<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
    ACT OF 1934

For the fiscal year ended DECEMBER 31, 1996

                                      OR

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

For the transition period from_______________________to_______________________

                         Commission file number 0-9008
                                                ------

                          ANDREWS GROUP INCORPORATED
                          --------------------------
            (Exact name of registrant as specified in its charter)

DELAWARE                                                             95-2683875
--------                                                             ----------
(State or other jurisdiction                                (I.R.S. employer 
of incorporation or organization)                           identification No.)

10880 WILSHIRE BOULEVARD, SUITE 1400, LOS ANGELES, CALIFORNIA             90024
-------------------------------------------------------------             -----
(Address of principal executive offices)                             (Zip code)

Registrant's telephone number, including area code: (310) 234-6737
                                                    --------------

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

            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 [check] No

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

            State the aggregate market value of the voting stock held by
non-affiliates of the registrant, by reference to the price at which the stock
was sold as of a specified date within 60 days prior to the date of filing:
None

            The number of shares of Registrant's Common Stock, $1.00 par
value, outstanding as of March 29, 1997 was 1,000 and all common stock was
indirectly held by Mafco Holdings Inc.

                      Documents Incorporated by Reference

Portions of the definitive Proxy Statements for the 1997 annual meeting of
stockholders of Marvel Entertainment Group Inc. are incorporated by reference
into Part III of this Form 10-K. If such proxy is not so filed, such
information will be filed as an amendment to Marvel's Form 10-K. 



<PAGE>






                                    PART I

ITEM        1. DESCRIPTION OF BUSINESS

            Andrews Group Incorporated ("Andrews", together with its
subsidiaries, the "Company") was incorporated in 1984 and is the successor to
a corporation incorporated in 1971. The Company is a wholly-owned subsidiary
of MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings"), a corporation
wholly-owned by Mafco Holdings Inc. ("Mafco"). At December 31, 1996, Andrews
had a 79% ownership interest in Marvel Entertainment Group, Inc. ("Marvel")
and a 41% ownership interest (86% voting interest) in New World Communications
Group Incorporated ("NWCG"), assuming conversion of the then-outstanding NWCG
Series B Preferred Stock. Through Marvel, the Company operates in the youth
entertainment business. Until its sale in January 1997, the Company owned NWCG
which operated in the television broadcasting and production and distribution
businesses.

            Marvel is a leading creator, publisher and distributor of youth
entertainment products for domestic and international markets based on
fictional action adventure characters owned by Marvel (the "Marvel
Characters"), licenses from professional athletes, sports teams and popular
entertainment characters and other properties owned by third parties. Marvel
also licenses the Marvel Characters and properties for consumer products,
television and film projects, on-line and interactive software, and
advertising promotions.

            Marvel's operations consist of (i) the publication and sale of
comic books and other children's publications, (ii) consumer products, media
advertising, promotions and licensing of Marvel Characters, (iii) the
manufacturing and distribution of sports and entertainment trading cards and
activity sticker collections, (iv) the design, marketing and distribution of
toys, and (v) the manufacture and distribution of adhesives and confectionery
products.

            On December 27, 1996, Marvel Holdings, Marvel Parent, Marvel III,
Marvel and several of its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code (See
"Reorganization of Marvel and Marvel Holding Companies").

NWCG DISPOSITION

            On January 22, 1997 (the "NWCG Merger Date"), a special meeting
(the "Special Meeting") of stockholders of NWCG was held. At the Special
Meeting, the Agreement and Plan of Merger dated as of September 24, 1996 (the
"NWCG Merger Agreement"), by and among NWCG, The News Corporation Limited, a
South Australian corporation ("News Corp."), Fox Television Stations, Inc., a
Delaware corporation in which News Corp. has an indirect interest ("Fox"), and
Fox Acquisition Co., Inc., a Delaware corporation and a wholly-owned
subsidiary of Fox ("Merger Sub"), was approved. Immediately following the
Special Meeting, the transactions contemplated by the NWCG Merger Agreement
were consummated, including the merger of Merger Sub with and into NWCG and a
stock purchase pursuant to the Stock Purchase Agreement dated as of September
24, 1996 (the "NWCG Stock Purchase Agreement"), by and among News Corp., Fox
and NWCG (Parent) Holdings Corporation ("NWCG Parent") (the transactions
contemplated by the NWCG Merger Agreement and the NWCG Stock Purchase
Agreement, collectively, the "NWCG Merger").

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            Pursuant to the NWCG Stock Purchase Agreement, Fox purchased (the
"NWCG Disposition") from NWCG Parent 2,682,236 shares of common stock of NWCG
owned by NWCG Parent and all of the outstanding shares of capital stock of
NWCG Holdings Corp. ("NWCG Holdings"). The consideration for such purchase was
1.45 American Depositary Shares of News Corp. ("ADSs"), each of which
represents four fully paid and non-assessable Preferred Limited Voting
Ordinary Shares, par value A$.50 per share, of News Corp., for each share of
common stock of NWCG directly or indirectly acquired by Fox pursuant to the
NWCG Stock Purchase Agreement, with the aggregate number of ADSs issued to
NWCG Parent reduced by an amount which approximated the accreted amount of the
NWCG Holdings Senior Secured Discount Notes due 1999 (the "NWCG Discount
Notes") outstanding at the effective time of the NWCG Merger. In addition, in
connection with the NWCG Disposition, Fox agreed to assume an aggregate of
$46.2 million principal amount of debt of Four Star Holdings Inc. ("Four Star
Holdings"), a subsidiary of Andrews.

            In connection with the NWCG Merger, the Company received
37,954,211 ADSs (with a market price of $17.625 per ADS on January 22, 1997)
and 2,175,000 warrants to purchase ADSs (in exchange for 1,500,000 warrants to
purchase shares of NWCG previously held by the Company). The Company expects
to record a pre-tax gain in 1997 on the NWCG Disposition of approximately $720
million. Through March 26, 1997, the Company sold 15,562,300 ADSs for net
proceeds of $271.4 million.

REORGANIZATION OF MARVEL AND MARVEL HOLDING COMPANIES

            Although Marvel's consolidated net revenues have increased through
1995 as a result of diversification into lines of business other than comic
book publishing, certain significant and long-term changes in market
conditions associated with Marvel's publishing and trading cards businesses
have significantly and adversely affected Marvel's net revenues and operating
results in recent periods.

            Marvel experienced significant operating losses during 1995 and
1996, and failed to satisfy certain financial covenants contained in the
Marvel Credit Agreements (as defined below, see Note 6 of "Notes to
Consolidated Financial Statements") beginning in the Fall of 1996. Marvel
commenced discussions in the Fall of 1996 with Andrews regarding an equity
infusion in order to provide for Marvel's cash requirements and with The Chase
Manhattan Bank, agent bank for the Marvel Credit Agreements, regarding a
restructuring of the Marvel Credit Agreements.

            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 (each as defined below), see "Business
-- Strategic Initiatives -- Marvel Mania") and Toy Biz, Inc. ("Toy Biz") all
of which are active, as well as certain inactive subsidiaries did not file
petitions under the Bankruptcy Code.

            A Plan of Reorganization, filed on December 27, 1996 (as amended,
the "Plan"), contemplated pursuant to the Stock Purchase Agreement dated
December 26, 1996, between Andrews and Marvel, Andrews, 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 



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acquisition, in consideration for $365 million in cash or, at the option of
Andrews, 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, Marvel would acquire the Class A Common Stock not owned by Marvel,
Andrews or their affiliates pursuant to a Merger Agreement between Andrews and
Toy Biz and Stock Purchase Agreements with the two other principal
stockholders of Toy Biz. The Plan also contemplated a new $160 million credit
facility at Toy Biz to be used for working capital purposes of Marvel,
including Toy Biz, and to fund Marvel's strategic initiatives. See "Business
-- Strategic Initiatives." As of March 27, 1997, Marvel 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. The 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 million
debtor-in-possession financing facility (the "DIP Loan"), which is provided by
a syndicate of lenders, including The Chase Manhattan Bank, as agent bank, and
is available to Marvel until 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 6 of "Notes to Consolidated Financial Statements"
and "Management Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".

            On February 12, 1997, the Office of the United States Trustee
appointed a committee of equity securityholders 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.

            In 1993, Marvel Holdings Inc. ("Marvel Holdings"), an indirect
subsidiary of Andrews, issued $517.4 million principal amount at maturity of
Senior Secured Discount Notes due 1998. In 1993, Marvel (Parent) Holdings Inc.
("Parent Holdings"), an indirect subsidiary of Andrews, issued $251.7 million
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"), an indirect subsidiary of Andrews, issued $125 million 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 Marvel's common stock to secure such notes (the "Pledged Common
Stock"), and an additional approximately 2.9 million shares of Marvel common
stock 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, which it owns, to secure the Parent Holding Notes, and
Marvel III has pledged the common stock of Parent Holdings, which it owns, 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
Bankruptcy Court. 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 


                                      4
<PAGE>

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 Marvel 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, Marvel and the Marvel Holding Companies filed a notice of
appeal with respect to such order.

            On March 7, 1997, Andrews exercised its right to terminate the
Stock Purchase Agreement with Marvel. On the same date, Andrews 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 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 Marvel common stock (other than Mafco
and its affiliates) and holders of the notes of the Marvel Holding Companies
would make a $365 million infusion into Marvel as part of a new Plan of
Reorganization through a rights offering that would be backstopped by certain
members of the Creditors Committee, including an entity controlled by Carl
Icahn (the "Icahn Group") (as subsequently amended, the "Committee Proposal").
The Committee Proposal did not specify whether all of the $365 million would
be added to the equity of Marvel or whether a portion of the proceeds would be
used to repay borrowings under the Marvel Credit Agreements, and does not
contemplate Toy Biz becoming a wholly-owned subsidiary of Marvel. The
Committee Proposal contemplated that prior to confirmation of any plan of
reorganization reflecting the Committee Proposal, the current Board of
Directors of Marvel would be replaced by designees of the Creditors Committee.
Such proposal was subject to further negotiations with Marvel and Marvel's
bank lenders, but an agreement with these entities was never reached.

            On March 19, 1997, the Creditors Committee notified Marvel that on
March 25, 1997 it would cause the Holding Companies' Trustee to vote the
Pledged Stock to replace the Board of Directors of Marvel and the Marvel
Holding Companies. On March 24, 1997, the Court in the Debtor Companies'
bankruptcy cases issued a restraining order preventing the Creditors Committee
and the Holding Companies' Trustee from voting the Pledged Stock or otherwise
replacing the Board of Directors of Marvel 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 has been set for May 14,
1997. On March 28, 1997, the Creditors Committee also filed an emergency
appeal of the restraining order of the Bankruptcy Court issued on March 24,
1997 preventing the replacement of the Board of Directors of Marvel. A
briefing schedule has been set for the emergency appeal and a hearing date for
such appeal has been set for May 1, 1997.

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            There can be no assurance that any plan of reorganization under
the Bankruptcy Code reflecting the Committee Proposal or a proposal made by
any other party will be proposed, or that if a plan is proposed, such plan of
reorganization will be confirmed under the Bankruptcy Code.

            If Marvel is unable to obtain confirmation of a plan of
reorganization, its creditors or equity securityholders may seek other
alternatives for Marvel, including bids for Marvel or parts thereof through an
auction process.

            Because the Marvel Holding Companies have no assets other than
common stock of Marvel and/or stock in the Marvel Holding Companies, the
securityholders of the Marvel Holding Companies will likely receive only their
pro rata share of the Pledged Stock upon consummation of the Chapter 11 cases.

            See "Management Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and "Legal
Proceedings".

PUBLISHING

            COMICS

            Marvel is the largest creator and publisher of comic books in
North America and, through Panini, Marvel publishes comic books in Italy, the
United Kingdom and certain other parts of Western Europe. Marvel, through
Panini, also licenses the publication of comic books based on other Marvel
Characters throughout the world.

            Marvel has been publishing comic books since 1939 and has
developed a roster of more than 3,500 Marvel Characters, including the
following popular Marvel Characters: SPIDER-MAN; X-MEN (including WOLVERINE,
NIGHTCRAWLER, COLOSSUS, STORM, CYCLOPS, BISHOP and GAMBIT); CAPTAIN AMERICA;
FANTASTIC FOUR (including MR. FANTASTIC, HUMAN TORCH, INVISIBLE WOMAN and
THING); INCREDIBLE HULK; THOR; SILVER SURFER; DAREDEVIL; IRON MAN; DR. STRANGE
and GHOST RIDER. The Company's Marvel SUPER HEROES exist in the "MARVEL
UNIVERSE," a fictitious universe which provides a unifying historical and
contextual background for the storylines. Marvel's titles feature classic
Marvel SUPER HEROES and X-MEN, newly developed Marvel Characters and
characters created by other entities and licensed to Marvel, and, as a result
of its 1994 acquisition of Malibu, Malibu's "ULTRAVERSE" characters.

            In developing comic books, Marvel targets particular age groups or
types of readers. Currently in development are young children's products such
as EASY TO READ, MY FIRST MARVEL and Marvel coloring books. Certain of the
Marvel Characters such as X-MEN are aimed at readers at the older end of the 4
to 17 year-old age group. Established readership of Marvel's comic books also
extends to the 18 to 35 year-old age group.

            Marvel's approach to super heroes is a contemporary drama based on
real people with real problems. This enables the characters to evolve, remain
fresh, and, therefore, attract and retain new readers in each succeeding
generation. The "Marvel Universe" concept permits Marvel to use the popularity
of its Marvel Characters to introduce a new character in an existing Marvel
SUPER HEROES or X-MEN comic or to develop more fully an existing but lesser
known character. In this manner, formerly lesser known Marvel Characters such
as PUNISHER and WOLVERINE have been developed and are now popular characters
in their own right and are featured in their own monthly comic books. The


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

            MARKET

            Marvel's primary target market for its comic books is children and
teenagers in the 10 to 17 year old age group, however, the majority of
Marvel's readers currently are teenagers and young adults. There are two
primary types of purchasers of Marvel's comic books. One is the traditional
purchaser who buys comic books like any other magazine. The other audience is
the reader-saver who purchases comic books, typically from a comic book
specialty store, and maintains them as part of a collection.

            CREATIVE AND PRODUCTION PROCESS

            Marvel's full-time editorial staff consists of an editor-in-chief,
two executive editors and approximately eighteen editors, associate editors
and assistant editors who oversee the quality and consistency of the artwork
and editorial copy and manage the production schedule of each issue. The
production of each issue requires the editors to coordinate over a six month
period the activities of a writer, a pencil artist, an inker, a colorist and a
printer. The majority of this work is performed by third parties outside of
Marvel's premises.

            The artists and writers include freelancers who generally are paid
on a per-page basis. They are eligible to receive incentives or royalties
based on the number of copies sold (net of returns) of the comics books in
which their work appears. Marvel has entered into agreements with certain
artists and writers under which such persons have agreed to provide their
services to Marvel on an exclusive basis, generally for a period of one to
three years, and generally begin to expire in 1997. These contracts were
entered into when the comic book market was stronger and in light of the
decline in the comic book market, Marvel will seek to renew these contracts
with more favorable terms.

            The creative process begins with the development of a story line.
From the established story line, the writer develops a character's actions and
motivations into a plot. After a writer has developed the plot, the pencil
artist translates it into an action-filled pictorial sequence of events. The
penciled story is returned to the writer who dialogues it, indicating where
the balloons and captions should be placed. The completed dialogue and artwork
are forwarded to a letterer who letters the dialogue and captions in the
balloons. Next, an inker enhances the pencil artist's work in order to give
the drawing three-dimensionality.

            The artwork is then sent to a coloring artist. Typically using
only four colors in varying shades, the color artist uses overlays to create
over 100 different tones. This artwork is subcontracted to a color separator
who produces separations and sends the finished material to the printer.
Unaffiliated entities produce color separations and print all of Marvel's
comic books. Marvel currently uses several color separators and two printers
to produce its comic books.

            DISTRIBUTION

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

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            Net publishing revenues were $103.1 million, $147.7 million and
$129.4 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The increase in revenues from 1994 to 1995 primarily relates to
revenues from Heroes World, Marvel's comic book direct market distribution
subsidiary, which was purchased in December 1994 and subsequently closed (as
described more fully below). See "Management Discussion and Analysis of
Financial Condition and Results of Operations".

            Overall industry comic book sales declined primarily as a result
of reduced readership, lower speculative purchases and lower selling prices,
which in turn caused a contraction in the number of comic book specialty
stores. The decrease in the overall comic book business has resulted in a
decrease in the number of, and has negatively affected the financial condition
of, the comic book specialty stores, which has further negatively impacted
Marvel's net publishing revenues.

