("Marvel Holdings") issued
approximately $517.4 principal amount at maturity of Senior Secured Discount
Notes due 1998. In 1993, Parent Holdings issued approximately $251.7 

                                      6

<PAGE>


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



principal amount at maturity of Senior Secured Discount Notes due 1998 (the
"Parent Holdings Notes"). In 1994, Marvel III Holdings Inc. ("Marvel III" and
collectively with Marvel Holdings and Parent Holdings, the "Marvel Holding
Companies") issued $125 principal amount of 9-1/8% Senior Secured Notes due
1998 (the "Marvel III Notes"). Marvel Holdings and Parent Holdings have, in
the aggregate, pledged 77,302,326 shares of the Company's common stock to
secure such notes (the "Pledged Common Stock"), and an additional
approximately 2.9 million shares are subject to a negative pledge under the
indenture to the notes issued by Marvel Holdings. In addition, Parent Holdings
has pledged the common stock of Marvel Holdings to secure the Parent Holding
Notes, and Marvel III has pledged the common stock of Parent Holdings to
secure the Marvel III Notes (collectively with the Pledged Common Stock, the
"Pledged Stock").

         On December 27, 1996, the Marvel Holding Companies filed voluntary
petitions for relief under chapter 11 of the Bankruptcy Code with the United
States Bankruptcy Court for the District of Delaware. The chapter 11 cases
commenced by the Marvel Holding Companies have not been procedurally
consolidated and are not jointly administered with the Debtor Companies'
chapter 11 cases.

         On January 9, 1997, the United States Trustee appointed a committee
of creditors holding unsecured claims against the Marvel Holding Companies
(the "Creditors Committee") under section 1102(a) of the Bankruptcy Code. The
members of the Creditors Committee, as originally appointed, include: The Bank
of New York, High River Limited Partnership, Westgate International, L.P.,
Schultz Investments, WHERCO, Inc., M3, LLC and United Equities Commodities
Company.

         On January 13, 1997, the Creditors Committee filed a motion (the
"Stay Relief Motion") in the Holdings Companies' chapter 11 cases seeking (i)
relief from the automatic stay to permit LaSalle National Bank, as successor
indenture trustee (the "Holding Companies' Trustee"), on behalf of the holders
of the notes issued by the Marvel Holding Companies, to foreclose upon, and
vote, the Pledged Stock and (ii) dismissal of the Marvel Holding Companies'
chapter 11 cases. On February 26, 1997, the Bankruptcy Court entered an order
granting relief from the automatic stay to allow the Holding Companies'
Trustee to vote and to foreclose upon the Pledged Stock. On February 27, 1997,
the Company and the Marvel Holding Companies filed a notice of appeal with
respect to such order. Such appeal will be heard on June 19, 1997 in the
United States District Court for Delaware.

      On February 12, 1997, the Office of the United States Trustee appointed a
committee of equity security holders of the Debtor Companies under section
1102(a)(1) of the Bankruptcy Code (the "Equity Committee"). The Equity
Committee presently consists of: Barclay's Global Investors, Marty Solomon,
Robert A. Della Camera, Peter E. Kelly, Jr., Gladys V. Veidemanis and Ronald
Cantor.

         On March 7, 1997, Andrews Group exercised its right to terminate the
Stock Purchase Agreement with the Company. On the same date, Andrews Group
informed Toy Biz and the two principal stockholders of Toy Biz that, as a
result of the termination of the Andrews Investment, a condition to closing
under the Merger Agreement with Toy Biz and the Stock Purchase Agreement would
not be satisfied, that Andrews Group did not intend to waive the satisfaction
of such condition and therefore the transaction contemplated by such
agreements would not be consummated. As a consequence of the termination of
the Stock Purchase Agreement, the Plan has been withdrawn.

     On March 7, 1997, the Creditors Committee indicated that it would make a
proposal whereby the holders of Common Stock (other than Mafco and its
affiliates) and holders of the notes of the Marvel Holding Companies would
make a $365.0 infusion into the Company as part of a new Plan of
Reorganization through a rights offering that would be backstopped by certain
members of the Creditors Committee, including High River Limited Partnership,
an entity controlled by Carl Icahn, Westgate International L.P. and United
Equities Commodities Company (the "Icahn Group") (as subsequently amended, the
"Committee Proposal"). The Committee Proposal did not specify whether all of
the $365.0 would be added to the equity of the Company or whether a portion of
the

                                      7


<PAGE>


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



proceeds would be used to repay borrowings under the Credit Agreements, and
did not contemplate Toy Biz becoming a wholly owned subsidiary of Marvel.

     On March 19, 1997, the Creditors Committee notified the Company that on
March 25, 1997 it would cause the Holding Companies' Trustee to vote the
Pledged Stock to replace the Board of Directors of the Company and the Holding
Companies. On March 24, 1997, the Court in the Debtor Companies' bankruptcy
cases issued a restraining order (the "Restraining Order") preventing the
Creditors Committee and the Holding Companies' Trustee from voting the Pledged
Stock or otherwise replacing the Board of Directors of the Company and
determined that the Creditors Committee and the Holding Companies' Trustee
must comply with the procedural requirements of Section 362 of the Bankruptcy
Code to seek relief from the automatic stay to take such action. The Court,
however, also ruled that the Creditors Committee and Holding Companies'
Trustee could replace the Board of Directors of Marvel Holdings and Parent
Holdings. On March 28, 1997, the Creditors Committee and the Holding
Companies' Trustee filed a motion to lift the automatic stay in the Debtor
Companies' cases in order to permit the Creditors Committee and the Holding
Companies' Trustee to replace the Board of Directors of Marvel. A hearing date
on such motion, originally set for May 14, 1997, has been rescheduled by the
Creditors Committee and the Holding Companies' Trustee for June 6, 1997. On
the same date, the Creditors Committee filed an emergency appeal in the
Federal District Court for Delaware of the restraining order of the Bankruptcy
Court issued on March 24, 1997 preventing the replacement of the Board of
Directors of Marvel. A hearing on such appeal was heard on May 1, 1997, and on
May 14, 1997, the District Court overturned the Restraining Order but the
District Court stayed the effectiveness of its ruling for 10 days. The Company
intends to pursue available options to maintain the status quo.