            For the year ended December 31, 1996, approximately 62.6% of net
publishing revenues were derived from sales to the direct market. In 1995 and
1996, Marvel exclusively distributed its publications through Heroes World. In
this time period, however, the comic book direct market and Marvel's sales in
such market have continued to decline. In light of such declines and related
inefficiencies at Heroes World, in late 1996 Marvel decided to close Heroes
World and in early 1997 Marvel entered into an agreement with an unaffiliated
entity to service specialty market retailers and direct market comic book
shops. Marvel believes that in the event of a termination of this agreement
Marvel will be able to provide service to its customers and that any such
termination would not have a long-term material adverse effect on its
publishing business.

            For the year ended December 31, 1996, approximately 24.6% of
Marvel's net publishing revenues were derived from sales to the retail
returnable market and 9.5% of net publishing revenues were through a single
unaffiliated distributor. The retail returnable market consists of
approximately 50,000 traditional periodical retailers such as newsstands,
convenience stores, drug stores, supermarkets, mass merchandise and national
bookstore chains. The distributors sell Marvel's publications to wholesalers,
who in turn sell to the retail outlets. Marvel issues credit to these
distributors for unsold and returned copies. Distribution to national
bookstore chains is accomplished through a separate distributor. Marvel
believes it could obtain comparable services from other distributors in the
retail returnable market should such replacement become necessary or
desirable.

            For the year ended December 31, 1996, approximately 5.5% of
Marvel's net publishing revenues were derived from subscription sales.
Subscription copies of Marvel's publications are mailed for Marvel by an
unaffiliated subscription fulfillment service.

            For the year ended December 31, 1996, approximately 7.3% of
Marvel's net publishing revenues were derived from advertising sales. In most
of Marvel's comic publications, ten pages (three glossy cover pages and seven
inside pages) are allocated for advertising. The products advertised include
sports and entertainment trading cards, video games, role playing games,
movies, candy, cereals, toys, models and other consumer packaged goods. Marvel
permits advertisers to advertise in a broad range of Marvel's comic
publications which target specific groups of titles that have a younger or
older readership.

CONSUMER PRODUCTS, MEDIA AND ADVERTISING-PROMOTION LICENSING

            Marvel's consumer products, media and advertising-promotion
licensing operations are organized in several areas: the licensing of or joint
ventures involving the Marvel Characters for use 


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with (i) merchandise, (ii) promotions, (iii) publishing, (iv) television and
film, (v) on-line and interactive software and (vi) restaurants, theme parks
and site-based entertainment. Marvel's licensees sell Marvel's character-based
products through their normal distribution channels and occasionally in
specialty comic book stores. Marvel's characters appear on hundreds of items,
including shirts, shoes and a myriad of other types of apparel, gifts, toys
and games, software, housewares and domestic items and consumer packaged
goods. Marvel generally receives a percentage of wholesale sales as a royalty
including a guarantee of minimum royalties, and an advance against royalties
upon execution of a license agreement. Marvel also licenses the Marvel
Characters for the production of television programs and feature films and for
use in theme parks.

            Marvel, through Panini, also enters into publishing license
agreements with international publishers for the publication of comic and
non-comic books employing Marvel's titles and the Marvel Characters and third
party titles and characters in approximately 50 countries and 19 languages.
Marvel receives a percentage of the publishers' revenues as a royalty. Marvel
also acts as an agent for third party owners of characters seeking to obtain
licensing opportunities for their characters.

            For the year ended December 31, 1996, the revenue from consumer
products, media and advertising-promotions licensing comprised 2.5% of
Marvel's consolidated net revenues.

MARVEL STUDIOS

            To enhance further the media exposure of the Marvel Characters,
Marvel and Toy Biz intend to form Marvel Studios, although documentation
relating to such formation has not been finalized (and pending such formation,
Marvel Studios is being operated as a division of Marvel). The objective of
Marvel Studios is to facilitate the release of live action and animated
feature films and television programming, and other media based on the Marvel
Characters in order to create greater consumer interest in the Marvel
Characters and related merchandise. Marvel believes that any feature film or
television programming, theatrical productions or other media and any
advertising and promotion associated with such media will create consumer
interest in the Marvel Characters and revenue opportunities for Marvel's
licensing and toy businesses. For example, Marvel believes that the popularity
of the X-MEN and SPIDER-MAN animated television shows have resulted in
significant increases in net sales by Toy Biz of X-MEN and SPIDER-MAN toys.
Marvel believes that Marvel Studios will facilitate the release of feature
films, television programming and other media by giving Marvel greater control
over the development of such projects compared to the present practice of only
licensing the use of the Marvel Characters in film or television projects to
an unrelated third party. See "Strategic Initiatives -- Marvel Studios".

INTERACTIVE MEDIA

            During 1996, Marvel formed Marvel Interactive for the development
of on-line services and interactive software utilizing or based upon the
Marvel Characters. For a further description of these matters, see "Strategic
Initiatives -- Marvel Interactive."

RESTAURANTS

            Marvel, through Marvel Restaurants, a wholly-owned subsidiary of
Marvel, has formed a joint venture (the "Joint Venture") with Planet Hollywood
("PHI") for the development of Marvel theme restaurants based on the Marvel
Characters ("Marvel Mania"). Three restaurants are currently 


                                      9
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contemplated, with the first restaurant expected to open in the second half of
1997. For a further description of these matters, see "Strategic Initiatives--
Marvel Mania".




                                      10
<PAGE>


SPORTS AND ENTERTAINMENT TRADING CARDS; CHILDREN'S ACTIVITY STICKERS

            In April 1995, Marvel acquired SkyBox and merged its operations
with the existing trading card operations of Fleer (collectively,
"Fleer/SkyBox"). Fleer/SkyBox is a leading marketer of sports and
entertainment trading cards. Fleer/SkyBox is best known for its sports trading
cards depicting professional athletes and sports teams, including professional
baseball, basketball, football and hockey players competing in Major League
Baseball, the National Basketball Association, the National Football League
and the National Hockey League and NASCAR(R) drivers. Sports trading cards
feature pictures of professional athletes and generally include statistical
and biographical information about the pictured athletes. Marvel's ability to
produce, market, and sell its sports trading cards is dependent upon the
continual renewal of license agreements with the organizations representing
the players and owners of the baseball, basketball, football and hockey
players, teams and leagues. These licenses are non-exclusive and generally are
granted for a two to four year period. In addition, Fleer/SkyBox manufactures
and distributes entertainment trading cards using Marvel's classic SUPER
HEROES characters as well as characters based on other licensed properties,
such as The Hunchback of Notre Dame and Hercules of the Walt Disney Company,
Time Warner's Batman and Robin and Paramount's Star Trek. Marvel's trading
card operations have been and continue to be negatively affected by the
general contraction in the sports and entertainment trading card markets and
the baseball, hockey and basketball labor situations. Marvel is required to
make minimum royalty and advertising payments under the license agreements
related to sports and entertainment trading cards. Generally, these licenses
were executed when the trading card market was larger and Marvel's trading
card net revenues were higher as compared to actual 1996 net revenues. Hence,
as a result of the minimum royalty and advertising commitments, declines in
Marvel's trading card net revenues significantly and adversely affect the
profitability of the trading card business. See "Management Discussion and
Analysis of Financial Condition and Results of Operations".

            Panini is the largest manufacturer and distributor of sports and
entertainment sticker collections in the world, with a substantial portion of
its business conducted in Western Europe. Panini produces and distributes
stickers, which are pictures on self-adhesive paper designed primarily to be
collected and placed in albums. Panini maintains a broad portfolio of licenses
for characters or themes on which the stickers are based. Panini's prominent
position in the sticker industry has enabled it to secure many desirable
licenses, including exclusive and non-exclusive agreements with many sporting
federations and with major entertainment licensors such as Disney, Time Warner
and Mattel. Collections produced by Panini feature professional athletes and
teams in sports such as soccer (primarily athletes and teams competing in the
major European and Brazilian soccer leagues, including those competing in the
World Cup and European Cup competitions), baseball, basketball and hockey;
Disney characters such as 101 Dalmatians; variety characters and themes, such
as Mattel's Barbie, D.C. Comic's Batman and the Company's X-MEN; and other
characters popular in local European markets. Licenses generally are for a
term of one to three years and provide for minimum guaranteed royalty
payments. There have been significant improvements to self-adhesive stickers
in recent years with innovations such as the use of vinyl and foil paper and
textured surfaces.

            Although there can be no assurance that, in the future, new
licenses for Marvel's sports and entertainment trading card and sticker
business will be granted to Marvel upon the expiration of the current
licenses, Marvel anticipates that it will obtain new licenses generally on
terms acceptable to it. In the future, Marvel intends to seek to negotiate
lower royalty guarantees and advertising commitments relating to its existing
trading card licenses, although there can be no assurance that any such
negotiations will be successful. Marvel considers its relationships with its
licensors to be good. 


                                      11
<PAGE>

For additional information relating to these matters, see subsection entitled
"License Agreements and Trademarks".

            MARKET

            Although Marvel's sports and entertainment trading cards have
marketing categories and consumer profiles similar to those in the publishing
market, a significant portion of Fleer/SkyBox sales are made to a subset of
the market consisting of serious collectors. Panini sells its sticker
collections primarily to children between the ages of 4 and 14 in Western
European markets. During the year ended December 31, 1996, sales in Italy,
France, Germany, Spain and Brazil accounted for a substantial majority of
Panini's children activity sticker collection net revenues.

            PRODUCTION PROCESS

            Photographs used for Marvel's sports trading cards are usually
taken by independent photographers under contract with Marvel or by the
organizations representing the respective leagues and their member teams.
Artwork used Marvel's entertainment trading cards is developed from actual
medium (i.e movies and comic books) or created by in-house and freelance
artists some of whom create artwork for Marvel's comic books. Design and
coordination of the artwork is handled by Marvel's staff of artists.
Independent contractors print, cut, collate and wrap the trading cards.
Quality enhancements include dual-sided gloss coating and color corrected
photography. Additional enhancements of Fleer/SkyBox premium brand cards
utilize high-gloss ultraviolet coatings and gold foil stamping and super
premium brand cards utilize additional high-gloss clear plastic laminates and
gold foil stampings, heavier card stock and improved colorization.

            Most of the manufacturing processes required in the production of
Panini's sticker collections, including self-adhesive paper production, film
layout, printing and packaging of the finished product are conducted in
Panini's own facilities in Modena, Italy and Sao Paolo, Brazil. These
manufacturing activities are supported by Marvel's editorial, art, studio and
photo lithography staff. Panini has separate production facilities for
stickers and self-adhesive paper in Modena, Italy and Sao Paolo, Brazil.

            DISTRIBUTION

            Marvel's sports and entertainment trading cards are distributed
through two channels: (i) to trading card specialty stores and (ii) through
mass merchandisers, price clubs and newsstand retail outlets (the "mass
market"). As a result of market conditions, Marvel has revamped its trading
card business such that distribution of its trading card products is
concentrated in trading card specialty stores and selected mass market
accounts. In addition, Marvel is testing a merchandising initiative to place
fixtures in mass market outlets with high traffic in order to simplify buying
and attract purchasers (see "Strategic Initiatives -- Trading and
Entertainment Cards"). Marvel's sports and entertainment trading cards are
distributed primarily in the United States and Canada. Marvel distributes its
trading cards internationally primarily through Panini in most of the world
and through third-party distributors in Japan, Australia and New Zealand.

            Since 1994, Marvel believes that the overall trading card market
has declined by approximately 40%, which has resulted in a substantive
decrease in Marvel's trading card revenues. The decrease in the overall
trading card market has decreased the number of, or has negatively affected
the financial 


                                      12
<PAGE>

condition of, the trading card specialty stores, thereby negatively impacting
Marvel's trading card revenues.

            Panini sells sticker packs and collection albums through
newsstands, confectioners and other retail locations. Panini sells primarily
to national and local third-party distributors in other countries where it
markets its products.

            For the year ended December 31, 1996, approximately 45% of
Marvel's net sports and entertainment trading card revenues were derived from
sales through numerous unaffiliated distributors to specialty collectible
shops. None of the unaffiliated distributors individually represented a
significant percentage of Marvel's net sports and entertainment trading card
revenues for 1996. Marvel estimates that there are approximately 3,500 to
4,000 specialty collectible shops which are primarily located in the United
States and Canada. Marvel believes that one or more of its existing
distributors or others could replace any of Marvel's other distributors should
such replacement become necessary or desirable.

            For the year ended December 31, 1996, approximately 49% of
Marvel's net sports and entertainment trading card revenues were derived from
sales to the mass market.

            For the year ended December 31, 1996, substantially all of
Marvel's children's activity sticker collection net revenues were derived from
sales to the retail returnable market, of which approximately 55% were through
three unaffiliated distributors.

            Total sports and entertainment trading card and children's
activity sticker revenues were $301.1 million, $357.9 million and $282.6
million in 1996, 1995 and 1994, respectively.

TOYS

            Marvel presently owns a 26.6% equity interest in Toy Biz
representing, through its Class B Common Stock, 78.4% of the voting power. Toy
Biz is a toy entertainment company that designs, markets and distributes a
diverse product line comprised of boys' and girls', infant/pre-school and
activity toys in the United States and internationally, based on popular
entertainment properties, consumer brand names and proprietary designs. Marvel
licenses to Toy Biz more than 3,500 Marvel Characters on an exclusive,
perpetual and royalty-free basis, subject to certain limitations, for use in a
broad range of toys. Toy Biz capitalizes on the popularity generated by the
media exposure of certain of the Company's characters, such as X-MEN and
SPIDER-MAN by emphasizing those characters in its toy lines. Toy Biz also has
licenses to manufacture certain toy products based on non-Marvel Characters
depicted in television programs such as Hercules: The Legendary Journeys,
Xena: Princess Warrior(TM), and Muppet Babies(TM), all of which are broadcast
on network, syndicated or cable television. A number of motion pictures as to
which Toy Biz has obtained licenses to manufacture certain products have been
completed or are in the planning stages. These include a made-for-television
movie entitled Generation X(TM), which premiered in prime time on the Fox
Network, for which Toy Biz has manufactured and distributed mainly action
figures, as well as a feature film entitled Muppet Treasure Island(TM), a
widely distributed first run motion picture, for which Toy Biz has
manufactured and distributed certain plush items. Other motion pictures (both
related and unrelated to the Marvel Characters) for which Toy Biz has obtained
licenses to manufacture certain products, are planned for release by such
licensors as The Walt Disney Company and Universal City Studios, Inc.

                                      13
<PAGE>

            Marvel believes that media events associated with the characters
on which Toy Biz bases certain of its toy products increase overall consumer
awareness and popularity of these characters and Toy Biz has in part followed
a strategy intended to capitalize on the popularity generated by such media
exposure. Toy Biz has used its success in marketing the Marvel line as a means
of attracting licenses for use of recognized trademarks and brand names such
as Gerber(R), Coleman(R), and NASCAR(R).

            During 1996, Toy Biz also continued its efforts to develop toys
under licenses for recognized consumer brands names and other popular
characters. Toy Biz continued to build on its line of dolls and infant and
toddler learning toys marketed under the Gerber(R) trademark. Toy Biz
continued to develop a line of children's toys with a camping and outdoor
theme sold under the Coleman(R) trademark. Toy Biz also licensed from
NASCAR(R) and several well-known stock car drivers the rights to manufacture
various toy products based upon such trademarks and personalities.

            During 1996, Toy Biz also continued to manufacture and distribute
additional proprietary products in various categories including: Baby Tumbles
Surprise(TM), Baby Headstand Surprise(TM), Baby So Real(TM), Take Care of Me
Twins(TM) and the multi-activity game tables.

            Since completing the acquisition of the assets of Spectra Star,
Inc. ("Spectra Star(R)") and Quest Aerospace Education, Inc. ("Quest(R)") in
1995, Toy Biz's specialized activity toy business has continued to grow, with
Spectra Star(R) brand kites comprising a substantial share of United States
domestic kite business, and Quest(R) brand rockets entering the growing mass
merchandise market and specialty store distribution channels.

            Toy Biz's net revenues for 1996, 1995 and 1994 were $221.6
million, $196.4 million and $156.5 million, respectively. Prior to March of
1995, Marvel reported Toy Biz operations under the equity basis and did not
record Toy Biz net revenues in its consolidated revenues. In March of 1995,
Marvel began to consolidate Toy Biz operations and consolidated $180.2 million
of net revenues in 1995.

CUSTOMERS, MARKETING AND DISTRIBUTION

            Toy Biz markets and distributes its products throughout the world
with sales to customers in the United States accounting for approximately 80%
of Toy Biz's net sales in 1996. Outlets for Toy Biz's products in the United
States include specialty toy retailers, mass merchandisers, mail order
companies and variety stores, as well as independent distributors who purchase
products directly from Toy Biz and ship them to retail outlets. Toy Biz's five
largest customers include Toys R US, Inc., Wal-Mart Stores, Inc., Kmart
Corporation, Target Stores, Inc., a division of Dayton-Hudson Corp. and
Kay-Bee Toys, a division of Consolidated Stores, Inc. which customers
accounted in the aggregate for approximately 74.8% of Toy Biz's domestic gross
sales and 59.6% of Toy Biz's total sales in 1996. Toy Biz's products currently
are sold outside the United States through independent distributors by its
Hong Kong subsidiary, under supervision of Toy Biz's management. Toy Biz's
international product line generally includes products currently or previously
offered in the United States, packaged to meet local regulatory and marketing
requirements.

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

                                      14
<PAGE>

            Toy Biz relies on independent parties in the People's Republic of
China ("China") to manufacture a substantial portion of its products. The
remainder of its products are manufactured in Mexico or the United States. As
a matter of policy, Toy Biz uses several different manufacturers. By
concentrating its manufacturing among certain manufacturers, Toy Biz thereby
pursues a strategy of selecting manufacturers at which Toy Biz's product
volume qualifies Toy Biz as a significant customer. Toy Biz is not a party to
any long-term agreement with any manufacturer.

            While Toy Biz is not dependent on any single manufacturer in China
to supply it with products, Toy Biz is subject to the risks of foreign
manufacturing, including currency exchange fluctuations, transportation delays
and interruptions, and political or economic disruptions affecting
international businesses generally. Toy Biz's ability to obtain products from
its Chinese manufactures is dependent upon the United States' trade
relationship with China. The "Most Favored Nation" status of China, which is
reviewed annually by the United States government is a regular topic of
political controversy. The loss of China's "Most Favored Nation Status" would
increase the cost of importing products from China significantly, which could
have a material adverse effect on Toy Biz. The imposition of further trade
sanctions on China could result in significant supply disruptions or higher
merchandise costs to Toy Biz. Toy Biz believes that alternate sources of
manufacturing are available outside China, although there can be no assurance
that these alternate sources will be available on acceptable terms.

OTHER PRODUCTS

            CONFECTIONERY

            Fleer manufactures and markets an array of confectionery products.
Fleer's confectionery operation is best known for its DUBBLE BUBBLE and
RAZZLES gum products. Marvel believes that DUBBLE BUBBLE, with origins dating
back to 1928, was the first branded bubble gum sold in the United States.
Marvel distributes its confectionery products utilizing substantially the same
distribution channels as those used for sports and entertainment trading
cards.

            ADHESIVES

            Panini distributes self-adhesive paper throughout the world.
Through its Adespan Paper Division, Panini manufactures sheet and reel
self-adhesive paper which is sold to third parties primarily for production of
stickers used in labeling and packaging.

            Net revenues from other products, were $101.7 million, $90.0
million and $52.3 million in 1996, 1995 and 1994, respectively.

LICENSES AND TRADEMARKS

            Marvel believes that its roster of Marvel Characters as well as
its MARVEL trade name represent its most valuable assets and that such roster
could not be easily reproduced. In addition, Marvel considers its FLEER, FLEER
ULTRA, FLAIR, NBA HOOPS and SKYBOX trademarks to be of material importance to
its sports picture card business, its PANINI trademark to be of material
importance to its children's activity sticker business and DUBBLE BUBBLE and
RAZZLES trademarks to be of material importance to its confectionery business.
Marvel currently conducts an active program of maintaining and protecting (i)
its principal trademarks, including the MARVEL trade name, and (ii) copyrights
on the 


                                      15
<PAGE>

Marvel characters and publications in the United States and in approximately
55 foreign countries where such protection is available. Marvel's principal
trademarks have been registered in the United States, certain of the countries
in Western Europe and South America, Japan, Israel and South Africa and, in
the case of Panini, in Western Europe and Brazil.

            Marvel's ability to market its sports trading cards is based on
rights under primarily non-exclusive license agreements with the baseball,
basketball, football and hockey players' associations, and with the
organizations which represent the respective leagues and their member teams.
Generally, Marvel's sports picture card licenses provide for two-to-four-year
terms and minimum guaranteed royalty and advertising payments. Marvel's
agreements with the various players' associations enable Marvel to use a
player's name, picture, facsimile signature and biographical description.
Marvel's agreements with the organizations representing the various leagues
and their member teams enable Marvel to use the logos and trademarks of the
various sports, the leagues and logos, names and uniforms of the member teams.
As a result of these licenses, Marvel is permitted to produce and sell in the
United States and Canada, and most of the rest of the world, sports picture
cards and stickers. All of these licenses are primarily non-exclusive and,
accordingly, the various players' associations, leagues and team
representatives are free to grant similar licenses to other companies. For
additional information relating to this matter, see "Competition".

            Marvel's sports picture card license agreements generally provide
the licensor with the right to assure the quality of the manufactured products
and the suitability of the manufacturers used by Marvel, allow the licensor to
inspect the records relating to licensed products, and set forth labeling
requirements for the licensed merchandise. Such license agreements generally
require annual guaranteed minimum royalty payments and monthly or other
periodic payments of royalty guarantees for royalties in excess of the
guaranteed minimum amounts. Marvel also has required minimum advertising
expenditures under its various sports licenses. The sports and entertainment
trading card licenses of Fleer/SkyBox generally provide that it is an event of
default if there is a change of control of Fleer/SkyBox or of Marvel. 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, Marvel and the Marvel
Holding Companies filed a notice of appeal with respect to such order. On
March 24, 1997, the Court in the Debtor Companies' bankruptcy cases issued a
restraining order preventing the Creditors Committee and the Holding
Companies' Trustee from voting the Pledged Stock or otherwise replacing the
Board of Directors of Marvel 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. If the Holding Companies' Trustee were to
foreclose on the Pledged Stock or exercise voting control over such stock,
such action could cause a change of control of Marvel and may cause a default
under one or more of the Fleer/SkyBox's sports and entertainment trading card
licenses.

            Panini's ability to market its sports sticker products is based on
rights, some of which are exclusive, and some of which are non-exclusive, with
the sports federations and, depending upon the country, the players. Panini's
sticker licenses have various terms and require minimum guaranteed royalties.
Panini's agreements with the various federations and, where applicable, the
players, allow Panini to use the logos and trademarks of the various leagues,
member teams and the player's name, picture, biographical and other
information.

                                      16
<PAGE>

            Marvel also has various entertainment licenses related to the
trading cards and sticker businesses that require minimum guaranteed royalties
and are otherwise similar to Marvel's sports trading card licenses.

            Although Marvel considers its relationships with its trading card
and sticker licensors to be good, there can be no assurance that such
licensors will grant new licenses to Marvel upon expiration of the current
licenses. In the past, renewals of Marvel's sports card licenses have
required, among other things, increases in royalty rates and minimum
guaranteed royalty amounts and advertising commitments.

            In 1996, Toy Biz produced a majority of its products under
licenses which it has obtained from third parties. Some of these licenses
confer rights to exploit original concepts developed by toy inventors and
designers. Character licenses, such as exclusive, perpetual and royalty-free
licenses, subject to certain limitations from Marvel (the "Marvel License"),
permit Toy Biz to manufacture and market toys based on characters owned by
others which have or develop their own popular identity, often through
exposure in various media such as television programs, movies, cartoons and
books. Other licenses, referred to as trademark or brand name licenses, permit
Marvel to produce toys bearing the recognized consumer trademark or brand name
owned by the licensor. In return for these rights (other than those under the
Marvel License), Toy Biz pays royalties to its licensors.

            Royalties paid by Toy Biz to licensors and investors are typically
based on a percentage of net sales. Most licenses extend for one to three
years and are renewable at the option of Toy Biz upon payment of minimum
guaranteed payments or the attainment of certain sales levels during the
initial term of the license. In the future, royalty rates and minimum
guaranteed payments may increase or decrease depending upon various
competitive forces in the toy industry.

EMPLOYEES

            As of March 15, 1997, Marvel employed approximately 1,400 persons.
Marvel also contracts for creative work on an as-needed basis with
approximately 550 freelance writers and artists.

            Certain of Marvel's manufacturing employees are represented by a
union pursuant to a collective bargaining agreement which expires in June
1999.

            Marvel believes that its relations with its employees are
satisfactory.

COMPETITION

            The comic book and sports and entertainment trading card
industries are highly competitive. Marvel competes with over one hundred
publishers in the United States. There are numerous companies licensed to
produce sports and entertainment trading cards, other than entertainment
trading cards based on the Marvel's Characters, some of which sell their
products only in regional or niche markets. In addition, licenses may be
granted to other companies to produce sports and entertainment trading cards
in the future, thus generating greater competition.

            Panini, as a leader in the development of the sticker industry,
generally enjoys a pre-eminent position in each of the countries in which it
operates. The major competitors of Panini are generally regional companies.
Marvel believes that Panini's competitive advantages are its reputation for
quality stickers, its long standing relationship with licensors and its strong
distribution capabilities. Panini 


                                      17
<PAGE>

does, however, compete for the discretionary spending of children with other
forms of youth entertainment.

            The toy industry is highly competitive, and Toy Biz competes with
many larger toy companies in the design and development of new toys, the
procurement of licenses and for adequate retail shelf space of its products.
Such competitors include Hasbro, Inc., Mattel Inc., Tyco Toys, Inc.,
Playmates, Inc. and Bandai Co., Ltd., and Toy Biz considers Just Toys, Inc.,
Lewis Galoob Toys, Inc., Empire of Carolina, Inc. and Ohio Art Co. to be among
its competitors as well.

            Some of Marvel's competitors such as D.C. Comics are part of
integrated entertainment companies and may have greater resources than Marvel.
Marvel also faces competition from other entertainment media, such as movies
and video games, but believes that it benefits from the low price of comic
books, sports and entertainment trading cards and children's activity sticker
collections in relation to such other products.

SEASONALITY

            Marvel sells sports trading cards throughout the year in all major
sports. Sales of Marvel's sports trading cards peak at or near the beginning
and mid-point of the sports season to which a specific product relates. Sales
of entertainment related products tend to be less seasonal, although sales of
products related to a motion picture or animated series are generally planned
to begin at the time of first release or subsequent video release in the case
of a major motion picture. Sales of entertainment related products are
planned, where possible, to counterbalance the seasonality of sports related
product sales or event-driven entertainment product sales (e.g., a motion
picture or animated series release).

            Sales of Marvel's sports and entertainment stickers in Europe are
generally concentrated in the first and fourth quarters, coinciding with the
related buying habits of children during the school year.

            Toy Biz, like the toy industry in general, experiences a
significant seasonal pattern in sales and net income due to the heavy demand
for toys during the Christmas season. During 1994, 1995 and 1996, 70%, 69% and
64%, respectively, of Toy Biz's domestic net sales were realized during the
months of July through December. The seasonal pattern requires significant use
of working capital, mainly to build inventory during the year, prior to the
Christmas selling season. Toy Biz expects that its business will continue to
experience a significant seasonal pattern for the foreseeable future.

            The timing of events as discussed above as well as the continued
introduction of new events and related products can and will cause
fluctuations in quarterly revenues and earnings.

STRATEGIC INITIATIVES

            Marvel has begun several strategic initiatives intended to create
organizational synergies, coordinate creative character development and
increase mass retail penetration. The objective eventually is to integrate all
applicable products of Marvel in a coordinated marketing effort. The vision is
to transform Marvel into an integrated entertainment and sports content
company prominent in all forms of media, print, electronic publishing, toys
and games. Marvel will concentrate on old and new character development while
targeting growth niches within each market. There can be no assurance that
Marvel will have sufficient capital to fund these initiatives (see
"Management's 


                                      18
<PAGE>

Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources"), or that Marvel will be successful in
implementing such initiatives.

            The strategic initiatives are focused in four main areas: (i) the
development of Marvel Studios, (ii) the development of Marvel Interactive,
(iii) the development of Marvel Mania Restaurants and (iv) certain in-store
merchandising investments for the purpose of increasing revenues in the sports
and entertainment trading card business.

            MARVEL STUDIOS

            To enhance further the media exposure of the Marvel Characters,
Marvel and Toy Biz intend to form Marvel Studios, although documentation
relating to such formation has not been finalized (and pending such formation,
Marvel Studios is being operated as a division of Marvel). The objective of
Marvel Studios is to facilitate the release of live action and animated
feature films and television programming, and other media based on the Marvel
Characters in order to create greater consumer interest in the Marvel
Characters and related merchandise. Marvel believes that any feature film 
or television programming, theatrical productions or other media
and any advertising and promotion associated with such media will create
consumer interest in the Marvel Characters and revenue opportunities for
Marvel's businesses, including the licensing and toy businesses. For example,
Marvel believes that the popularity of the X-MEN and SPIDER-MAN animated
television shows resulted in significant increases in net sales by Toy Biz of
X-MEN and SPIDER-MAN toys. Marvel believes that Marvel Studios will facilitate
the release of feature films, television programming and other media by giving
Marvel greater control over the development of such projects compared to the
present practice of only licensing the use of the Marvel Characters in film or
television projects to an unrelated third party.

            The rights to produce feature films based on certain of the Marvel
Characters are currently licensed to third parties and some of those rights
are currently in dispute. There can be no assurance that the Company will be
able to reacquire or restructure these rights for development or that Marvel
Studios will enhance the likelihood that any such films or television
programming will be produced.

            Currently, there are three television series based on the Marvel
Characters being aired on free domestic television. Series based on the X-MEN
and SPIDER-MAN characters appear on Fox Children's Network ("FCN") and
consistently are rated among the most highly watched shows during children's
television time periods. In the Fall of 1996, The INCREDIBLE HULK began airing
on the United Paramount Network ("UPN"). In addition, from 1994 to 1996, the
Marvel Action Hour aired in syndication, which featured two half-hour segments
of THE FANTASTIC FOUR and IRON MAN. In February, 1996 a made for television
movie GENERATION X aired. Marvel has also entered into an agreement with Fox
Kid's Worldwide ("FKW") for the development and broadcast of four new
animation series on FCN over a seven-year period, anticipated to begin with
the SILVER SURFER in the 1997-1998 broadcast season. The agreement with FKW
provides for the development and broadcast of at least fifty-two (52) episodes
of new series, and has a term of seven (7) years, which may be extended to ten
(10) years at the option of FKW if at least 104 episodes of eight (8)
different series are broadcast. As part of its agreement with FKW, Marvel will
generally reimburse FKW for 25% of production costs, and will grant FKW a
participation in merchandise revenues derived from the Marvel Characters
featured in the television series aired by FKW. In addition commencing in the
Fall of 1997, Marvel expects that its X-MEN, IRON MAN, and FANTASTIC FOUR
series will be rerun in syndication in an hour long broadcast with one half of
the hour airing an X-MEN episode and the other half of the hour airing either
an IRON MAN or FANTASTIC FOUR episode. Marvel anticipates that this 


                                      19
<PAGE>

media exposure will increase the popularity of the Marvel Characters on which
the series are based and thereby benefit Marvel's various businesses.

            MARVEL INTERACTIVE

            Marvel intends to further develop entertainment software and
on-line applications which leverage the popularity of Marvel Characters.
America On line ("AOL"), one of the world's largest commercial on-line
services, has entered into a joint venture with the Company to create, among
other offerings, original, exclusive on-line interactive comics or
"Cybercomics". These comics change weekly, versus the standard monthly, and
allow fans to participate in the comic by driving the story line. Marvel
believes that its on-line offerings, including comics, will reach a new group
of readers beyond that of its traditional distribution. Marvel's site on AOL
was launched on July 8, 1996 and recently was awarded AOL's Members Choice
Awards. Marvel Interactive has also initiated the online launch of all
Marvel's brands (including Marvel Comics, Fleer/SkyBox and Toy Biz) on the
internet through a series of linked websites. The internet addresses provided
by Marvel are www.marvel.com and www.fleerskybox.com.

            All initial software titles will be based on the Marvel Characters
and are expected to be multi-platform. Given the lead times for software
development, most of the benefits from development efforts in 1997 will not
begin to be realized until 1998. At this point, Marvel Interactive is in a
start-up mode and certain of the markets, principally on-line, are in a
developmental stage and there can be no assurance that the on-line market will
prove to be a commercial success for Marvel, Marvel Interactive will develop
any software and, if developed, that such software will be successful.

            MARVEL MANIA

            Marvel Mania is projected to be a group of theme restaurants
offering an array of merchandise, in the genre of Planet Hollywood and Hard
Rock Cafe, although the theming will be based on the Marvel Characters. The
Marvel Mania units are envisioned as a multimedia, interactive experience
which will give life to the fictitious Marvel Universe of characters. Marvel
Mania represents a further strategic investment in the development of Marvel's
intellectual properties. In addition to the general branding benefits Marvel
desires to obtain from Marvel Mania, Marvel expects that each restaurant with
its retail merchandise area, once fully operational, will be profitable.

            The restaurants are intended to be an interactive, multimedia
environment designed to entertain the customer with videos, soundtracks and
electronics. Each operation is intended to offer premium quality fashion
merchandise such as jackets, T-shirts, sweatshirts and hats. Other items
intended for sale will include video games, comic books, action-figure toys,
collectible figurines and animation cels.