         On April 24, 1997, the Indenture Trustee voted the shares of common
stock of Marvel Holdings pledged to secure the Parent Holdings Notes to remove
the directors of Marvel Holdings and replace them with Messrs. Carl Icahn,
Vincent Intrieri and Robert Mitchell, designees of the Icahn Group. As a
result, Mafco no longer beneficially owns the approximately 50.03% of the
Common Stock of Marvel owned by Marvel Holdings, and Marvel is no longer
consolidated for federal income tax purposes with Mafco. As a result of such
tax deconsolidation, the Company will retain an allocated portion of net
operating loss carryforwards ("NOLs") of the Mafco affiliated group. Such
allocation is not yet determinable. Such NOL's may be limited under federal
income tax laws in the event of a change of control of the Company, including
as a result of the consummation of a plan of reorganization.

         On April 25, 1997, the Company and Toy Biz signed a letter of intent
(the "Letter of Intent") proposing a new plan (the "Marvel/Toy Biz Plan") of
reorganization for the Debtor Companies. The Marvel/Toy Biz Plan was filed on
May 7, 1997 with the Bankruptcy Court.

         The Marvel/Toy Biz Plan contemplates that there will be an auction
(the "Newco Auction") of the enterprise resulting from the business
combination of the Company (other than Fleer/SkyBox and Panini and their
respective subsidiaries) and Toy Biz ("Newco"). Pursuant to the Marvel/Toy Biz
Plan, under the Newco Auction, the minimum acceptable bid for Newco would be
one that yields net cash proceeds (after payment of administrative expenses,
amounts owed under the $100.0 DIP Loan and certain costs and expenses of the
Company's lenders under the Credit Agreements (the "Secured Lenders") and Toy
Biz with, in the case of Toy Biz, such fees and expenses being capped at $3.5)
to the Company's Secured Lenders in an amount equal to the aggregate amount
owing such lenders less $180.0, and that yields to the stockholders of Toy Biz
(other than Marvel) $285.0, or approximately $14 per share.

         As part of the auction process contemplated by the Marvel/Toy Biz
Plan, as an alternative to bids for Newco, a bid may be accepted for the
Company's publishing and licensing businesses and its approximately 26.6%
interest in Toy Biz (the "Marvel Auction") in an amount at least sufficient to
yield net cash proceeds (after payment of administrative expenses, amounts
owed under the DIP Loan and certain costs and expenses of the Company's
Secured Lenders) to the Company's Secured Lenders equal to approximately
$430.0 and includes a means for payment of a breakup fee of $7.0 to Toy Biz's
stockholders (other than the Company).

         If an offer or offers satisfying the minimum conditions under the
Newco Auction or Marvel Auction are received and a transaction based on such
offer closes, pursuant to the Marvel/Toy Biz Plan the net cash proceeds are


                                      8

<PAGE>


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



expected to be distributed in accordance with the preceding paragraph and the
Secured Lenders will accept 100% of the common stock of Fleer and Panini.

         Pursuant to the Marvel/Toy Biz Plan, if an offer exceeding the
minimum conditions are received and a transaction based on such offer closes,
any excess proceeds shall be distributed to unsecured creditors, equity
holders and securities litigation claimants of the Debtor Companies in order
of priority; provided, that prior to any sale of Fleer and its subsidiaries
and Panini and its subsidiaries, the Secured Lenders may elect to be
distributed such excess proceeds, in which event the unsecured creditors,
equity holders and securities litigation claimants of the Debtor Companies
shall be distributed subordinated debt or equity securities equal in value to
such excess in order of priority.

     If no offers satisfying the minimum conditions for the Newco Auction or
Marvel Auction set forth above are received, or if no transaction based on an
offer satisfying such minimum conditions closes, then pursuant to the
Marvel/Toy Biz Plan, the Company's publishing and licensing businesses and Toy
Biz would combine to form Newco. Pursuant to the Marvel/Toy Biz Plan, in such
merger, the Company's Secured Lenders are expected to receive in satisfaction
of their claims: (i) cash proceeds of a new $250.0 term loan net of, among
other things, amounts required to repay borrowings under the DIP Loan, and a
5-year, $170.0 note accruing interest at 11.5% per annum (payable at maturity)
from Newco, (ii) 28% of the primary shares of Newco, and (iii) the economic
interest in Fleer/SkyBox and Panini subject to certain limitations. Toy Biz
stockholders will receive 72% of the primary shares of Newco. Pursuant to the
Marvel/Toy Biz Plan, an amount of cash acceptable to Toy Biz and the Secured
Lenders will be dedicated to the payment of general unsecured claims.

         In addition, pursuant to the Marvel/Toy Biz Plan, Marvel stockholders
would receive two series of three-year warrants. The first series would
entitle Marvel shareholders to acquire 7.5% of the common stock of Newco on a
fully diluted basis with an exercise price based upon Marvel/Toy Biz having an
enterprise value of $950.0. The second series would entitle Marvel
shareholders to acquire an additional 5% of the common stock of Newco on a
fully diluted basis with an exercise price based on Newco having an enterprise
value of $1,100.0.

         Pursuant to the Marvel/Toy Biz Plan, Newco will obtain a loan
facility (the "Loan Facility") in the amount of $250.0 on a term-loan basis
and $75.0 on a revolving-credit basis, in each case having terms reasonably
acceptable to the Secured Lenders. Pursuant to the Letter of Intent, if Newco
is unable to obtain a term loan facility for such amount from a third-party
lender as of the effective date of the Marvel/Toy Biz Plan, pursuant to the
Marvel/Toy Biz Plan, the Secured Lenders will provide a senior secured term
loan facility in the amount of $150.0, provided that the remainder of the Loan
Facility is provided by a third party on terms reasonably acceptable to the
Secured Lenders.

         Pursuant to the Marvel/Toy Biz Plan, the payment of the breakup fee
is subject to the following conditions: (i) Toy Biz sends to Marvel and the
Secured Lenders a copy of a firm financing commitment, subject only to the
payment of a customary fee and otherwise in form and substance reasonably
acceptable to the Secured Lenders, with respect to the Loan Facility described
above; (ii) Toy Biz is otherwise willing and diligently proceeding to close,
and (iii) Messrs. Isaac Perlmutter and Avi Arad have entered into a voting
agreement, in form and substance reasonably acceptable to Marvel and the
Secured Lenders, on or before the date on which Toy Biz must complete its due
diligence, pursuant to which they agree to vote their shares of Toy Biz common
stock in favor of the transactions contemplated under the Letter of Intent,
and not in favor of any competing offers.

         There is no breakup fee in the context of a Newco Auction or the
consummation of a competing plan. On May 7, 1997, the Bankruptcy Court
approved, subject to certain conditions, the breakup fee.

         Pursuant to the Marvel/Toy Biz Plan, Marvel's Fleer/SkyBox and Panini
businesses will also be marketed and may be sold in a separate auction.