            The Marvel Mania restaurants are a joint venture between Marvel
Restaurants and PHI. Three restaurants are contemplated, with the first
restaurant expected to open in Los Angeles as a joint venture between the
Joint Venture and MCA/Universal, in which MCA/Universal has a 70% interest and
the Joint Venture has a 30% interest. The Los Angeles restaurant is under
construction and is projected to open in the second half of 1997. The Joint
Venture agreement between Marvel Restaurants and PHI provides that Marvel will
lend $35 million on an interest bearing basis and make a $1 million equity
contribution to the Joint Venture for the development and construction of the
first units. If only three restaurants are developed, Marvel does not
anticipate that it will be required to loan the Joint Venture the entire $35
million. After reimbursement to Marvel of the loan, the Joint Venture will pay
Marvel an annual license fee equal to 10% of all gross sales at Marvel Mania
units and will pay PHI, which is responsible for the daily operation of the
business, a management fee equal to 10% of gross sales. Any remaining income
will then be divided 


                                      20
<PAGE>

equally between Marvel and PHI. As a result of the decline in Marvel's
financial condition, Marvel and PHI entered into a modification of the
agreement providing, among other things, that (i) if Marvel did not agree to
open a third restaurant by the earlier of one year after the opening of its
Orlando restaurant or December 31, 2001, 50% of the Joint Venture profits each
year would be distributed to the Joint Venture parties prior to full repayment
of Marvel's loan and (ii) Planet Hollywood's agreement not to compete with the
Joint Venture would be modified. Through March 21, 1997, Marvel has invested
approximately $3.8 million and has posted a standby letter of credit for
approximately $6.1 million to fund development costs associated with the
restaurant being constructed in Los Angeles.

            TRADING AND ENTERTAINMENT CARDS

            In an effort to increase revenues, Fleer/SkyBox has begun to
implement an in-store merchandising program involving the placement of
fixtures which, in an attractive and efficient manner, hold and dispense packs
of trading cards. These fixtures are being placed in retail stores with high
traffic of trading card collectors and are expected to simplify buying and
make purchases more attractive to customers by making selections easier.
Fleer/SkyBox plans to provide the fixture program to retailers who will
support the category through a dedicated in-store section. If the program is
successful, Fleer/SkyBox intends to roll out the program nationally.

INFLATION

            In general, Marvel's business is affected by inflation and the
effects of inflation may be experienced by Marvel in future periods.
Management believes, however, that such effect has not been significant to
Marvel during the past three years.




                                      21
<PAGE>






ITEM 2.                 PROPERTIES

            The Company has the following principal properties:
<TABLE>
<CAPTION>

            Facility                            Location                              Square Feet         Owned/Leased
            --------                            --------                              -----------         ------------
<S>                                      <C>                                             <C>              <C>      
Manufacturing/Warehouse/Office           Waldorf, Germany                                22,825               Owned
Warehouse/Office                         Terrsella, Spain                                20,450               Owned
Warehouse/Office                         Saint Laurent Du Var, France                    35,327               Owned
Manufacturing/Warehouse/Office           Bomporto, Italy                                217,345               Owned
Office                                   Modena, Italy                                  131,132               Owned
Office                                   Modena, Italy                                   11,388               Owned
Manufacturing                            Modena, Italy                                   45,144               Owned
Warehouse                                Modena, Italy                                   21,953               Owned
Manufacturing/Office                     Modena, Italy                                   48,086               Owned
Warehouse                                Modena, Italy                                   14,817               Owned
Warehouse                                Modena, Italy                                   23,605               Owned
Warehouse                                Modena, Italy                                   12,411              Leased
Manufacturing/Warehouse/Office           Sao Paolo, Brazil                               35,801              Leased
Office                                   New York, NY                                    69,000              Leased
Office*                                  New York, NY                                    17,000              Leased
Office                                   New York, NY                                    15,000              Leased
Office                                   Mt. Laurel, NJ                                  30,836              Leased
Office                                   London, England                                  8,978              Leased
Warehouse/Office                         Leeds, England                                  13,390              Leased
Warehouse/Office                         Wakefield, England                              18,385              Leased
Warehouse/Office*                        Yuma, Arizona                                   80,000              Leased
Manufacturing/Warehouse/Office           Byhalia, MS                                     72,300              Leased
Warehouse*                               Puyallup, WA                                   216,500              Leased
</TABLE>


            In addition, Marvel leases or subleases other office and warehouse
space located in several locations in the United States and in Europe.
Marvel's leases expire through 2005 and provide for aggregate monthly rentals
of approximately $0.4 million, subject to escalation clauses.

            *Represents facilities leased by Toy Biz. Toy Biz's New York lease
expires in April 1997. Toy Biz has entered into a sublease pursuant to which
it will occupy approximately 30,000 square feet of new office space and
expects to relocate its executive and principal offices to such premises in
1997.

The properties of NWCG were sold on January 22, 1997 in connection with the
NWCG Disposition and are included in net liabilities held for disposition in
the Company's consolidated financial statements.




                                      22
<PAGE>



ITEM 3. LEGAL PROCEEDINGS

REORGANIZATION LEGAL PROCEEDINGS

            On December 27, 1996, the Debtor Companies and the Marvel Holding
Companies filed petitions under Chapter 11 of the Bankruptcy Code and in
connection with such filings have been parties to various legal proceedings.
See "Business -- Reorganization of Marvel and Marvel Holding Companies".

            The Holding Companies' Trustee has alleged that events of defaults
under each of the Marvel Holding Companies indentures have occurred by reason
of the commencement of the Debtor Companies' cases under the Bankruptcy Code.
The Holding Companies' Trustee has also alleged that the majority ownership
and the anti-injunction provisions of each of the indentures have been
violated. Marvel is not a party to any of the indentures governing the notes
issued by the Marvel Holding Companies. In addition, the Company believes the
allegations of the Holding Companies' Trustee are either without merit or will
be resolved in connection with the prosecution of the reorganization cases of
the Marvel Holding Companies. The Holding Companies' Trustee has also alleged
that it may assert a claim based on alleged "tortious interference" occasioned
by Marvel's filing of the Plan. The Company believes that any such allegations 
are completely without merit.

            There are twenty-seven purported class and derivative actions
brought by stockholders of Marvel and holders of bonds issued by the Marvel
Holding Companies and one action brought by a purported class of Toy Biz
shareholders presently pending in the Delaware Court of Chancery
(collectively, the "Delaware Actions") that challenge, among other things, the
Andrews Investment.

            Twenty-one of the twenty-seven Delaware Actions assert either
claims on behalf of a purported class of all Marvel shareholders or
shareholder derivative claims on behalf of Marvel, or both. The complaints
allege, among other things, that the Andrews Investment represents a breach of
defendants' fiduciary duties because the proposed purchase price per share is
unfair and such purchase would dilute the minority shareholders' interest in
Marvel. Plaintiffs in these actions seek to enjoin the Andrews Investment, to
rescind the Andrews Investment if it is in fact consummated prior to the entry
of the Court's judgment, to recover damages for defendants' alleged conduct
and to recover costs and disbursements in pursuing these actions, including
reasonable attorneys' fees. These actions have been consolidated for all
purposes by order of the Delaware Court of Chancery.
A consolidated complaint has not yet been filed.

            Six of the Delaware Actions assert claims on behalf of a purported
class consisting of the holders of bonds issued by the Marvel Holding
Companies. These complaints allege, among other things, that the Andrews
Investment, if consummated, would be a breach of defendants' duty of fair
dealing and good faith owed to the holders of the bonds because the Andrews
Investment would result in the substantial dilution of Marvel's outstanding
stock, which is security for the bonds, and will thus diminish the value of
the bonds. These actions have been separately consolidated by order of the
Delaware Court of Chancery. The consolidated complaint in these six actions do
not name any of the Chapter 11 debtor companies as defendant. The parties to
the consolidated complaint have agreed to defer the filing of an answer.

            All of the foregoing Delaware Actions name varying defendants
consisting in the aggregate of Marvel, Andrews, MacAndrews Holdings, Parent
Holdings, Marvel III, Marvel Holdings, Ronald O. Perelman, William C. Bevins,
Donald G. Drapkin, Michael Fuchs, Frank Gifford, E. Gregory Hookstratten,
Morton L. Janklow, Quincy Jones, Stan Lee, Scott C. Marden, Terry C. Stewart
and Kenneth Ziffren.

                                      23
<PAGE>

            One of the pending Delaware Actions asserts claims on behalf of a
purported class of all Toy Biz shareholders. Holl v. Toy Biz, Inc., Marvel
Entertainment Group, Inc., Andrews Group, Inc., Ronald O. Perelman, Joseph M.
Ahearn, Avi Arad and Issac Perlmutter, C.A. No. 15359, was filed on November
15, 1996. The complaint alleges, among other things, that defendants Perelman,
Ahearn, Arad and Perlmutter are breaching their fiduciary duties in pursuing
the proposed offers of Marvel and Andrews to purchase Toy Biz stock. In
addition, the complaint alleges that defendant Marvel is aiding and abetting
the individual defendants in their unlawful conduct. Damages in an unspecified
amount are sought for the alleged breach of fiduciary duties by defendants.
Plaintiffs also seek to enjoin the consummation of the transaction, to rescind
the transaction in the event it is consummated and to recover costs and
disbursements and reasonable allowances for plaintiff's counsel. This case has
been stayed by stipulation of the parties.

            No classes have been certified in any of the Delaware Actions. On
December 27, 1996, the Debtor Companies and the Marvel Holding Companies filed
a petition for protection under Chapter 11 of the Bankruptcy Code. As a result
of Marvel's filing, all of the Delaware Actions with respect to Marvel are
automatically stayed pursuant to 11 U.S.C. Section 362. On March 7, 1997,
Andrews Group terminated the Stock Purchase Agreement with Marvel and withdrew
the proposal for the Andrews Investment. On the same date, Andrews informed
Toy Biz and the two other principal stockholders of Toy Biz that the
transactions contemplated by the Merger Agreement and the Stock Purchase
Agreements with Toy Biz and each of such principal stockholders, respectively,
would not be consummated.

            Piels v. Marvel Entertainment Group, Inc., Ronald O. Perelman,
Andrews Group, Inc. and MacAndrews & Forbes Holdings Inc., Index No.
96-605702, was commenced on November 14, 1996. This action, filed in New York
Supreme Court, County of New York, asserts claims on behalf of a purported
class of all Marvel shareholders. Named as defendants are Marvel, Ronald O.
Perelman, Andrews Group and MacAndrews Holdings. The complaint alleges, among
other things, that the defendants have breached their fiduciary duties in
connection with the Andrews Investment. Specifically, plaintiff alleges that
Marvel's minority shareholders are being directly damaged by defendants'
actions with respect to the Andrews Investment. Plaintiff seeks injunctive
relief, damages in an unspecified amount and costs and disbursements,
including reasonable attorneys' fees. By orders dated February 25, 1997, the
New York Supreme Court denied plaintiff's motion for a preliminary injunction
and granted defendants' motion to dismiss the action based on forum non
conveniens.

OTHER LEGAL PROCEEDINGS

            On March 9, 1995, a complaint purporting to be a class action was
filed against SkyBox, certain of SkyBox's officers and directors and Marvel in
the Delaware Court of Chancery, New Castle County, entitled Strougo v. Lorber,
et al., C.A. No. 14107 ("Strougo"). The complaint generally alleged that
SkyBox and certain of its officers and directors breached their fiduciary
duties by agreeing to be acquired by Marvel at an allegedly unfair and
inadequate price, failing to consider other potential purchasers in a manner
designed to obtain the highest possible price for SkyBox's stockholders and
not acting in the best interest of stockholders. The complaint also alleged
that Marvel aided and abetted the breaches of fiduciary duty committed by the
other defendants named in the complaint. The complaint sought preliminary and
permanent injunctions against consummation of the merger, damages, costs and
experts' fees and expenses. This case was dismissed without prejudice.

            On March 16, 1995, a complaint purporting to be a class action was
filed against SkyBox and certain of SkyBox's officers and directors in the
Delaware Court of Chancery, New Castle County, entitled Krim and Gerber v.
SkyBox International Inc., et al., C.A. No. 14127. The complaint generally
made 


                                      24
<PAGE>

allegations similar to those contained in the Strougo complaint and sought
similar injunctive and other relief. This case was dismissed without
prejudice.

            Marvel is a defendant in a purported class action filed on July
26, 1996 in the United States District Court for the Eastern District of New
York entitled Fishman, et al v. Marvel Entertainment Group, Inc., CV-96-3757
(SJ), by four persons who allegedly purchased sports and entertainment cards
manufactured by Fleer/SkyBox. The action is directed against standard business
practices in the trading card industry, including the practice of randomly
placing insert cards in packages of sports and entertainment trading cards,
and alleges that these practices constitute illegal gambling activity in
violation of state and federal law. Fleer/SkyBox's principal competitors in
the trading card industry have been separately sued for employing the same or
similar practices. On March 11, 1997, a similar action as Fishman against a
competitor of Fleer/SkyBox entitled Schwartz, et. al. v. Upper Deck No.
96CV3408 - B (AJB) (S.D. Cal.), was dismissed with leave to replead. The
plaintiffs in that action filed an amended complaint on March 24, 1997. On
April 2, 1997, a similar action as Fishman against another competitor of
Fleer/SkyBox entitled Price, et. al. v. Pinnacle Brands, No. 3:96-CV-2150-T
(N.D. Tex.), was dismissed with prejudice. In addition, certain of the various
sports organizations and entertainment companies that issue licenses to
Fleer/SkyBox (as well as the other major trading card companies) in connection
with the manufacture of sports and entertainment trading cards have also been
separately sued and are alleged to be engaged in aspects of the purportedly
illegal gambling operations. Plaintiffs seek certification of a class of
persons who within four years prior to the filing of the complaint purchased
packages of trading cards that might contain randomly inserted cards, and
recovery of treble damages. On September 30, 1996, Marvel filed a motion to
dismiss the complaint. Plaintiffs filed their opposition to the motion on or
about December 2, 1996. No discovery has commenced. Plaintiffs have not
specified the amount of damages sought, but generally allege that members of
the purported class have been damaged as a result of their purchases of
trading cards during the four years preceding the commencement of the action.
As set forth above, on or about December 27, 1996, Marvel filed a voluntary
petition in the United States Bankruptcy Court for the District of Delaware.
As a result, the action was automatically stayed pending the outcome of the
bankruptcy proceeding. It is not possible at this early stage of the case to
predict the outcome with certainty. In the opinion of Marvel, the action lacks
merit and Marvel intends to defend it vigorously.

            Marvel and two of its officers, William C. Bevins and Terry C.
Stewart, are named as defendants in a purported class action entitled Brian
Barry SEP IRA v. Marvel Entertainment Group, Inc., pending in the United
States District Court for the Southern District of New York. The complaint
seeks unspecified damages on behalf of a proposed class of purchasers of
Marvel's common stock from April 11, 1994 to December 31, 1994 for alleged
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
as amended, as well as Rule 10b-5 promulgated thereunder. Plaintiff alleges
that the defendants, through their own statements and those of analysts,
artificially inflated the price of Marvel's common stock by creating earnings
expectations which Marvel did not meet. Plaintiff also contends that the
defendants failed to timely disclose softness in the publishing and sports
trading card markets which led to Marvel's not attaining its purported
earnings target. Plaintiff claims that the individual defendants, because of
their corporate positions, are liable under the securities laws as control
persons of Marvel. The defendants moved to dismiss the complaint in its
entirety on February 23, 1996. On April 8, 1997, the District Court granted
the defendants motion to dismiss without prejudice. As set forth above, on or
about December 27, 1996, Marvel filed a voluntary petition in the United
States Bankruptcy Court for the District of Delaware. As a result, any further
action against Marvel is automatically stayed pending the outcome of the
bankruptcy proceeding.

            Marvel is named as a defendant in two actions which have been
consolidated for all purposes with certain related actions in proceedings now
pending in the Los Angeles County Superior Court. The 


                                      25
<PAGE>

consolidated cases center around the ownership of certain rights in the
production and distribution of a live action motion picture based on the
"SPIDER-MAN" character owned by Marvel. Once the automatic stay governing all
litigation involving Marvel is lifted by the Delaware Bankruptcy Court, Marvel
intends to assert its own claims to those rights.

            In the lead case, a dispute between 21st Century Film Corporation
("21st Film"), Carolco Pictures, Inc. ("Carolco") and related entities, 21st
Film claims that it still possesses rights under an agreement with Marvel to
produce and distribute a live action film based on the "SPIDER-MAN" character,
although it had assigned all of its rights to Carolco. Metro Goldwyn Mayer,
Inc. ("MGM") has succeeded to the litigation position of both 21st Film and
Carolco in the respective bankruptcy proceeding of those two companies. In
addition to its purchase of 21st Film and Carolco litigation positions, MGM is
a plaintiff in a separate case that has been deemed related to the lead and
consolidated cases. Marvel has answered the complaint denying MGM's
allegations.