                                      9



<PAGE>


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



         The Company has retained the Blackstone Group LLP, to act as
financial advisor to the Company, including to assist the Company in
identifying potential bidders and conducting the Newco Auction, the Marvel
Auction and the auction of the businesses of Fleer and Panini.

         Consummation of the Marvel/Toy Biz Plan is subject to a number of
conditions, including, among other things, approval by the Bankruptcy Court by
August 15, 1997 and Toy Biz stockholders of the Marvel/Toy Biz Plan.

         On April 26, 1997, the Creditors Committee filed a plan of
reorganization for the Debtor Companies and the Marvel Holding Companies (the
"Creditors Committee Plan") and a disclosure statement for such plan with the
Bankruptcy Court. The Creditors Committee Plan provides for a rights offering
in which the holders of the notes issued by the Marvel Holding Companies and
the public stockholders of Marvel would participate. The Icahn Group would
backstop the rights offering for a fee. The proceeds of the rights offering
would be used to repay the DIP Loan and unsecured creditors in full and
purchase from the Icahn Group bank debt purchased by the Icahn Group at the
cost of such purchase. The other holders of bank debt under the Company's
Credit Agreements (as defined below) would receive the distribution of the
stock of the Company's Fleer/SkyBox and Panini businesses in exchange for the
cancellation of $385.0 of claims and a ten year promissory note for the
remaining amount. The promissory notes would pay interest at either 10.5% when
paid in cash or 13.5% when paid in additional promissory notes, the form of
payment being at the election of the Company. The promissory notes would be
secured by all of the Company's assets.

         There can be no assurance that the Marvel/Toy Biz Plan, the Creditors
Committee Plan or any other plan of reorganization will be confirmed under the
Bankruptcy Code. If the Company is unable to obtain confirmation of a plan of
reorganization, its creditors or equity security holders may seek other
alternatives for the Company.

         The accompanying condensed consolidated financial statements have
been prepared on a going concern basis, which assumes continuity of
operations, realization of assets and liquidation of liabilities in the
ordinary course of business. However, as a result of the Chapter 11 filings
and circumstances relating to these events, such realization of assets and
liquidation of liabilities is subject to significant uncertainty. These
conditions raise substantial doubt as to the Company's ability to continue as
a going concern. An event of a sale of the Company or parts thereof may
necessitate a material write down of assets, including goodwill associated
with the Company's businesses.


         As part of the chapter 11 process, the Debtor Companies have received
a significant amount of proofs of claims. The Company is currently in the
process of reviewing these claims and have found that a majority of these
claims are without merit. Although the Company believes that reserves as of
March 31, 1997 are adequate to cover the ultimate liability of these claims,
there can be no assurances that these claims will not be settled for amounts
in excess of these reserves.

         Financial accounting and reporting during a Chapter 11 proceeding is
prescribed in Statement of Position No. 90-7, "Financial Reporting by Entities
in Reorganization Under Bankruptcy Code" ("SOP 90-7"). Accordingly, certain
pre-petition obligations, which may be subject to settlement, have been
classified as obligations subject to Chapter 11 reorganization proceedings and
include the following estimated amounts:

                                      10

<PAGE>



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

<TABLE>
<CAPTION>
                                                  March 31,             December 31,
                                                    1997                    1996
                                              ---------------        --------------   
<S>                                           <C>                     <C>         
Total accrued expenses  ....................  $    13.8               $    14.7   
Additional Revolving Credit Facility .......       15.0                    15.0
                                              ---------               ---------
Total current liabilities ..................  $    28.8               $    29.7
                                              =========               =========

Debt:
  U.S. Term Loan Agreement .................  $   350.0               $   350.0
  Amended and Restated Credit Agreement ....      120.0                   120.0
  Additional Revolving Credit Facility .....       15.0                    15.0
                                              ---------               ---------
Total debt..................................      485.0                   485.0
Less current maturities ....................      (15.0)                  (15.0)
Other long-term liabilities.................        3.5                     3.5
                                              ---------               ---------
Total long-term liabilities ................  $   473.5               $   473.5
                                              =========               =========
</TABLE>

3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

ACCOUNTS RECEIVABLE, NET:
<TABLE>
<CAPTION>

                                                  March 31,           December 31,
                                                    1997                  1996
                                              --------------         --------------   
<S>                                          <C>                      <C>      
Accounts receivable......................... $    256.2               $   275.3
Less:  Allowances...........................      (40.5)                  (46.2)
                                              ---------               ---------
                                             $    215.7               $   229.1
                                              ==========              =========

INVENTORIES, NET:
Finished goods ............................. $     74.2               $    69.4
Work in process.............................       14.4                    16.3
Raw materials ..............................       21.3                    22.0
Less: Reserve for obsolescence .............      (31.7)                  (29.6)
                                              ---------               ---------
                                             $     78.2               $    78.1
                                              =========               =========
GOODWILL AND OTHER INTANGIBLES, NET:

Goodwill and other intangibles ............. $    378.7               $   374.3
Less:  Accumulated amortization ............      (69.4)                  (56.7)
                                              ---------               ---------
                                             $    309.3               $   317.6
                                              =========               =========

ACCRUED EXPENSES AND OTHER:
Royalties and incentives...................  $     23.7               $    23.0
Reserve for returns .......................        45.5                    51.2
Income taxes payable ......................        10.4                    10.9
Other .....................................       103.1                   104.3
Less amounts reclassified to liabilities 
subject to settlement under reorganization 
 (See Note 2) .............................       (13.8)                  (14.7)
                                              ---------               ---------
                                             $    168.9               $   174.7
                                              =========               =========
</TABLE>
  


                                    11

<PAGE>



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


4. SHORT-TERM BORROWINGS AND DEBT

Short term borrowings consists of the following:
<TABLE>
<CAPTION>

                                                  March 31,             December 31,
                                                    1997                  1996
                                              ------------------      --------------   
<S>                                          <C>                      <C>      
Panini credit arrangements ...............     $    32.0                $    37.3
DIP Loan .................................          50.0                     10.0
Toy Biz Credit Facility ..................           5.0                       --
                                              ---------               -------------
Short term borrowings.....................     $    87.0                $    47.3
                                              ==========              =============
</TABLE>



Debt consists of the following:
<TABLE>
<CAPTION>

                                                  March 31,             December 31,
                                                    1997                  1996
                                              ------------------      --------------   
<S>                                          <C>                      <C>      
U.S. Term Loan Agreement .................      $  350.0                 $  350.0
Amended and Restated Credit Agreement ....         120.0                    120.0
Additional Revolving Credit Facility .....          15.0                     15.0
Term Loan Agreement ......................
Other long term debt .....................         122.3                    139.3
Subtotal .................................          14.9                     16.3
                                              ---------               -------------
Less amount reclassified * ...............         622.2                    640.6
Less current maturities  .................        (485.0)                  (485.0) 
Long-term debt ...........................          (9.7)                   (10.6)
                                              ---------               -------------
                                                $  127.5                 $  145.0
                                              ==========              =============
</TABLE>

*    Amounts as of March 31, 1997 have been reclassified to "Liabilities
     subject to settlement under reorganization" in accordance with bankruptcy
     reporting prescribed by Statement 90-7. See Note 2.