            An additional lawsuit, between Carolco and Columbia Tristar Home
Video ("Columbia"), concerns the videocassettes rights to any such film, and a
third lawsuit, between Carolco and Viacom International, Inc. ("Viacom"),
involves television rights. Both Columbia and Viacom claim that, before 21st
Film assigned its rights under its agreement with Marvel to Carolco, 21st Film
had licensed ancillary rights to each company. Each seeks to enforce its
respective rights. Viacom, however, brought a separate suit naming Marvel, and
Marvel has answered that complaint, denying Viacom's allegations.

            In its answer and other pleadings, Marvel contends that it is the
sole and exclusive holder of the unencumbered right to produce and distribute a
live action based on the "SPIDER-MAN" character. Marvel contends that all
rights to produce or distribute a "SPIDER-MAN" film under its agreement with
Carolco and 21st Film have reverted to Marvel.

            Marvel has notified the Court in the consolidated action that
Marvel has filed for bankruptcy protection, and that the bankruptcy court
filing stays all further proceedings in the consolidated lawsuit as to Marvel.
Subject to further proceedings in the bankruptcy court, Marvel has stated that
it intends to defend vigorously the Viacom lawsuit and the MGM lawsuit, and to
defend vigorously and assert its exclusive rights to produce and distribute a
live action film based on the "SPIDER-MAN" character.

            In February 1989, Robert Eckstein, et al. brought an action for
violation of Federal securities laws against New World Entertainment Ltd. ("NW
Entertainment"), then a subsidiary of Andrews, and other parties (the
"Eckstein Action"). In October 1988, Ralph Majeski, et al. brought an action
for fraud, misrepresentation, breaches of contract and fiduciary duty and
pendent state law claims against NW Entertainment and other parties (the
"Majeski Action"). Classes were certified in both actions. In March 1992, the
court granted a motion for summary judgment and dismissed both the Eckstein
Action and the Majeski Action. Plaintiffs in the Majeski Action filed a motion
for reconsideration, which was denied by the District Court on June 2, 1992.
Notices of Appeal were filed in both actions.

            The plaintiffs in the Majeski action filed a lawsuit in the Circuit
Court of Milwaukee County, Wisconsin on March 8, 1993 (the "Majeski State Court
Action"). The Majeski State Court Action alleges essentially the same pendent
state law claims that had been asserted in the federal Majeski Action.

            On August 20, 1993, the Court of Appeals for the Seventh Circuit
vacated the district court judgments and remanded the cases to the district
court for further proceedings. On November 18, 1993 the defendants filed a
Petition for Writ of Certiorari with the United States Supreme Court, 

<PAGE>

seeking review of the Court of Appeals Order. The defendant's petition was
denied on or about January 18, 1994.

            In November 1993, both the Eckstein and Majeski plaintiffs filed
motions seeking leave to amend the complaints. The defendants did not oppose
the Eckstein plaintiffs' motion because those plaintiffs' did not add new
claims or assert new theories. The Majeski plaintiffs' motion seeks to amend
their Section 10(b) and breach of fiduciary duty claims, add a claim for
treble damages under the Racketeer Influenced and Corrupt Organizations Act,
18 U.S.C. ss.ss. 1961-68 and delete certain common law claims and pursue them
in a separate proceeding. The defendants filed papers opposing the Majeski
plaintiffs' proposed amendments. A hearing on the foregoing motions was held
on January 26, 1994. On January 27, 1994 the Court granted the Eckstein
plaintiffs' motion to amend and took the Majeski plaintiff's motion to amend
under consideration. The Majeski State Court Action was voluntarily dismissed
by the plaintiffs.

            In February 1994, the defendants filed motions for summary
judgment in both actions. On August 31, 1994, the court denied the Majeski
plaintiffs' motion to amend their first amended complaint, granted the
defendants' motions for summary judgment in both the Eckstein and Majeski
Actions and dismissed both actions with prejudice. The Eckstein plaintiffs
filed a motion for reconsideration on September 15, 1994, which was denied by
the court on October 28, 1994. Both the Eckstein and Majeski Actions were
appealed by the plaintiffs to the United States Court of Appeals for the
Seventh Circuit. Oral argument for these appeals was held on April 17, 1995.
On June 26, 1995, the Court of Appeals affirmed the judgments of the District
Court in favor of the defendants. On July 10, 1995, the Eckstein plaintiffs
filed a petition for rehearing and suggestion of rehearing en banc. The
petition was denied by the Court of Appeals on July 21, 1995. Neither the
Eckstein or Majeski plaintiffs sought review of the Seventh Circuit's decision
in the Supreme Court.

            On July 27, 1995, the district court entered a final order taxing
costs against the Majeski plaintiffs in favor of the defendants in the sum of
$86,693.34. The Court of Appeals for the Seventh Circuit affirmed that
decision, in an unpublished order, on January 24, 1996, and issued its mandate
on February 15, 1996. No petition for writ of certiorari has been filed.

            On or about July 6, 1995, the Majeski plaintiffs filed a purported
class action lawsuit in the Circuit Court for Milwaukee County, Wisconsin,
entitled Ralph Majeski, et al. v. Balcor Entertainment Company Ltd., et al.,
Case No. 95CV006579 (the "Second Majeski State Court Action"). The Second
Majeski State Court Action is based on allegations similar to those in the
Federal Court Majeski Action, and seeks similar relief. The complaint alleges
claims based on state law asserting, among other things, breach of fiduciary
duties, negligent and intentional misrepresentation and deceit, breach of
contract, and a derivative claim on behalf of another defendant, Balcor Film
Investors, and its successor. On October 23, 1995, plaintiffs filed an amended
complaint, which made only minor, technical changes. On November 2, 1995, the
court entered its order, without objection from the defendants, certifying the
plaintiff-class and directing that notice be sent to all class members. NW
Entertainment filed a motion to dismiss the complaint for lack of personal
jurisdiction.

            On November 16, 1995, plaintiffs filed a Second Amended Complaint
adding as a defendant the most recently appointed co-trustee of the BFI Trust.
The newly-named defendant, joined by all other defendants, thereafter removed
the case to United States District Court. On November 20, 1995, the District
Court granted plaintiff's motion to remand and returned the case to the Circuit
Court, Milwaukee County, State of Wisconsin.

                                      27
<PAGE>

            Following discovery, the New World defendants withdrew their motion
to dismiss for lack of personal jurisdiction, and filed an answer denying
liability and asserting affirmative defenses. The case is set for trial on
October 6, 1997.

            The Company and its subsidiaries are also parties to various other
litigation, some of which are in the process of being settled. The Company
believes that it is unlikely that the outcome of all non-bankruptcy related
pending litigation in the aggregate will have a material adverse effect on its
consolidated financial condition or results of operations. As a result of the
Debtor Companies filing of petitions pursuant to the Bankruptcy Code, Marvel's
legal proceedings, other than the Debtor Companies bankruptcy proceedings have
been automatically stayed. Marvel has obtained a lifting of the automatic stay
in the Fishman case in order to allow Marvel to pursue its motion to dismiss.


ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

            There was no submission of matters to a vote of securityholders in
the fourth fiscal quarter.


                                    PART II

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

            The Company's common stock does not have a public market.

            As of March 29, 1997, the number of shareholders of record of
common stock was one.

            See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations for a discussion of dividend limitations.


ITEM 6. SELECTED FINANCIAL DATA

            The following table sets forth certain selected historical
financial data of the Company at and for each of the years in the five year
period ended December 31, 1996. As a result of the NWCG Disposition, the
Company's financial statements reflect for all periods presented, the net
liabilities and results of operations of the Company's broadcasting segment as
net liabilities held for disposition and discontinued operations,
respectively.




                                      28
<PAGE>





            The information set forth below has been derived from audited
financial statements and should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto and "Item 7 -
Management's Discussion And Analysis Of Financial Condition And Results Of
Operations" of this Report.
<TABLE>
<CAPTION>


                                                                     Year Ended December 31,
                                              -------------------------------------------------------------------
(Dollars in millions)                            1996         1995(c)        1994(d)          1993        1992(e)
                                              ---------      --------       --------       --------       -------
<S>                                           <C>            <C>            <C>            <C>            <C> 
Net sales                                     $  745.5       $  828.9       $  514.8       $  421.8       $ 229.9
(Loss) income from continuing operations        (666.2)(a)     (175.5)         (57.6)           0.7          (4.2)
At end of period:
  Total assets                                 1,331.6 (b)    2,034.7        1,421.8        1,067.1         472.0
  Debt and redeemable preferred stock            801.6        2,052.3        1,484.1        1,167.0         419.5
  Liabilities subject to settlement under 
    reorganization                             1,313.7
</TABLE>


(a)         Includes non-cash charge to write off goodwill related to the youth
            entertainment segment of $581.7, a charge of $32.2 by Marvel to
            record a valuation allowance against certain deferred tax assets
            and a $175.0 credit to reflect a reduction in the valuation
            allowance on the Company's deferred tax assets, excluding Marvel,
            as well as benefit for 1996 losses of the Company, excluding
            Marvel.

(b)         Reflects the non-cash charge to write off goodwill related to the
            youth entertainment segment of $581.7, a reduction in loans to
            affiliate of $193.4, a charge of $32.2 by Marvel to record a
            valuation allowance against certain deferred tax assets and an
            increase in deferred tax assets of $175.0 to reflect a reduction
            in the valuation allowance on the Company's deferred tax assets,
            excluding Marvel, as well as benefit for 1996 losses of the
            Company, excluding Marvel.

(c)         The Company's statement of operations and financial position
            include the operations and financial position of Toy Biz since the
            Toy Biz IPO on March 2, 1995 and the operations and financial
            position of SkyBox since its acquisition on April 27, 1995.

(d)         The Company's statement of operations and financial position
            include the operations of Panini since its acquisition on September
            1, 1994.

(e)         The Company's statement of operations and financial position
            include the operations of Fleer since its acquisition on September
            1, 1992.





                                      29
<PAGE>




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

RESULTS OF OPERATIONS

            As a result of the NWCG Disposition, the Company's financial
statements reflect for all periods presented, the net liabilities and results
of operations of the Company's broadcasting business as net liabilities held
for disposition and discontinued operations, respectively. The results of
operations of the broadcasting business is included in loss from discontinued
operations through September 24, 1996, the measurement date. The results of
operations of NWCG's San Diego Station from September 24, 1996 through the
date of sale of such station in November 1996, and the gain on sale of NWCG's
San Diego and Birmingham stations are included in gain on disposal of
discontinued operations.

RESULTS OF MARVEL AND MARVEL HOLDING COMPANIES

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

            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
Marvel's publishing business. In response, Marvel 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. Marvel believes that these factors have negatively
affected the sports trading card business, causing Marvel 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, in 1996, Marvel's sales of
entertainment trading cards has 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 Marvel's trading card net revenues have significantly and
adversely affected the profit margins of the trading card business and Marvel
anticipates a continued significant adverse effect on profit margins due to
the current contractual commitments. In response, Marvel has undertaken
several strategic actions to mitigate the effect of the contraction in the
sports trading card and 


                                      30
<PAGE>

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.

            As described above, continuing operating losses in the trading
card and publishing businesses through the third quarter of 1996, as well as
significant long-term changes in industry conditions, indicated to the
Company, at that time, that there may be asset impairment. During the fourth
quarter of 1996, the Company evaluated the recoverability of the carrying
value of long-lived assets related to Marvel, including goodwill and other
intangibles, in accordance with its previously stated accounting policies and
recorded a non-cash charge of approximately $581.7 million, substantially all
related to Marvel's trading card operations and goodwill of the Marvel Holding
Companies. See Note 15 of "Notes to Consolidated Financial Statements".

            Marvel experienced significant operating losses during 1995 and
1996, and failed to satisfy certain financial covenants contained in the
Marvel Credit Agreements (as defined below, see Note 6 of "Notes to
Consolidated Financial Statements") beginning in the Fall of 1996. Marvel
commenced discussions in the Fall of 1996 with Andrews regarding an equity
infusion in order to provide for Marvel's cash requirements and with The Chase
Manhattan Bank, agent bank for the Marvel Credit Agreements, regarding a
restructuring of the Marvel 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 Bankruptcy Code in the Bankruptcy
Court. Panini S.p.A., Marvel Restaurants (a general partner in the Joint
Venture developing the Marvel Mania restaurants (each as defined below), see
"Business of Marvel -- Strategic Initiatives -- Marvel Mania") and Toy Biz,
all of which are active, as well as certain inactive subsidiaries did not file
petitions under the Bankruptcy Code. See "Business - Reorganization of Marvel
and Marvel Holding Companies".

            In the fourth quarter of 1996, Marvel instituted a series of
actions to reduce its operating costs. These actions include the termination
of certain employees and the closure of certain facilities and given the
underlying weaknesses in certain of Marvel's markets and the negative impact
associated with the uncertainty surrounding its Chapter 11 proceeding, Marvel
made additional provisions for returns and inventory obsolescence and provided
additional reserves for other assets which may not be realized. The aggregate
amount of the foregoing charges are approximately $69.3 million which includes
restructuring charges of $15.8 million. These charges were reflected in
various line items in the statement of operations.

            During the fourth quarter of 1996, Marvel recorded a charge of
approximately $32.2 million to income tax expense to record a valuation
allowance against deferred tax assets of certain subsidiaries. This adjustment
is required given the current level of net operating losses ("NOLs") of Marvel
and the inability, based on the projected financial results of Marvel, to
utilize these tax attributes against future taxable income from operations.

            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 the $100 million DIP Loan,
provided by a syndicate of lenders, including The Chase Manhattan Bank, as
agent bank, and is available to Marvel until 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 6 of "Notes to Consolidated Financial
Statements".

                                      31
<PAGE>

            On December 27, 1996, the Marvel Holding Companies filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code with the
Bankruptcy Court. 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.

            Marvel believes that since, and in part as a result of, the
commencement of Marvel's Chapter 11 proceedings, Marvel has continued to
experience greater than expected weakness in certain businesses, including
trading cards, due to, among other things, certain mass merchandisers
maintaining lower than expected levels of inventory of Marvel's products.

            Currently, there is no plan of reorganization. There can be no
assurance that any plan of reorganization under the Bankruptcy Code reflecting
the Committee Proposal or a proposal made by any other party will be proposed,
or if that plan is proposed, such plan of reorganization will be confirmed
under the Bankruptcy Code. If Marvel is unable to obtain confirmation of a
plan of reorganization, its creditors or equity securityholders may seek other
alternatives for Marvel, including bids for Marvel or parts thereof through an
auction process. There can be no assurance that upon consummation of a plan of
reorganization that there will be improvement in any of such businesses.
Marvel has, and will continue to incur professional fees and other cash
demands typically incurred in bankruptcy. From December 27, 1996 through March
28, 1997 these amounts approximated $6.3 million.

YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1995

            The Company's net revenues were $745.5 million and $828.9 million
in 1996 and 1995, respectively, a decrease of $83.4 million or 10.1%. This
reflects a decrease of $44.7 million in net publishing revenues, a decrease of
$56.7 million in net trading card and sticker revenues, and a decrease of
$34.7 million in licensing revenues, partially offset by a $41.0 million
increase in toy revenues and an $11.7 million increase in other revenues. 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 reduction of
marginally profitable titles resulting from the implementation of Marvel's
business strategy, and beginning in July 1995 the discontinuance of
distribution by Heroes World of comic book publications other than Marvel's
titles. The decrease in trading card net revenues was primarily due to the
continuing general decline in the demand for trading cards as well as the
change in Marvel's distribution of its trading cards to concentrate on trading
card specialty stores and select mass market accounts which generally resulted
in lower net revenues in 1996. In addition, entertainment card net revenues
decreased due to lower sales of cards based on Marvel's comic book characters
due in part to market conditions in the comic book specialty store market, as
well as lower sales of cards based on properties licensed from third parties
resulting from lower commercial success of such properties in 1996 as compared
to 1995. However, as compared to 1995, provisions for trading card sales
returns were significantly lower, reflecting the change in distribution and
the inclusion in 1995 of a significant increase in sales returns allowances
reserves. Such lower sales return allowances provisions, combined with the
inclusion of net revenues from SkyBox for a full year in 1996 versus only
eight months in 1995 (the acquisition of SkyBox was consummated on April 27,
1995), partially offset the lower sales discussed above. These decreases in
trading card net revenues were partially offset by an increase in net revenues
of stickers. This increase was due to the 1996 European Cup soccer tournament
and expansion into new markets such as Brazil and Russia, and was partially
offset by higher provisions for returns for stickers in 1996. In addition,
Marvel experienced lower net revenues in certain European markets principally
due to lower net revenues from entertainment stickers based on properties
licensed from third parties as a result of lower commercial success of such
properties in 1996 as compared to 1995. Licensing revenues decreased in 1996
as compared to 1995 primarily as a result of an insufficient amount of new
media exposure of Marvel's 


                                      32
<PAGE>

characters as well as an unfavorable comparison to 1995 licensing revenues
which included the recording of revenues from certain large long term licenses
for certain licensing categories. Pursuant to the agreement between FKW and
Marvel, Marvel expects to have a new animation series based on the SILVER
SURFER on 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 increase in toy revenues was principally due to Toy Biz's expanded product
offerings, increased international distribution of products and the
consolidation of Toy Biz for a full year in 1996 as compared to ten months in
1995, offset in part by lower revenues due to lower sales of certain products
based on Marvel characters. The improvement in other revenues was due to
increased sales of adhesive paper by Panini.

            Gross profit was $209.1 million and $295.6 million in 1996 and
1995, respectively, a decrease of $86.5 million. As a percentage of net
revenues, gross profit was 28.0% in 1996 as compared to 35.7% in 1995. The
decrease in gross profit as a percentage of net revenues was due primarily to
the effect of higher return provisions for stickers, the effect of lower
licensing revenues, an unfavorable product mix for trading cards and toys as
compared to 1995, and the effect of lower trading card net revenues without a
corresponding decrease in royalty expense given minimum payment obligations
for trading cards in 1996.

            Selling, General & Administrative ("SG&A") expenses were $289.9
million and $262.1 million in 1996 and 1995, respectively. The increase of
$27.8 million was mainly attributable to the increase in advertising,
promotion and selling expenses of Panini and Toy Biz, the consolidation of Toy
Biz's results for a full year in 1996 as compared to ten months in 1995, the
inclusion of SkyBox for a full year in 1996 as compared to eight months in
1995, the effect of certain charges related to the termination of employees
and other items and higher expense primarily resulting from an increased
investment to support Toy Biz's expanded product line and the effect of
certain charges related to the write-down of fixed assets. This increase was
partially offset by a general reduction in overhead expenses associated with
the restructuring of the trading card, publishing and confectionery
operations. As a percentage of net revenues, SG&A was 38.9% in 1996 as
compared to 31.6% in 1995.

            During the fourth quarter of 1996, Marvel recorded a $15.8 million
restructuring charge, which primarily represents the costs related to the
closure of facilities, including severance related to terminated employees and
other costs associated with the restructuring of its comic book distribution
subsidiary and confectionery businesses. During the fourth quarter of 1995,
Marvel recorded a $25.0 million restructuring charge, which primarily
represents the costs related to the consolidation and closure of facilities,
severance related to terminated employees and other costs associated with its
publishing, trading card and confectionery businesses.

            Amortization and writedown of goodwill and intangibles was $617.6
million and $30.9 million in 1996 and 1995, respectively. The increase of
$586.7 million mainly reflects the write-down of goodwill and other
intangibles related to the asset impairment at Marvel which was primarily due
to the significant and long-term changes in industry conditions in trading
cards and publishing and the bankruptcy filing of Marvel. See Note 15 of Notes
to Consolidated Financial Statements.

            Interest expense, net was $199.8 million and $184.6 million in
1996 and 1995, respectively. The increase in interest expense primarily
reflects an increase in average borrowings.

            Interest and net investment income was $58.6 million and $37.6
million in 1996 and 1995, respectively. The increase was primarily due to an
increase in average loans to affiliates.

                                      33
<PAGE>

            The gain on sale of Toy Biz common stock was $22.0 million in 1996
and $14.3 million from the Toy Biz IPO in 1995 (see Note 5 of Notes to the
Consolidated Financial Statements).

            Benefit (provision) for income taxes was $149.6 million and ($5.8)
million in 1996 and 1995, respectively. The net tax benefit in 1996 reflects a
reduction in the valuation allowance on deferred tax assets of the Company,
other than Marvel, the benefit for current year operating losses of the
Company, other than Marvel, due to the taxable gain on the NWCG Disposition in
the first quarter of 1997, the U.S. federal tax refund receivable associated
with Marvel's current year operating loss and tax benefits for Marvel's
foreign operations, partially offset by a provision for income taxes related
to the operations of Toy Biz and the establishment of a valuation allowance
against deferred tax assets of Marvel. In 1995, the tax provision primarily
was a result of taxes on income from foreign and Toy Biz operations offset by
a U.S. federal benefit from the balance of its other operations.

            Minority interest in loss (income) of subsidiaries was $32.3
million and ($7.3) million in 1996 and 1995, respectively. The increase in
minority interest was primarily due to the increase in net loss of Marvel and
lower net income of Toy Biz partially offset by Marvel's reduced ownership
percentage.

            In 1996 and 1995, the Company recorded an extraordinary loss of
$7.0 million (net of taxes of $3.8 million) and $3.3 million (net of taxes of
$2.1 million), respectively, which represented a write-off of deferred
financing costs associated with the early retirement of indebtedness.

            Loss from discontinued operations was $39.9 million and $60.1
million in 1996 and 1995, respectively. The decrease in loss from discontinued
operations from 1995 to 1996 primarily reflects an increase in income from
operations of NWCG.

            Gain on disposal of discontinued broadcasting operations reflects
the gain on sale of NWCG's San Diego and Birmingham stations during 1996, net
of income taxes and minority interest and income from operations of the San
Diego station from September 24, 1996 through the date of sale in November
1996.

YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1994

            The Company's net revenues were $828.9 million and $514.8 million
in 1995 and 1994, respectively, an increase of $314.1 million. This increase
reflects a $75.2 million increase in trading card and sticker net revenues,
mainly attributable to the full year impact of Panini, which was acquired in
August 1994, and the acquisition of SkyBox in April 1995. This increase was
partially offset by a general decline in demand for trading cards as well as
the higher provisions for returns in 1995. In March 1995, Marvel began to
consolidate Toy Biz. For 1995, Marvel consolidated toy revenues of $180.2
million. Previously, Marvel reported the results of Toy Biz under the equity
basis and did not include Toy Biz revenues in its consolidated net revenues.
Toy Biz revenues for the full year ended 1995 was $196.4 million as compared
to $156.5 million in 1994. The increase in net publishing revenues of $18.3
million was due to the full year impact of Heroes World, Malibu and Welsh
Publishing Group, Inc., partially offset by a reduction in sales due to lower
speculative purchases. Primarily as a result of a full year impact of
adhesives, other product revenues increased by $37.7 million in 1995.
Licensing revenues increased by $2.7 million in 1995 as a result of, in part,
licensing revenues from certain long term licenses for certain product
categories. 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.

                                      34
<PAGE>

            Gross profit was $295.6 million or 35.7% of sales in 1995 as
compared to $241.4 million or 46.9% in 1994. The decrease in margin percentage
was primarily attributable to Marvel's increased provisions for returns and
product obsolescence for the trading card business. Excluding the results of
the trading card operation for 1995 and 1994, the operating results of
Marvel's other businesses generated gross margin as a percentage of net
revenues of 42%, approximating the prior year.

            SG&A were $262.1 million and $127.8 million in 1995 and 1994,
respectively. The increase of $134.3 million was primarily attributable to the
full year impact of Panini, the acquisition of SkyBox sports and entertainment
trading cards in 1995, the consolidation of Toy Biz's results, increased
corporate overhead to support the expansion of Marvel, the effects of the
strategic actions taken by Marvel in its publishing business and higher
expense primarily resulting from an increased investment to support Toy Biz's
expanded product line. As a percentage of net revenues, SG&A increased to
31.6% in 1995 from 24.8% in 1994. This percentage increase was attributable to
Marvel's increased return provisions for the trading card business which
decreased net revenues, higher SG&A expense as a percentage of net revenues
for the publishing operation, in part due to the distribution of comic books
through Heroes World, and other factors.

            During the fourth quarter of 1995, Marvel recorded a $25.0 million
restructuring charge, which primarily represents the costs related to the
consolidation and closure of facilities, severance related to terminated
employees and other costs associated with its publishing, trading card and
confectionery businesses.

            Amortization of goodwill and intangibles was $30.9 million and
$23.3 million in 1995 and 1994, respectively. The increase of $7.6 million
mainly reflects the amortization related to the acquisitions of Panini and
SkyBox.

            Interest expense, net was $184.6 million and $122.6 million in 1995
and 1994, respectively. The increase of $62.0 million primarily reflects
increased borrowings.

            Interest and net investment income was $37.6 million and $10.1
million in 1996 and 1995, respectively. The increase was primarily due to an
increase in average loans to affiliates.

            The gain on sale of Toy Biz common stock in 1995 was $14.3 million
from the Toy Biz IPO (see Note 5).

            Equity in net income of unconsolidated subsidiaries was $1.7
million and $11.9 million in 1995 and 1994, respectively. This decrease mainly
represents the consolidation of Toy Biz since the Toy Biz IPO. The 1995 amount
primarily represents Panini's equity interest in operations which distribute
its product internationally. During the fourth quarter of 1995, Panini
acquired the remainder of these operations and as a result, the year end
results reflect the consolidation since the acquisition.

            For 1995, the provision for income taxes was $5.8 million as
compared to $30.6 million in 1994. The lower income taxes in 1995 are due
primarily to Marvel's loss. In 1995, the tax provision primarily was a result
of taxes on income from foreign and Toy Biz operations offset by a U.S.
federal benefit from remaining operations. The 1994 provision for income taxes
includes tax expense related to federal, state and local and foreign income
taxes related to subsidiaries which file separate tax returns.

                                      35
<PAGE>

            Marvel recorded a $3.3 million extraordinary loss, net of taxes of
$2.1 million, which represents a write-off of the deferred financing costs
associated with the term loan portion of its Amended and Restated Credit
Agreement.

            (Loss) income from discontinued operations was ($60.1) million and
$43.9 million in 1995 and 1994, respectively. The decrease was primarily
attributable to the increase in interest expense and income tax expense in
1995 and the gain on sale of interest in NWCG of $86.6 million in 1994 as
compared to a gain on sale of stations of $41.7 million in 1995 partially
offset by improved income from operations of the broadcast business.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

MARVEL AND MARVEL HOLDING COMPANIES

            Marvel experienced significant operating losses during 1995 and
1996, and failed to satisfy certain financial covenants contained in the
Marvel Credit Agreements (as defined below, see Note 6 of "Notes to
Consolidated Financial Statements") beginning in the Fall of 1996. Marvel
commenced discussions in the Fall of 1996 with Andrews regarding an equity
infusion in order to provide for Marvel's cash requirements and with The Chase
Manhattan Bank, agent bank for the Marvel Credit Agreement, regarding a
restructuring of the Marvel Credit Agreements.

            On December 27, 1996, Marvel along with certain of its operating
and inactive subsidiaries, Fleer Corp.; SkyBox International, Inc.; Marvel
Characters, Inc.; Heroes World Distribution Inc.; The Asher Candy Company;
Malibu Comics Entertainment; Frank H. Fleer Corp. and Marvel Direct Marketing
Inc., filed petitions for relief and a plan of reorganization under Chapter 11
of the Bankruptcy Code, in the Bankruptcy Court. Panini S.p.A., Marvel
Restaurant Venture Corp. (a general partner in the Joint Venture developing
the Marvel Mania restaurants (each as defined below) see " Business of Marvel
- Strategic Initiatives - Marvel Mania" and Toy Biz, all of which are active,
as well as certain inactive subsidiaries did not file petitions under the
Bankruptcy Code (See "Description of Business - Reorganization of Marvel and
Marvel Holding Companies").

            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 million DIP Loan, which
is provided by a syndicate of lenders, including The Chase Manhattan Bank, as
agent bank, which is available to Marvel until 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 6 of "Notes to Consolidated Financial
Statements".

            At March 28, 1997, Marvel's outstanding bank indebtedness was
approximately $711.3 million, of which $56.9 million relates to borrowings
under the DIP Loan (including approximately $6.9 million drawn under letters
of credit), $607.6 million relates to borrowings under the Marvel Credit
Agreements, approximately Italian Lire 25 billion (approximately $14.9 million
based on exchange rates at March 28, 1997) relates to borrowings for Panini's
Adespan adhesives facility and approximately Italian Lire 53.4 billion
(approximately $31.9 million based on exchange rates at March 28, 1997)
relates to borrowings under Panini's short term lines of credit. Panini had
approximately Italian Lire 4.9 billion (approximately $3.2 million based on
exchange rates at March 28, 1997) available under its foreign credit
facilities at March 28, 1997. In addition, there was approximately 


                                      36
<PAGE>

$24.5 million (net of letters of credit outstanding) available under the Toy
Biz credit agreement at March 28, 1997.

            The Marvel Credit Agreements and DIP Loan provide that it is an
event of default if there is a change of control of Marvel. 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.

            On December 27, 1996, the Marvel Holding Companies filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code with the
Bankruptcy Court. 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 February 26, 1997, the Bankruptcy Court entered an order
granting relief from the automatic stay to allow the Holding Companies'
Trustee to vote and foreclosure upon the Pledged Stock. On February 27, 1997,
Marvel and the Marvel Holding Companies filed a notice of appeal with respect
to such order. On March 19, 1997, the Creditors Committee notified Marvel that
on March 25, 1997 it would cause the Holding Companies' Trustee to vote the
Pledged Stock to replace the Board of Directors of Marvel and the Marvel
Holding Companies. On March 24, 1997, the Court in the Debtor Companies'
bankruptcy cases issued a restraining order preventing the Creditors Committee
and the Holding Companies' Trustee from voting the Pledged Stock or otherwise
replacing the Board of Directors of Marvel 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 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 has been set for May 14,
1997. On March 28, 1997, the Creditors Committee also filed an emergency
appeal of the order of the Bankruptcy Court issued on March 24, 1997
preventing the replacement of the Board of Directors of Marvel. A briefing
schedule has been set for the emergency appeal and a hearing date for such
appeal has been set for May 1, 1997.

            Although there can be no assurance, Marvel believes that
borrowings under the DIP Loan and internally generated funds will be
sufficient to enable the Debtor Companies to meet their consolidated cash
requirements, including debt service through the date of maturity of the DIP
Loan. The DIP Loan expires April 30, 1997 and the maturity of the DIP Loan may
be extended at the option of Marvel to June 30, 1997. As part of the Plan, a
group of lenders had committed to lend $160 million to Toy Biz which could be
used by Marvel and its subsidiaries, including Toy Biz to fund working capital
and strategic investments and repay borrowings outstanding under the DIP Loan.
Such commitments have been terminated as a result of the withdrawal of the
Andrews Investment and the Plan. In addition, the DIP Loan is subject to a
number of events of default and conditions of borrowings. 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, 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 Marvel's businesses. Although there can be no assurance, Marvel
believes that its Panini subsidiary should be able to meet its cash
requirements, including for debt service and repayment, from 


                                      37
<PAGE>

permissible advances by Marvel of borrowings under the DIP Loan, local
borrowings and internally generated funds. Marvel 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 foreseeable future. See Note 6 of "Notes to Consolidated
Financial Statements".

            As Chapter 11 debtors, the Debtor Companies may sell (subject, in
certain circumstances, to Bankruptcy Court approval), or otherwise dispose of
assets, and liquidate or settle liabilities for amounts other than those
reflected in the consolidated financial statements. The amounts reported in the
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 actions taken pursuant to the bankruptcy or a plan of
reorganization. If Marvel is unable to obtain confirmation of a plan of
reorganization, its creditors or equity securityholders may seek other
alternatives for Marvel, including bids for Marvel or parts thereof through an
auction process. In that event it is possible that certain assets would not be
realized and additional liabilities and claims would be asserted which are not
presently reflected in the consolidated financial statements and which are not
presently determinable. The effect of any such assertion or non-realization
could be material. Currently, there is no plan of reorganization that is
pending with the Bankruptcy Court. These conditions raise substantial doubt as
to Marvel's ability to continue as a going concern.

            Because the Marvel Holding Companies have no assets other than
common stock of Marvel and/or stock in the Marvel Holding Companies, the
securityholders of the Marvel Holding Companies will likely receive only their
pro rata share of the Pledged Stock upon consummation of the Chapter 11 cases.

            Capital expenditures for Marvel (excluding Toy Biz), including
software development costs, are expected to be approximately $25.0 million for
the year ending December 31, 1997. Capital expenditures for Toy Biz, including
product development and package design costs and software development costs,
are projected to approximate $25.0 million for the year ending December 31,
1997.

            In August 1996, Toy Biz sold in a public offering 700,000 shares
of its Class A common stock at a price of $15 per share. As part of Toy Biz's
offering, Marvel sold 2.5 million shares of Toy Biz Class A common stock. The
net proceeds to Toy Biz and Marvel were approximately $9.3 million and $35.7
million, respectively, after deducting amounts accrued for fees and expenses.
As a result of the offering by Toy Biz and the sale of Class A common stock of
Toy Biz by Marvel, Marvel's ownership percentage of Toy Biz decreased to 26.6%
and its voting control decreased to 78.4%.