     Under credit arrangements for short-term borrowings arranged with a group
of banks, Panini may borrow up to Italian Lire 58.3 billion as of March 31,
1997 (approximately $34.8 based on exchange rates at March 31, 1997) on such
terms as Panini and the banks may mutually agree upon. These arrangements
generally do not have termination dates but are reviewed annually for renewal.
At March 31, 1997, the unused portion of the credit lines was Italian Lire 4.6
billion (approximately $2.8 based on exchange rates at March 31, 1997). The
weighted average interest rate on short-term borrowings as of March 31, 1997
was 6.3%.

     At the time that the Debtor Companies commenced their reorganization
cases, they anticipated that their financing needs would be satisfied through
the DIP Loan. On January 24, 1997, the Bankruptcy Court entered an order (the
"DIP Order") approving the DIP Loan. The DIP Loan is scheduled to mature on
June 30, 1997. The Debtor Companies received approval from the Bankruptcy
Court to pay, on time and in full, interest on the pre-petition debt of the
Debtor Companies calculated at the applicable non-default rate or rates
provided for pursuant to the Credit Agreements (as defined below).

         The liens securing the DIP Loan prime the liens securing the Credit
Agreements (as defined below) and are secured by a lien on the Company's 26.6%
equity interest in Toy Biz. Borrowings under the DIP Loan bear interest at a
rate per annum equal to the one month Eurodollar Rate rounded upwards to the
next 1/16 of 1% (as defined in the DIP Loan) , or Alternate Base Rate (as
defined in the DIP Loan) plus the Applicable Margin of 2 1/2% with respect to
Eurodollar Loans and 1 1/2% with respect with Alternate Base Rate loans. The
interest rate on Alternate Base Rate Loans at March 31, 1997, was 10%.
Interest on Eurodollar Rate Loans is payable at the end of the applicable
interest period, and interest on Alternate Base Rate Loans is payable monthly
in arrears. At March 31, 1997, amounts available to borrow under this
facility, net of amounts reserved under letters of credit, were $43.1.

                                      12

<PAGE>


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

         The DIP Loan includes various restrictive covenants prohibiting the
Company from, among other things, incurring additional indebtedness, with
certain limited exceptions, making investments, except for certain limited
exceptions, including for the Company's strategic initiatives, and making
dividend, redemption and certain other payments on its capital stock. The DIP
Loan also contains certain customary financial covenants and events of default
for financing of this type, including a change of control covenant and an
event of default if the royalty free license from Marvel to Toy Biz is
rejected in the Company's bankruptcy proceedings.

         On April 24, 1997, the Indenture Trustee voted the shares of common
stock of Marvel Holdings pledged to secure the Parent Holdings Notes to remove
the directors of Marvel Holdings and replace them with Messrs. Carl Icahn,
Vincent Intrieri and Robert Mitchell, designees of the Icahn Group. However,
in light of the Restraining Order, the Company does not believe that the
replacement of the directors of Marvel Holdings with designees of the Icahn
Group is a change of control of the Company. A hearing on such appeal was
heard on May 1, 1997, but the District Court has not yet rendered a decision.
However, if the Holding Companies' Trustee were to among other things, vote
the Pledged Stock to replace the Board of Directors of Marvel, such action
would likely be a change of control of Marvel and therefore a default under,
among other agreements, the DIP Loan.

         On December 20, 1996, the banks and financial institutions that were
parties to the Credit Agreements entered into a Standstill Agreement and
Amendment (the "Standstill Agreement") which grants the Company the right, for
any outstanding loans under the Credit Agreements to remain as either
Eurodollar or Eurocurrency Loans during the Standstill Period (as defined
below). The Standstill Agreement also provides that the commitments under the
Credit Agreements will not automatically terminate or be accelerated upon the
commencement of the reorganization cases but rather will be suspended and
reinstated upon confirmation of the Plan. Unless a payment default is
continuing or certain other termination events are triggered, each lender
under the Credit Agreements will agree not to exercise any remedies against
any subsidiary of the Company which is not one of the Debtor Companies during
the Standstill Period. Each lender under the Credit Agreements agreed not to
transfer such Claim to any entity that does not agree to be bound by the
Standstill Agreement or support the Plan. Pursuant to the Standstill
Agreement, the lenders under the Credit Agreements will permit the loans
outstanding thereunder to be outstanding as Eurodollar Loans (or the
equivalent) during the Standstill Period provided that, in the event that the
interest period for any such Eurodollar Loans is longer than one month, such
interest period shall have a scheduled expiry on or prior to June 30, 1997.
The Standstill Period is the period commencing on December 27, 1996 and ending
on June 30, 1997 (or, sooner, if a Final Order is entered confirming the Plan
prior to such date or a payment default occurs).

     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, as
administrative agent (the "Amended and Restated Credit Agreement"), and the
outstanding balance of the Term Loan Agreement, as defined below. The
Applicable Margin under the Amended and Restated Credit Agreement for
Alternate Base Rate loans is 2% and for Eurodollar Rate loans is 3%. The
interest rate on Eurodollar Rate Loans at March 31, 1997 was approximately 8
1/2% to 8 23/32% per annum, depending upon the length of the relevant interest
period.

     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, 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, 3%
and (b) with respect to Alternate Base Rate loans, 2%. The interest rate on
Eurodollar Rate Loans at March 31, 1997, was approximately 8.54% to 8 9/16%
depending upon the length of the relevant interest period. Interest on
Alternate Base Rate Loans is payable quarterly in arrears, and interest on
Eurodollar

                                      13



<PAGE>


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



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").

         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 3% and (b) with respect to Negotiated Rate
Loans, 2%. The interest rate on Eurocurrency Rate Loans at March 31, 1997, was
approximately 10 5/16%. 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, the Company entered into an additional $25.0
revolving credit facility which was subsequently reduced to $15.0. 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,
the additional revolving credit facility 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 March 31, 1997 was 8.5%.

     The Credit Agreements are secured with substantially all 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.

         The filing of petitions for relief under chapter 11 of the Bankruptcy
Code in the United States Bankruptcy Court for the District of Delaware by the
Debtor Companies is an event of default under the Credit Agreements (as
defined below).

         In conjunction with the Toy Biz IPO, Toy Biz entered into a three
year $30.0 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 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.

                                      14


<PAGE>


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

         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 terminated approximately 275
employees, covering editorial, production, distribution and administrative
employee groups and, accordingly, provided for $10.7 of termination benefits,
of which $9.2 has been paid as of March 31, 1997. Additionally, approximately
$6.7 of the restructuring charges relates to facility closure, of which $5.7
has been paid as of March 31, 1997, and $7.6 of the restructuring charges
relates to other costs, of which $6.7 has been paid as of March 31, 1997. A
substantial portion of the remaining amount of $3.4 as of March 31, 1997,
which is included in accrued expenses and other, is scheduled to be paid in
accordance with the terms of various agreements or are "liabilities subject to
settlement under reorganization".

         In the fourth quarter of 1996, the Company recorded restructuring
charges of $15.8 related primarily to the publishing and trading card
operations; the closing of the comic book distribution subsidiary and the
closing or sale of a certain confections facility. As part of the
restructuring, the Company has terminated approximately 200 employees,
covering editorial, production, distribution and administrative employee
groups and, accordingly, provided for $6.6 of termination benefits of which
$1.7 has been paid as of March 31, 1997. The remaining approximate $9.2 of the
restructuring charges relates to facility closure or sale of which $0.1 has
been paid as of March 31, 1997 and $6.5 was used to write-down certain fixed
assets. A substantial portion of the remaining amount of $7.5 as of March 31,
1997, which is included in accrued expenses and other, is scheduled to be paid
in accordance with the terms of various agreements or are "liabilities subject
to settlement under reorganization".



                                      15


<PAGE>



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


6. FINANCIAL STATEMENTS OF ENTITIES OPERATING UNDER CHAPTER 11

The combined condensed balance sheet as of March 31, 1997 of the Debtor
Companies is as follows (See Note 2):


<TABLE>
<S>                                           <C>
ASSETS                                                        
Current assets:                                               
     Cash ...............................         $  12.5     
     Accounts receivable, net ...........            50.8     
     Inventories, net ...................            22.4     
     Income tax receivable ..............            11.8     
     Prepaid expenses and other .........             5.5     
                                              --------------- 
          Total current assets ..........           103.0     
                                                              
                                                              
Property, plant and equipment, net ......             9.1     
Goodwill and other intangibles, net .....           190.8     
Deferred charges and other ..............            26.1
Investments in and advances to 
     subsidiaries, at cost ..............            58.3
                                              --------------- 
          Total Assets ..................        $  387.3     
                                              =============== 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:                                          
     Accounts payable ...................        $   19.6     
     Accrued expenses and other .........            89.9     
     Short term borrowings ..............            50.0     
     Liabilities subject to settlement                        
          under reorganization ..........            28.8     
                                              --------------- 
          Total current liabilities .....           188.3     
                                                                   
Other long-term liabilities .............            10.5     
Liabilities subject to settlement                             
     under reorganization ...............           473.5     
                                              --------------  
          Total Liabilities .............           672.3     
                                              --------------                                                               
Stockholders' deficit:                                        
     Additional paid-in capital .........            94.1     
     Accumulated deficit ................          (378.1)    
     Cumulative translation adjustment ..            (1.0)    
                                              --------------- 
                                                              
          Total Stockholders' Deficit ...          (285.0)    
                                              --------------- 
          Total Liabilities and                               
            Stockholders' Deficit .......         $ 387.3     
                                              =============== 
</TABLE>






                                      16
<PAGE>


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


The combined condensed statement of operations for the three months ended
March 31, 1997 of the Debtor Companies is as follows:


<TABLE>                                                           
<CAPTION>                                                         
<S>                                               <C>             
Net revenues .............................            $ 53.2
Cost of sales ............................              38.0      
Selling, general & administrative expenses              25.1      
Depreciation and amortization ............               0.5   
Amortization of goodwill, intangibles                             
  and deferred charges ...................               3.4      
Interest expense, net ....................              11.4      
Equity in net loss of unconsolidated                            
     subsidiaries and other, net .........               0.9      
                                              ---------------     
Loss before reorganization items and                                 
     provision for income taxes ..........             (24.3)     
Reorganization items .....................               3.4      
                                              ---------------     
Loss before provision for income                                  
     taxes ...............................             (27.7)     
Provision for income taxes ...............               0.1      
                                              ---------------     
Net loss .................................          $  (27.8)     
                                              ===============     
</TABLE>                                                          



                                      17
<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
fictional action adventure characters owned by the Company (the "Marvel
Characters"), licenses from professional athletes, sports teams and leagues
and popular entertainment characters and other properties owned by third
parties. The Company also licenses the Marvel Characters and properties for
consumer products, television and film projects, on-line and interactive
software, and advertising promotions. The Company's products include comic
book and other children's publications, sports and entertainment trading
cards, activity stickers, toys, adhesive paper and confectionery products.

RESULTS OF OPERATIONS

         In recent years there has been an overall decline in the comic book
market, and more specifically, a significant reduction in speculative
purchases of comic books and reduced readership, which has adversely affected
the Company's publishing business. In response, the Company has undertaken
several strategic actions to mitigate the effect of such contraction. However,
to date these actions have not been successful in overcoming the overall
decline in the comic book market.

         Similarly, there has been a significant contraction in the sports
trading card market related in part to lower speculative purchases. In
addition, as a result of the baseball, hockey and basketball labor situations
in 1994 and 1995, fan interest declined which adversely affected sports
trading card sales and increased returns for those periods. The level of fan
interest, although showing some signs of improvement during 1996, has not
returned to the levels experienced prior to the labor situations in
professional sports. The Company believes that these factors have negatively
affected the sports trading card business, causing the Company to experience
lower sales, higher returns and higher inventory obsolescence. The level of
demand for entertainment trading cards is dependent on, among other factors,
the commercial success and media exposure of the Marvel Characters and third
party licensed products, as well as the market conditions in the comic book
specialty stores. In 1994 and 1995, the sale of entertainment cards based on
the Marvel Characters and third party licensed characters substantially offset
the decline in sports trading cards. However, since 1995, the Company's sales
of entertainment trading cards have been adversely affected by lack of
commercial success of properties licensed from third parties as well as the
lower demand for trading cards based on comic book characters. The result of
the minimum royalty and advertising contractual commitments to licensors
coupled with declines in the Company's trading card net revenues have
significantly and adversely affected the profit margins of the trading card
business and the Company anticipates a continued significant adverse effect on
profit margins due to the current contractual commitments. In response, the
Company has undertaken several strategic actions to increase sales in the face
of the contraction in the sports trading card and entertainment card
businesses. However, to date these actions have not been sufficient to
overcome the overall market decline in the sales of sports trading cards and
entertainment cards.