            In addition to the Pledged Stock as of March 26, 1997,
approximately 2.9 million shares of Marvel's common stock are subject to a
negative pledge under the indenture to the notes issued by Marvel Holdings and
approximately 0.3 million shares of Marvel's common stock were pledged to
secure obligations of subsidiaries of Mafco. The indentures governing the
indebtedness of the Marvel Holding Companies contain various covenants
relating to Marvel, including certain limitations on Marvel's indebtedness.

            Marvel expects to incur approximately $1 million in net production
costs for the INCREDIBLE HULK animated series being produced for the 1997-1998
broadcast year. In addition, with respect to Marvel's agreement with FKW,
Marvel will be required to reimburse FKW a portion of its production costs.
One-half of such amounts are expected to be reimbursed to Marvel by Toy Biz
pursuant to the understanding with respect to Marvel Studios.

                                      38
<PAGE>

            Marvel, along with its joint venture partner, is continuing
development of Marvel theme restaurants. Three restaurants are contemplated,
with the first restaurant expected to open in Los Angeles as a joint venture
between the Joint Venture and MCA/Universal, in which MCA/Universal has a 70%
interest and the Joint Venture has a 30% interest. The Los Angeles restaurant
is under construction and is projected to open in the second half of 1997.
Marvel has posted a standby letter of credit for approximately $6.1 million to
fund development costs associated with the restaurant being constructed in Los
Angeles. See "Business of Marvel -- Strategic Initiatives -- Marvel Mania."

            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.

CORPORATE AND OTHER SUBSIDIARIES

            Pursuant to the NWCG Stock Purchase Agreement, Fox purchased from
NWCG Parent 2,682,236 shares of common stock of NWCG owned by NWCG Parent and
all of the outstanding shares of capital stock of NWCG Holdings Inc. The
consideration for such purchase was 1.45 ADSs, each of which represents four
fully paid and non-assessable Preferred Limited Voting Ordinary Shares, of par
value A$.50 per share of News Corp., for each share of common stock of NWCG
directly or indirectly acquired by Fox pursuant to the NWCG Stock Purchase
Agreement, with the aggregate number of ADSs issued to NWCG Parent reduced by
an amount which approximated the accreted amount of the Discount Notes
outstanding at the effective time of the Fox Merger. In addition, in
connection with the NWCG Disposition, Fox agreed to assume an aggregate of
$46.2 million principal amount of debt of Four Star Holdings Inc.

            In connection with the NWCG Merger, the Company received
37,954,211 ADSs (with an aggregate market value of $668.9 million on January
22, 1997) and 2,175,000 warrants to purchase ADSs (in exchange for 1,500,000
warrants to purchase shares of NWCG previously held by the Company). The
Company expects to record a pre-tax gain in 1997 on the NWCG Disposition of
approximately $720 million. Through March 26, 1997, the Company sold
15,562,300 ADSs for net proceeds of $271.4 million.

            On December 16, 1996, Mafco Finance Corp. (formerly known as
Marvel IV Holdings Inc.) ("Mafco Finance") entered into an amended and
restated credit agreement which provided for a $350.0 million term loan
facility and a $300.0 million revolving credit facility. At December 31, 1996,
there was $249.6 million of outstanding borrowings under the revolving credit
facility and $0 under the term loan facility. Such borrowings were repaid in
full on March 13, 1997. On March 20, 1997, Mafco Finance entered into an
amended and restated credit agreement (the "Amended Mafco Finance Credit
Agreement") which provides for a $400.0 million term loan facility and $250.0
million revolving credit facility. The Amended Mafco Finance Credit Agreement
matures in March 1999. Pursuant to the Amended Mafco Finance Credit Agreement,
Mafco Finance will be required to have no outstanding borrowings under the
Revolving Credit Facility for 30 days in each twelve month period. At March
26, 1997, there was $400.0 million of outstanding borrowings under the term
loan facility and $0 outstanding under the revolving credit facility.
Borrowings outstanding under the Amended Mafco Finance Credit Agreement bear
interest, as appropriate for the type of advance, at either (i) the Base Rate
(as defined) plus a margin of 2.50% or (ii) LIBOR (as defined) plus a margin
of 4.50%. Mafco Finance's obligations are guaranteed by certain subsidiaries
and affiliates of the Company and the Amended Mafco Finance Credit Agreement
contains customary affirmative and negative covenants and events of default.
The ADSs are pledged as security under the Amended Mafco Consolidated Credit
Agreement, which limits the use of proceeds of any ADS sale. The Company
anticipates that 


                                      39
<PAGE>

collections of loans to affiliates and borrowings from affiliates and/or
proceeds from the NWCG Disposition will be used to repay a substantial portion
of the borrowings under the Amended Mafco Finance Credit Agreement.

            At March 26, 1997, December 31, 1996 and December 31, 1995, Mafco
Holdings and affiliates had outstanding advances to the Company of $64.0
million, $297.8 million and $307.1 million, respectively. At March 26, 1997,
December 31, 1996 and December 31, 1995, Mafco Finance had advanced $391.6
million, $247.6 million and $441.0 million, respectively, to Mafco Holdings and
its subsidiaries and at March 26, 1997, the Company had advanced $221.0 million
to Mafco Holdings and its subsidiaries.

            The bankruptcy of Marvel resulted in an event of default pursuant
to the indenture governing Andrews' 10% Senior Subordinated Notes due 1999 (the
"Senior Notes"). In accordance with the settlement of certain litigation, the
Company will exercise its optional rights to redeem the Senior Notes which have
a face value of $31.2 million on June 30, 1997.

            As prescribed in Statement of Position ("SOP") No. 90-7, certain
pre-petition obligations, which may be impaired, have been classified as
obligations subject to Chapter 11 reorganization proceedings and include
Marvel debt and liabilities of $503.2 million and Marvel Holding Companies'
debt and liabilities of $810.5 million. In the event the bondholders seize the
Pledged Stock, the Company will recognize a substantial non-cash gain
estimated at December 31, 1996 to be the book value of the Company's negative
investment in the Marvel Holding Companies of approximately $1,060.0 million
and will have a related tax obligation to its parent in accordance with its
tax sharing agreement.

                           FORWARD-LOOKING STATEMENTS

            Statements in this annual report on Form 10-K for the year ended
December 31, 1996 such as "intend", "estimated", "believe", "expect",
"anticipate" and similar expressions which are not historical are
forward-looking statements that involve risks and uncertainties. Such
statements include, without limitation, the Company's expectation as to 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 and the Marvel Holding Companies to successfully reorganize
in bankruptcy and the 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
Marvel's new editorial, production and distribution 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
Marvel's baseball card business; (vi) the effectiveness of Marvel's changes to
its trading card and publishing distribution; (vii) a decrease in the level of
media exposure or popularity of Marvel'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 Marvel
licenses for its sports and entertainment trading card and sticker businesses;
(ix) unanticipated costs or delays in completing projects associated with
Marvel'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

                                      40
<PAGE>

import quotas on toys manufactured in China as a result of a deterioration in
trade relations between the U.S. and China.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

            See Index To Consolidated Financial Statements and Financial
Statement Schedules appearing on page F-1 of this Report.


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

None.


                                    PART III

ITEM 10.                DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

            The name, age, principal occupation for the last five years,
selected biographical information and the period of previous service as a
director of Andrews as to each such director are set forth below as of the
latest practicable date.

Name                  Age         Principal Occupations
----                  ---         ---------------------

Ronald O. Perelman    54          Mr. Perelman has been Chairman of the Board
                                  and Chief Executive Officer of MacAndrews &
                                  Forbes Holdings Inc. ("M&F Holdings") for
                                  more than the past five years. Mr. Perelman
                                  also is Chairman of the Board of Consolidated
                                  Cigar Holdings Inc. ("Consolidated Cigar"),
                                  Mafco Consolidated Group Inc. ("Mafco
                                  Consolidated"), Meridian Sports Incorporated
                                  ("Meridian"), Power Control Technologies Inc.
                                  ("PCT") and Toy Biz, Inc. ("Toy Biz"), and is
                                  the Chairman of the Executive Committee of
                                  the Board of Directors of The Coleman
                                  Company, Inc. ("Coleman"), Revlon, Inc.
                                  ("Revlon"), Revlon Consumer Products
                                  Corporation ("Revlon Products") and Marvel
                                  Entertainment Group, Inc. ("Marvel"). Mr.
                                  Perelman is a director of the following
                                  corporations which file reports pursuant to
                                  the Securities Exchange Act of 1934, as
                                  amended (the "Exchange Act"): Coleman,
                                  Coleman Holdings Inc. ("Coleman Holdings"),
                                  Coleman Worldwide Corporation ("Coleman
                                  Worldwide"), Consolidated Cigar, Consolidated
                                  Cigar Corp., California Federal, First
                                  Nationwide Holdings Inc. ("First Nationwide
                                  Holdings"), First Nationwide (Parent)
                                  Holdings Inc. ("First Nationwide Parent"),
                                  Mafco Consolidated, Marvel, Marvel Holdings
                                  Inc. ("Marvel 

                                   41
<PAGE>

                                  Holdings"), Marvel (Parent) Holdings Inc.
                                  ("Marvel Parent"), Marvel III Holdings Inc.
                                  ("Marvel III"), Meridian, Pneumo Abex,
                                  Revlon, Revlon Products, Revlon Worldwide
                                  Corporation, and Toy Biz. (On December 27,
                                  1996, Marvel Holdings, Marvel Parent, Marvel
                                  III, Marvel and several of its subsidiaries
                                  filed voluntary petitions for reorganization
                                  under Chapter 11 of the United States
                                  Bankruptcy Code.)

Donald G. Drapkin     49          Mr. Drapkin has been Vice Chairman and a
                                  Director of M&F Holdings and various of its
                                  affiliates since 1987. Mr. Drapkin was a
                                  partner in the law firm of Skadden, Arps,
                                  Slate, Meagher & Flom for more than five
                                  years prior to March 1987. He is a Director
                                  of each of Coleman, Coleman Holdings, Coleman
                                  Worldwide, Consolidated Cigar, Consolidated
                                  Cigar Corp., Revlon, Revlon Products, Revlon
                                  Worldwide, Marvel, Marvel Holdings, Marvel
                                  III, Marvel Parent, Toy Biz, Algos
                                  Pharmaceutical Corporation and VIMRx
                                  Pharmaceuticals, Inc. (On December 27, 1996,
                                  Marvel Holdings, Marvel Parent, Marvel III,
                                  Marvel and several of its subsidiaries filed
                                  voluntary petitions for reorganization under
                                  Chapter 11 of the United States Bankruptcy
                                  Code.)

Howard Gittis         63          Mr. Gittis has been Vice Chairman and
                                  Director of M&F Holdings and various of its
                                  affiliates since 1985. He is a Director of
                                  each of Consolidated Cigar, Consolidated
                                  Cigar Corp., California Federal, First
                                  Nationwide Holdings, First Nationwide Parent,
                                  Jones Apparel Group, Inc., Loral Space and
                                  Communication Ltd., Mafco Consolidated, PCT,
                                  Pneumo Abex, Revlon Products, Revlon
                                  Worldwide, Revlon and Rutherford-Moran Oil
                                  Corporation.

Bruce Slovin          60          Mr. Slovin has been President and Director of
                                  M&F Holdings and various of its affiliates
                                  since 1980. He is a director of each of
                                  Coleman, Coleman Holdings, Coleman Worldwide,
                                  Continental Health Affiliates, Inc., Cantel
                                  Industries, Inc., Oak Hill Sportswear
                                  Corporation, Infu-Tech, Inc., Meridian and
                                  PCT.



                                      42
<PAGE>




EXECUTIVE OFFICERS

            The following table sets forth the name, age, position with
Andrews and selected biographical information for each of the executive
officers of Andrews as of the latest practicable date.

Name                      Age          Position
----                      ---          --------
Ronald O. Perelman        54           Chairman of the Board
Donald G. Drapkin         49           Vice Chairman
Howard Gittis             63           Vice Chairman
Bruce Slovin              60           Vice Chairman

Scott M. Sassa            38           President and Chief Operating Officer

            Mr. Sassa has been President and Chief Operating Officer since
October 1996. Mr. Sassa is also the Chairman, Chief Executive Officer and a
Director of Marvel since October 1996. Prior thereto, Mr. Sassa served as
President of Turner Entertainment Group and as a member of the Board of
Directors of Turner Broadcasting System, Inc. and the TBS Executive Committee.
Mr. Sassa was named Executive Vice President of Turner Network Television in
1992 ("TNT"). From 1987 to 1988, Mr. Sassa served as Vice President/New
Business for Ohlmeyer Communications Co. Prior to that time, Mr. Sassa served
as Vice President/Network Management for Fox Broadcasting Co. (On December 27,
1996, Marvel and several of its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code.)

William C. Bevins, Jr.   50          Chief Executive Officer

            Mr. Bevins was elected President and Chief Executive Officer in
November 1988 and has been Executive Vice President of Mafco Holdings since
November 1988; Chief Executive Officer of Marvel from 1991 through 1996;
Director and Chief Financial & Administrative Officer of Turner Broadcasting
System, Inc. for more than five years prior to 1988. (On December 27, 1996,
Marvel Holdings, Marvel Parent, Marvel III and Marvel, of which Mr. Bevins is
an officer, and several of its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code.)

Terry C. Bridges        53          Executive Vice President and Chief 
                                    Administrative Officer

            Mr. Bridges has been Executive Vice President and Chief
Administrative Officer since 1993. Prior to joining Andrews in 1993, Mr.
Bridges was a partner in the law firm of Troutman Sanders in Atlanta, Georgia
for more than the previous five years. Mr. Bridges is also Executive Vice
President and General Counsel of Coleman since March 1997.

Barry F. Schwartz       47          Executive Vice President and General Counsel

            Mr. Schwartz has been Executive Vice President and General Counsel
of the Company since June 1995. He has been Executive Vice President and
General Counsel of Mafco Holdings and various of its affiliates since 1993. Mr.
Schwartz was Senior Vice President of MacAndrews & Forbes from 1989 to 1993.
(On December 27, 1996, Marvel Holdings, Marvel Parent and Marvel III, of which
Mr. Schwartz is an officer, filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code.)




                                      43
<PAGE>






Joseph P. Page         43          Executive Vice President and Chief Financial
                                   Officer

            Mr. Page has been Executive Vice President and Chief Financial
Officer since 1994. Prior to joining Andrews in 1994, Mr. Page was a partner in
the accounting firm of Price Waterhouse for more than the previous five years.

Paul E. Shapiro        55          Executive Vice President

            Mr. Shapiro has been Executive Vice President of the Company since
1994. Mr. Shapiro is also Executive Vice President and General Counsel of
Marvel. Prior thereto, he was a shareholder in the law firm of Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quental from 1991 to 1993 and is currently Of
Counsel to that firm. Mr. Shapiro is also a director of Toll Brothers, Inc. (On
December 27, 1996, Marvel and several of its subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code.)

Michael H. Diamond     51          Executive Vice President

            Mr. Diamond has been Executive Vice President of Andrews Group
since 1994 and prior to 1994, Mr. Diamond was a partner in the law firm of
Skadden, Arps, Slate, Meagher and Flom for more than the previous five years.

Laurence Winoker       40          Vice President and Controller

            Mr. Winoker was elected Vice President and Controller in September
1992. He has been Vice President and Controller of Mafco Holdings and various
of its affiliates since that date. He was Assistant Vice President and
Assistant Controller of Mafco Holdings and various affiliates for more than
five years prior to September 1992. (On December 27, 1996, Marvel Holdings,
Marvel Parent and Marvel III, of which Mr. Winoker is an officer, filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code.)


                                   44

<PAGE>






ITEM 11.                EXECUTIVE COMPENSATION

            The following table sets forth the compensation paid by the
Company and the Company's subsidiaries to the Company's Chief Executive
Officer and the Company's executive officers.

<TABLE>
<CAPTION>

                                                                                                      OTHER
                                                                                                      ANNUAL
NAME                          YEAR              SALARY($)                  BONUS($)               COMPENSATION($)
----                          ----              ---------                  --------               ---------------

<S>                           <C>               <C>                       <C>                      <C>        
William C. Bevins, Jr.        1996              2,000,000                 2,000,000                129,851 (a)
                              1995              2,000,000                 2,000,000                3,596,273 (b)
                              1994              2,000,000                 2,000,000                815,474 (c)

Paul E. Shapiro               1996              750,000                   750,000                  112,500 (d)
                              1995              600,000                   250,000                  106,624 (d)
                              1994              600,000                   250,000                  104,896 (d)

Terry C. Bridges              1996              715,000                   500,000                  50,069
                              1995              677,083                   200,000                  48,732
                              1994              620,833                   250,000                  44,687

Joseph P. Page                1996              600,000                   500,000                  28,212
                              1995              550,000                   250,000                  27,424
                              1994              500,000                   200,000                  15,147

Michael H. Diamond            1996              583,336                   500,000                  45,673
                              1995              533,333                   200,000                  47,058
                              1994              333,333                   200,000                  33,415
</TABLE>

(a)      Includes $73,076 of airplane allowance, $36,310 of automobile
         allowance, with the remainder representing insurance premiums paid on
         behalf of Mr. Bevins.