         The Company experienced significant operating losses during 1995 and
1996, and failed to satisfy certain financial covenants contained in the
Credit Agreements (as defined below, see Note 4 of "Notes to Condensed
Consolidated Financial Statements") beginning in the Fall of 1996. The Company
commenced discussions in the Fall of 1996 with Andrews Group, its indirect
parent, regarding an equity infusion in order to provide for the Company's
cash requirements and with The Chase Manhattan Bank, agent bank for the Credit
Agreements, regarding a restructuring of the Credit Agreements.

     On December 27, 1996, Marvel along with certain of its operating and
inactive subsidiaries, Fleer; SkyBox; Marvel Characters, Inc.; Heroes World
Distribution, Inc.; The Asher Candy Company; Malibu; Frank H. Fleer Corp. and
Marvel Direct Marketing Inc. filed petitions for relief and a plan of
reorganization under chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware. Panini, Marvel
Restaurants (a general partner in the joint venture developing the Marvel
Mania restaurants) and Toy Biz, all of which are active, as well as certain
subsidiaries did not file petitions under the Bankruptcy Code.

                                   18

<PAGE>


         The Debtor Companies received approval from the Bankruptcy Court to
pay on time and in full undisputed pre-petition obligations including
salaries, wages and benefits to all of its employees, trade creditors and
independent contractors and to continue funding its strategic initiatives. On
January 24, 1997 the Bankruptcy Court approved a $100.0 million DIP Loan,
which is provided by a syndicate of lenders, including The Chase Manhattan
Bank, as agent bank. The DIP Loan matures on June 30, 1997. The DIP Loan is
subject to covenants and events of default including a change of control of
Marvel (as defined therein). See Note 4 of "Notes to Condensed Consolidated
Financial Statements".

         On May 7, 1997, the Company and Toy Biz filed the Marvel/Toy Biz Plan
for the Debtor Companies. The Marvel/Toy Biz Plan contemplates that there will
be the Newco Auction and, as an alternative, the Marvel Auction. If no offers
satisfying the minimum conditions for the Newco Auction or Marvel Auction are
received, or if no transaction based on an offer satisfying such minimum
conditions closes, then pursuant to the Marvel/Toy Biz Plan, the Company's
publishing and licensing businesses and Toy Biz would combine to form Newco.
Pursuant to the Marvel/Toy Biz Plan, Marvel's Fleer/SkyBox and Panini
businesses will also be marketed and may be sold in a separate auction. See
Note 2 of Notes to Condensed Consolidated Financial Statements.

         On April 26, 1997, the Creditors Committee filed the Creditors
Committee Plan for the Debtor Companies and the Marvel Holding Companies and a
disclosure statement for such plan with the Bankruptcy Court. See Note 2 of
Notes to Condensed Consolidated Financial Statements.

         There can be no assurance that the Marvel/Toy Biz Plan, the Creditors
Committee Plan or any other plan of reorganization will be confirmed under the
Bankruptcy Code. If the Company is unable to obtain confirmation of a plan of
reorganization, its creditors or equity security holders may seek other
alternatives for the Company, including bids for the Company or parts thereof
through an auction process. The Company has, and will continue to incur
professional fees and other cash demands typically incurred in bankruptcy.
From December 27, 1996 through May 5, 1997 these amounts approximated $9.3
million.

         The Company believes that since, and in part as a result of, the
commencement of the Company's chapter 11 proceedings, the Company has
continued to experience greater than expected weakness in certain businesses
due to, among other things, certain mass merchandisers maintaining lower than
expected levels of inventory of the Company's products and lower licensing
revenues. The Company believes that these lower inventory levels and licensing
revenues relate to customers' concerns as to the impact of the bankruptcy of
the Debtor Companies on the future of the Company's brands. There can be no
assurance that upon consummation of a plan of reorganization that there will
be improvement in any of such businesses

THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THE THREE MONTHS ENDED
MARCH 31, 1996

         The Company's net revenues were $156.7 million and $189.6 million in
1997 and 1996, respectively, a decrease of $32.9 million or 17.4%. This
reflects a decrease of $28.2 million in net trading card and sticker revenues,
a decrease of $4.0 million in toy revenues, a decrease of $2.5 million in
licensing revenues and a decrease of $1.2 million in net publishing revenues,
partially offset by a $3.0 million increase in other revenues.

     The decrease in trading card net revenues was primarily due to greater
than expected weakness due to, among other things, certain mass merchandisers
maintaining lower than expected levels of inventory in part resulting from
concerns arising out of the Company's chapter 11 proceedings and the
continuing general decline in the demand for trading cards. In addition,
entertainment card net revenues decreased due to lower sales of cards based on
properties licensed from third parties resulting from lower commercial success
of such properties in the 1997 period as compared to the 1996 period, as well
as lower sales of cards based on the Marvel Characters due in part to market
conditions in the comic book specialty store market. The decrease in net
revenues of stickers was primarily due to certain actions taken to minimize
returns. 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 the 1997 period as compared to the
1996 period.


                                      19

<PAGE>



         The decrease in toy revenues was principally due to lower domestic
sales resulting from retailers concerns arising out of the Company's chapter
11 proceedings. Licensing revenues decreased in the 1997 period as compared to
the 1996 period primarily as a result of the difficulty of the Company in
entering into licensing arrangements due to licensees concerns arising out of
the Company's chapter 11 proceedings, and in part to an insufficient amount of
new media exposure of the Company's characters. Pursuant to the agreement
between Fox Kid's Worldwide ("FKW") and the Company, the Company expects to
have a new animation series based on the SILVER SURFER on the Fox Children's
Network ("FCN") in the 1997-1998 broadcast season. Licensing revenues will
vary from period to period 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 Marvel Characters.
The decrease in net publishing revenues was due to the impact on the Company
of the continuing decline in the overall comic book market. The improvement in
other revenues was due to increased sales of confectionery products by Fleer
and adhesive paper by Panini.

         Gross profit was $52.2 million and $75.7 million in the 1997 and 1996
periods, respectively, a decrease of $23.5 million. As a percentage of net
revenues, gross profit was 33.3% in the 1997 period as compared to 39.9% in
the 1996 period. The decrease in gross profit as a percentage of net revenues
was due primarily to the effect of lower trading card net revenues without a
corresponding decrease in royalty expense given minimum payment obligations
for trading cards, the effect of lower licensing revenues and an unfavorable
product mix for trading cards and toys as compared to the 1996 period.

         Selling, General & Administrative ("SG&A") expenses were $48.5
million and $52.3 million in the 1997 and 1996 periods, respectively. The
decrease of $3.8 million was mainly attributable to the decrease in
advertising, promotion and selling expenses of the Company and a general
reduction in overhead expenses associated with the restructuring of the comic
book publishing and distribution, trading card and confectionery operations.
As a percentage of net revenues, SG&A was 31.0% in the 1997 period as compared
to 27.6% in the 1996 period. The increase in SG&A as a percentage of net
revenues was due primarily to lower revenues without a corresponding reduction
in SG&A.

         Depreciation and amortization was $4.8 million and $4.4 million in
the 1997 and 1996 periods, respectively. The increase of $.4 million was
primarily due to higher expense primarily resulting from an increased
investment to support Toy Biz's expanded product line and higher depreciation
expense related to fixed assets of Panini, partially offset by a reduction in
depreciation expense of certain fixed assets of the Company's comic book
direct market distribution subsidiary in the 1997 period compared to the 1996
period as a result of the closure of such facility. As part of such closure
these fixed assets were written off in late 1996 as part of restructuring.

         Amortization of goodwill, intangibles and deferred charges was $4.3
million and $5.5 million in the 1997 and 1996 periods, respectively. The
decrease of $1.2 million mainly reflects lower expense in the 1997 period due
to the write-down of goodwill and other intangibles in the fourth quarter of
1996. This write-down related to asset impairment which was primarily due to
the significant and long-term changes in industry conditions in trading cards
and publishing.

         Interest expense, net was $15.6 million and $13.7 million in the 1997
and 1996 periods, respectively. The increase in interest expense of $1.9
million primarily reflects the interest expense on borrowings under the DIP
Loan in 1997, increased borrowings under the Credit Agreements and Panini's
short term lines of credit compared to the 1996 period and higher average
borrowing rates.

         Total bankruptcy reorganization items of $3.4 million for the 1997
period includes professional charges and other costs typical to those incurred
by entities in bankruptcy.

        Provision for income taxes was $3.8 million and $1.7 million in the
1997 and 1996 periods, respectively. In 1997, the tax provision primarily
represents foreign taxes on income from Panini's operations, taxes on income
from Toy Biz's operations and certain state and local taxes. In 1996, the tax
provision primarily represented foreign taxes on income from Panini's
operations and taxes on income from Toy Biz's operations, offset by a benefit
from remaining operations.

                                      20


<PAGE>





          Minority interest in earnings of Toy Biz was $.4 million and $2.0
million in the 1997 and 1996 periods, respectively. The decrease in minority
interest was primarily due to lower net income of Toy Biz partially offset by
Marvel's reduced ownership percentage.

LIQUIDITY AND CAPITAL RESOURCES

         On December 27, 1996 in connection with the filing of their petitions
in the Bankruptcy Court, the Debtor Companies received approval to pay on time
and in full undisputed pre-petition obligations including salaries, wages and
benefits to all of its employees, trade creditors and independent contractors
and to continue funding its strategic initiatives. On January 24, 1997 the
Bankruptcy Court approved the $100 million DIP Loan, which is provided by a
syndicate of lenders, including The Chase Manhattan Bank, as agent bank. The
DIP Loan matures on June 30, 1997. The DIP Loan is subject to covenants and
events of default including a change of control of Marvel (as defined
therein). See Note 4 of "Notes to Condensed Consolidated Financial
Statements".

         At May 5, 1997, the Company's outstanding bank indebtedness was
approximately $719.5 million, of which $69.4 million relates to borrowings
under the DIP Loan (including approximately $6.9 million drawn under letters
of credit), $604.7 million relates to borrowings under the Credit Agreements,
approximately Italian Lire 25 billion (approximately $14.6 million based on
exchange rates at May 5, 1997) relates to borrowings for Panini's Adespan
adhesives facility and approximately Italian Lire 52.8 billion (approximately
$30.8 million based on exchange rates at May 5, 1997) relates to borrowings
under Panini's short term lines of credit. Panini had less than Italian Lire
0.1 billion (less than $100,000 based on exchange rates at May 5, 1997)
available under its foreign credit facilities at May 5, 1997. In addition,
there was approximately $24.5 million (net of letters of credit outstanding)
available under the Toy Biz credit agreement at May 5, 1997.

     The Credit Agreements and DIP Loan provide that it is an event of default
if there is a change of control of Marvel. On May 14, 1997, the District Court
overturned the Restraining Order, but stayed the effectiveness of its ruling
for 10 days. If by the end of such 10 day period the Company is unable to
obtain an injunction or stay against actions to change the Board of Directors
of the Company, there will likely be a change of control of the Company. See
Notes 2 of "Notes to Condensed Consolidated Financial Statements." Toy Biz's
credit agreement provides it is an event of default if Marvel does not control
Toy Biz, although Toy Biz believes that upon any such default it will be able
to obtain an amendment or waiver of such event of default or refinance such
indebtedness. There can be no assurance as to the terms and conditions of such
amendment or refinancing.

     Although there can be no assurance, the Company believes that borrowings
under the DIP Loan and internally generated funds will be sufficient through
the date of maturity of the DIP Loan to enable the Debtor Companies to meet
their consolidated cash requirements, including debt service. The DIP Loan
matures June 30, 1997 at which time the Company expects it will have borrowed
the full amount available under the DIP Loan. The DIP Loan is subject to a
number of events of default and conditions of borrowing. The Company will need
to extend the maturity of the DIP Loan and increase the amount available for
borrowing under the DIP Loan in order to meet its consolidated cash
requirements until the consummation of a plan of reorganization. There can be
no assurance that any such extension and increase in the amount available for
borrowing can be obtained. In the event borrowings under the DIP Loan become
due either upon maturity or an event of default, prior to a plan of
reorganization being confirmed under the Bankruptcy Code and consummated, or
in the event that the maturity of the DIP Loan is not extended and the amount
available for borrowing under the DIP Loan is not increased, then the Debtor
Companies will have to seek one or more alternatives to provide for its cash
requirements (including the repayment of borrowings under the DIP Loan),
including seeking alternative debtor-in-possession financing and/or sales of
assets and/or sales of one or more of the Company's businesses. Although there
can be no assurance, the Company believes that Panini should be able to meet
its cash requirements, including for debt service and repayment for the next
six months, from permissible advances by Marvel of borrowings under the DIP
Loan, local borrowings and internally generated funds. In the event advances
under the DIP Loan are not available to Panini, Panini may be required to seek
one or more alternatives to provide for its cash requirements, including
seeking additional lines of credit or borrowings or sales of assets. There can
be no assurance that Panini will be able to obtain such lines of credit or
consummate any such asset sales on satisfactory


                                   21

<PAGE>





terms. The Company anticipates that internally generated funds of Toy Biz and
borrowings under Toy Biz's credit agreement will be sufficient to enable Toy
Biz to meet its cash requirements, including debt service, for the next six
months. See Notes 2 and 4 of "Notes to Condensed Consolidated Financial
Statements".

         As chapter 11 debtors, the Debtor Companies may (subject, in certain
circumstances, to Bankruptcy Court approval), sell or otherwise dispose of
assets, and liquidate or settle liabilities for amounts other than those
reflected in the condensed consolidated financial statements. The amounts
reported in the condensed consolidated financial statements do not give effect
to any adjustments to the carrying value of assets or amount of liabilities
that might result as a consequence of any such actions or consummation of the
Marvel/Toy Biz Plan or the Creditors Committee Plan. If the Company is unable
to obtain confirmation of a plan of reorganization, its creditors or equity
security holders may seek other alternatives for the Company, including bids
for the Company or parts thereof through an auction process. In that event, it
is possible that the carrying value of certain assets would not be realized
and additional liabilities and claims would be asserted which are not
presently reflected in the condensed consolidated financial statements and
which are not presently determinable. The effect of any such assertion or
non-realization could be material.

         Net cash used in operating activities was $23.9 million and $22.3
million for the three months ended March 31, 1997 and 1996, respectively. The
use of funds in the 1997 period was principally due to the loss from
operations and a decrease in working capital. Cash shown on the Condensed
Consolidated Balance Sheet at March 31, 1997 of $21.7 million, includes $5.2
million of Toy Biz cash.

         Cash used in investing activities was $12.6 million and $12.8 million
for the three months ended March 31, 1997 and 1996, respectively. The primary
use of these funds in the 1997 period was for capital expenditures for tooling
and molds and capitalized product development costs related to Toy Biz and
capital expenditures of Panini.

         Cash provided by financing activities was $35.3 million in 1997 was
primarily due to borrowings under the DIP Loan, and for 1996 cash provided by
financing activities was $11.4 million, primarily due to net borrowings of
debt.

         On April 24, 1997, the Indenture Trustee voted the shares of common
stock of Marvel Holdings pledged to secure the Parent Holdings Notes to remove
the directors of Marvel Holdings and replace them with Messrs. Carl Icahn,
Vincent Intrieri and Robert Mitchell. As a result, Mafco no longer
beneficially owns the approximately 50.03% of the Common Stock of Marvel owned
by Marvel Holdings, and Marvel is no longer consolidated for federal income
tax purposes with Mafco. As a result of such tax deconsolidation, the Company
will retain an allocated portion of NOL's carryforwards of the Mafco
affiliated group. Such allocation is not yet determinable. Such NOL's may be
limited under federal income tax laws in the event of a change of control of
the Company, including as a result of the consummation of a plan of
reorganization.

         The Company expects to incur approximately $1.0 million in net
production costs for the INCREDIBLE HULK animated series being produced for
the 1997-1998 broadcast year. 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. One-half of such amounts are expected to be reimbursed
to the Company by Toy Biz pursuant to the understanding with respect to Marvel
Studios.

     The Company, along with its joint venture partner, is continuing
development of Marvel theme restaurants. The first restaurant to open is in
Los Angeles, which is under construction and is projected to open in the
second half of 1997. The Company has posted a reducing standby letter of
credit currently in the amount of approximately $5.2 million to fund
development costs associated with the restaurant being constructed in Los
Angeles.

         Toy Biz has authorized the repurchase of up to three million shares
of Class A Common Stock. The repurchase program requires the consent of Marvel
Characters, Inc., a wholly owned subsidiary of Marvel, which has announced
that it will seek approval of the bankruptcy court for such consent. Such
stock repurchase also requires approval under Toy Biz's credit agreement. The
Company has not commenced the repurchase program pending the outcome of the
Marvel/Toy Biz Plan.


                                      22


<PAGE>






RECENTLY ISSUED ACCOUNTING STANDARDS

     In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings Per Share", which established new standards for computing and
presenting earnings per share. SFAS No. 128 will be effective for interim and
annual financial statements after December 15, 1997. The Company believes that
the adoption of SFAS No. 128 will not have a material impact on the Company's
reported earnings per share.

                          FORWARD-LOOKING STATEMENTS

         Statements in this quarterly report on Form 10-Q for the quarter
ended March 31, 1997 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 future
financial performance. 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) the ability of the
Debtor Companies to successfully reorganize in bankruptcy and the timing and
outcome of such bankruptcy proceedings, (ii) the ability of the Debtor
Companies to continue to draw on the DIP Loan and to obtain additional DIP
Loan financing subsequent to the maturity of the DIP Loan on June 30, 1997 or
in the event of an earlier termination of the DIP Loan, (iii) continued
weakness in the comic book market which cannot be overcome by the Company's
new editorial and production initiatives in comic publishing; (iv) continued
general weakness in the trading card market; (v) the failure of fan interest
in baseball to return to traditional levels that existed prior to the 1994
baseball strike thereby negatively affecting the Company's baseball card
business; (vi) the effectiveness of the Company's changes to its trading card
and publishing distribution; (vii) a decrease in the level of media exposure
or popularity of the Company's characters resulting in declining revenues
based on such characters; (viii) 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; (ix)
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; (x) consumer acceptance of new product
introductions, including those for toys; and (xi) 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.

                                      23

<PAGE>


                                   PART II.
                              OTHER INFORMATION.

ITEM 1. LEGAL PROCEEDINGS.

         The Company is a party to various legal proceedings described in
previous filings. During the quarter ended March 31, 1997 there were no
material developments in any of such proceedings not previously disclosed.
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 6. EXHIBITS AND REPORTS ON FORM 8-K.

      (A)      Exhibits

               2.1      Joint Plan of Reorganization dated May 15, 1997.

      (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:  May 15, 1997                            August J. Liguori
                                                Vice President, Finance
                                                Principal Accounting Officer