(b)      Includes $3,378,870 related to a Company property transferred to Mr.
         Bevins, $169,200 of airplane allowances, $32,746 of automobile
         allowances, with the remainder representing insurance premiums paid on
         behalf of Mr. Bevins.

(c)      Includes $700,000 of housing and expense allowances, $39,037 of
         automobile allowances, $62,550 of airplane allowances, with the
         remainder representing insurance premiums paid on behalf of Mr.
         Bevins.

(d)      Includes $100,000 of housing allowances.

            Mr. Bevins has an agreement with Andrews effective January 1, 1993
whereby Mr. Bevins is employed as President and Chief Executive Officer of
Andrews Group. The term of the employment agreement was originally for three
years and has been extended by the mutual agreement of the parties through
December 31, 1998. The employment agreement provides for the payment to Mr.
Bevins of a base salary of $2,000,000 per annum and additional bonus
compensation, if any, as may be awarded to him in the sole discretion of the
Board of Directors.



                                      45



                                     
<PAGE>

         Mr. Shapiro has an agreement with Andrews effective October 28, 1993
whereby Mr. Shapiro is employed as Executive Vice President of Andrews. Mr.
Shapiro also serves as Executive Vice President and General Counsel of Marvel.
The term of this agreement, as renewed and extended by agreement dated as of
January 1, 1997, extends until December 31, 1999. The employment agreement, as
amended, provides for the payment to Mr. Shapiro of a base salary of $900,000
through December 31, 1997, $950,000 through December 31, 1998 and $1,000,000
through the end of the term. Mr. Shapiro's participation in a performance bonus
plan to be adopted by the Company will permit Mr. Shapiro to receive, upon
achievement of certain operating goals, a bonus of up to 100% of each year's
base salary. Mr. Shapiro also receives a $150,000 per annum living expense.

         Mr. Bridges has an agreement with Andrews effective August 1, 1993
whereby Mr. Bridges is employed as Executive Vice President and Chief
Administrative Officer of Andrews. The term of this agreement, as renewed and
extended by agreement dated as of January 1, 1996, extends until December 31,
1998. The employment agreement provides for the payment to Mr. Bridges of an
initial base salary of $600,000 which increases by $50,000 annually on each
August 1 (through August 1, 1997) of the term. The agreement also provides for
an annual bonus to be determined at the sole discretion of the Board of
Directors.

         Mr. Page has an agreement with Andrews effective November 15, 1993
whereby Mr. Page is employed as Executive Vice President and Chief Financial
Officer of Andrews. The term of this agreement, as renewed and extended by
agreement dated as of January 1, 1996, extends until December 31, 1998. The
employment agreement provides for the payment to Mr. Page of an initial base
salary of $500,000 which increases commencing January 1, 1994 by $50,000
annually on each subsequent January 1 of the term. The agreement also provides
for an annual bonus to be determined at the sole discretion of the Board of
Directors.

         Mr. Diamond has an agreement with Andrews effective April 20, 1994
whereby Mr. Diamond is employed as Executive Vice President of Andrews. The
term of his employment agreement extends until April 30, 1997. The employment
agreement provides for the payment to Mr. Diamond of an initial base salary of
$500,000 per year commencing April 20, 1994, which increases commencing May 1,
1995 by $50,000 annually on each subsequent May 1 of the term. The agreement
also provides for an annual bonus to be determined at the sole discretion of
the Board of Directors.

         Mr. Sassa has an agreement with Andrews effective October 21, 1996
whereby Mr. Sassa is employed as President and Chief Operating Officer of
Andrews Group. The term of the employment agreement is three years. The
employment agreement provides for the payment to Mr. Sassa of a base salary of
$2,000,000 per annum, an annual bonus of $1,000,000 and additional bonus
compensation, if any, as may be awarded to him in the sole discretion of the
Board of Directors. Mr. Sassa's employment agreement provides that Mr. Sassa
may be entitled to receive certain other consideration pursuant to the terms of
the employment agreement.

                                   46




<PAGE>






ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth the ownership of shares of common stock
by each person known by the Company to own beneficially more than five percent
of the outstanding shares, by each director and by all officers and directors
as a group as of March 15, 1997.

  Beneficial Owner            Shares Beneficially Owned       Percent of Class
  ----------------            -------------------------       ----------------

  Ronald O. Perelman                    1,000(1)                    100%

----------- 
(1)      All of such Shares are beneficially owned by MacAndrews Holdings and,
         in turn, by Mafco Holdings, of which Mr. Perelman is the sole
         stockholder.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (DOLLARS IN MILLIONS)

         "Other assets" at December 31, 1996 and 1995 includes $0.3 and $2.9
debt securities issued by a subsidiary of Mafco Holdings that were purchased in
the open market.

         At March 26, 1997, December 31, 1996 and December 31, 1995, Mafco
Holdings and affiliates had outstanding advances to the Company of $64.0,
$297.8 and $307.1, respectively. At March 26, 1997, December 31, 1996 and
December 31, 1995, Mafco Finance had advanced $391.6, $247.6 and $441.0,
respectively, to Mafco Holdings and its subsidiaries and at March 26, 1997, the
Company had advanced $221.0 to Mafco Holdings and its subsidiaries.

         In addition to the Pledged Stock, as of March 26, 1997, approximately
2.9 million shares of Marvel's common stock are subject to a negative pledge
under the indenture to the notes issued by Marvel Holdings and approximately
0.3 million shares of Marvel's common stock were pledged to secure obligations
of subsidiaries of Mafco.

         See "Description of Business -- Reorganization of Marvel and Marvel
Holding Companies".

         Information required by this Item 13 as it relates to Marvel, is
incorporated by reference from the definitive proxy statement for the 1997
annual meeting of Marvel shareholders, and if such proxy is not so filed, it
will be filed as an amendment to Marvel's Form 10-K.





                                      47
<PAGE>



                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
         FORM 8K

a)       1 and 2        Financial statements and financial statement schedules

                           The Financial Statements and Financial Statements
Schedules and Report of Independent Auditors included in this Report are
indexed on page F-1.

            3.          Exhibits

            EXHIBIT     DESCRIPTION

            2.1         Agreement and Plan of Merger, dated as of July 24, 1992
                        among Fleer Corp., Marvel and M Acquisition Corp. filed
                        as Exhibit (c)(1) to Registrant's Tender Offer
                        Statement on Schedule 14D-1 filed with the Securities
                        and Exchange Commission on July 28, 1992, as amended
                        (the " Fleer Schedule 14D-1") and incorporated herein
                        by reference.

            3.1         Restated Certificate Of Incorporation of the Company as
                        filed with the Delaware Secretary of State on August
                        16, 1990 (incorporated herein by reference to the
                        Company's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1991 (the "1991 10-K")).

            3.2         Amended and Restated By-Laws of the Company
                        (incorporated by reference to Exhibit 3.2 to the
                        Company's Registration Statement on Form S-4
                        (Registration No. 33-34829) filed with the SEC on May
                        11, 1990 (the "1990 S-4")).

            4.1         Form of Indenture between the Company and Security
                        Pacific National Trust Company (New York), as Trustee,
                        including the form of 10% Senior Subordinated
                        Debentures due 1999 (incorporated herein by reference
                        to the 1990 S-4).

            4.3         Certificate Of Designations, Preferences And Relative
                        Rights, Qualifications, Limitations And Restrictions Of
                        The Series "A" Adjustable Rate Cumulative Preferred
                        Stock Of Four Star Holdings Corp. (incorporated herein
                        by reference to the Registrant's Current Report on Form
                        8-K dated June 5, 1989), as amended (incorporated
                        herein by reference to the Registrant's Current Report
                        on Form 8-K dated June 5, 1989).

            4.4         Fourth Amendment, dated as of May 12, 1994 to the
                        Credit and Guarantee Agreement, dated as of September
                        17, 1992, as amended, among Marvel, Fleer, the
                        financial institutions parties thereto and Chemical
                        Bank, as administrative agent (incorporated by
                        reference to Marvel's 1993 Annual Report on Form 10-K
                        for the fiscal year ended December 31, 1993).

                                      48
<PAGE>

            4.5         Credit Agreement dated as of July 20, 1994 among Marvel
                        IV Holdings Inc., the banks named therein and Citibank,
                        N.A. and related schedules (incorporated by reference
                        to the Company's Quarterly Report on Form 10-Q for the
                        quarterly period ended September 30, 1994 ("the 1994
                        10Q")).

            4.6         First Amendment dated as of March 10, 1995 to Credit
                        Agreement dated as of July 20, 1994 among Marvel IV
                        Holdings Inc., the banks named therein and Citibank
                        N.A. as agent and related agreements (incorporated by
                        reference to the Company's Quarterly Report on Form
                        10-Q for the period ended June 30, 1995 (the "1995
                        10Q")).

            4.7         Amended and Restated Agreement dated as of June 29,
                        1995 among Marvel IV Holdings Inc., the banks named
                        therein and Citibank N.A. as agent and related
                        agreements (incorporated by reference to the 1995 10Q)

            4.8         Second Amended and Restated Credit Agreement dated as
                        December 15, 1995 among Marvel IV Holdings Inc., the
                        banks named therein and Citibank, N.A., as agents
                        (incorporated by reference to Andrews Annual Report on
                        Form 10-K for the year ended December 31, 1995 (the
                        "1995 10- K")).

            4.9         First Amendment to the Second Amended and Restated
                        Credit Agreement dated as of January 9, 1996
                        (incorporated by reference to the 1995 10-K).

            4.10        Second Amendment to the Second Amended and Restated
                        Credit Agreement dated as of January 24, 1996
                        (incorporated by reference to the 1995 10-K).

            4.11        Third Amendment to the Second Amended and Restated
                        Credit Agreement dated as of April 9, 1996
                        (incorporated by reference to Exhibit 4.45 to the
                        Registrant's Form 10-Q for the quarterly period ended
                        March 31, 1996).

            4.12        Third Amended and Restated Credit Agreement dated as of
                        June 3, 1996 among Marvel IV Holdings Inc., the
                        financial institutions and issuing bank named therein,
                        and Citibank, N.A., as agent (incorporated by reference
                        to Exhibit 10.1 to the Registrant's Form 10-Q for the
                        quarterly period ended June 30, 1996).

            4.13        First Amendment, dated as of September 9, 1996, to the
                        Third Amended and Restated Credit Agreement, dated as
                        of June 3, 1996, by and among Marvel IV Holdings Inc.,
                        the financial institutions and issuing bank named
                        therein, and Citibank, N.A., as agent (incorporated by
                        reference to Exhibit 10.1 to the Registrant's Form 10-Q
                        for the quarterly period ended September 30, 1996 (the
                        "1996 10-Q")).

            10.1        Formation and Contribution Agreement dated as of March
                        19, 1993, among Toy Biz, Inc., Isaac Perlmutter, Isaac
                        Perlmutter T.A., the registrant, Avi Arad and Toy Biz
                        Acquisition, Inc., as amended as of March 31, 1993, and
                        April 30, 1993, incorporated by reference to Exhibit
                        10.29 to the registrant's Form 10-Q for the quarterly
                        period ended March 31, 1993.

                                      49
<PAGE>

            10.2        Distribution Agreement dated as of September 1, 1993,
                        between Curtis Circulation Company and Marvel
                        (incorporated by reference to Marvel's 1993 10-K).

            10.3        Marketing and Distribution Agreement dated November 1,
                        1989 between Publishers Group West Incorporated and
                        Marvel (incorporated by reference to Exhibit 10.5 to
                        Marvel's 1991 Registration Statement on Form S-1 (file
                        No. 33-40574)).

            10.4        Agreement dated November 9, 1994, between Time
                        Distribution Services and Fleer Corp. (incorporated by
                        reference to Exhibit 10.7 to Marvel's 1994 Form 10-K).
                        Confidential treatment has been granted for portions of
                        this document.

            10.5        Lease dated as of July 1, 1986, between 387 P.A.S.
                        Enterprises and Cadence Industries Corporation (9th
                        floor) (incorporated by reference to Exhibit 10.7 to
                        Marvel's 1991 Registration Statement).

            10.6        Lease Modification and Extension Agreement dated as of
                        July 1, 1991, between 387 P.A.S. Enterprises and Marvel
                        (9th, 10th, 11th and 12th floors) (incorporated by
                        reference to Exhibit 10.9 to Marvel's 1991 Form 10-K).

            10.7        Sublease dated September 13, 1991 between American
                        Banker Bond Buyer and Marvel (12th floor) (incorporated
                        by reference to Exhibit 10.10 to Marvel's 1991 Form
                        10-K).

            10.8        Andrews Group Incorporated Savings and Investment Plan
                        (incorporated by reference to Exhibit 10.9 to Marvel's
                        1991 Registration Statement).

            10.9        First Amendment to the Marvel Entertainment Group, Inc.
                        1991 Stock Option Plan (incorporated by reference to
                        Exhibit 4.2 to the Marvel's Registration Statement on
                        Form S-8 (File No. 33-63892)).

            10.10       Services Agreement dated as of July 22, 1991, among
                        Marvel, MacAndrews and Andrews (incorporated by
                        reference to Exhibit 10.13 to the 1991 Marvel Form
                        10-K).

            10.11       Tax Indemnification Agreement dated as of July 22,
                        1991, between Marvel and Mafco (incorporated by
                        reference to Exhibit 10.14 to the 1991 Marvel Form
                        10-K).

            10.12       Tax Sharing Agreement dated as of May 18, 1993, among
                        Marvel, certain of its subsidiaries and Mafco
                        (incorporated by reference to Exhibit 10.32 to the
                        Marvel (Parent) Holdings Inc. Registration Statement on
                        Form S-1)

            10.13       Amended and Restated Tax Sharing Agreement dated as of
                        January 1, 1994, between Mafco, Marvel III, Marvel and
                        certain subsidiaries of Marvel (incorporated by
                        reference to Exhibit 10.15 to the 1993 Marvel Form
                        10-K).

                                      50
<PAGE>

            10.14       Stock Purchase Agreement dated as of July 1, 1993,
                        between Marvel Holdings Inc. and the Marvel
                        (incorporated by reference to Exhibit 10.16 to the 1993
                        Marvel Form 10-K).

            10.15       Term Sheet for License Agreement dated January 25,
                        1995, between Major League Baseball Properties, Inc.
                        and Fleer Corp. (incorporated by reference to the 1994
                        Marvel 10-K).

            10.16       License Agreement dated December 22, 1994, between
                        Major League Baseball Players Association and Fleer
                        Corp. (incorporated by reference to the 1994 Marvel
                        10-K).

            10.17       Amendment dated February 7, 1996, to License Agreement
                        dated December 22, 1994, between Major League Baseball
                        Players Association and Fleer Corp. Confidential
                        treatment has been granted for portions of this
                        document (incorporated by reference to Exhibit 10.3 to
                        the September 30, 1996 Marvel Quarterly Report on Form
                        10-Q).

            10.18       Retail Product License Agreement dated July 21, 1995,
                        between NBA Properties, Inc. and Marvel. Confidential
                        treatment has been granted for portions of this
                        document (incorporated by reference to Exhibit 10.4 to
                        the September 30, 1996 Marvel Quarterly Report on Form
                        10-Q).

            10.19       License Agreement dated June 30, 1995, between SkyBox
                        International Inc. and National Football League Players
                        Incorporated, as amended June 30, 1995. Confidential
                        treatment has been granted for portions of this
                        document (incorporated by reference to Exhibit 10.5 to
                        the September 30, 1996 Marvel Quarterly Report on Form
                        10-Q).

            10.20       Employment agreement, dated as of January 1, 1993, by
                        and between Andrews Group and William C. Bevins, Jr.
                        (incorporated by reference to the Company's Annual
                        Report on Form 10-K for the fiscal year ended December
                        31, 1993 (the "1993 10-K")).

            10.21       Employment agreement, dated as of August 1, 1993, by
                        and between Andrews Group and Terry C. Bridges
                        (incorporated by reference to the 1993 10-K).

            10.22       Employment agreement, dated as of November 15, 1993, by
                        and between Andrews and Joseph P. Page (incorporated by
                        reference to the 1993 10-K).

            10.23       Employment agreement, dated as of June 1, 1993, by and
                        between Andrews and Bill Kerstetter (incorporated by
                        reference to the 1993 10-K).

            10.24       Employment agreement, dated as of October 28, 1993, by
                        and between Andrews and Paul E. Shapiro (incorporated
                        by reference to the 1993 10-K).

            10.25       Employment agreement dated as of April 20, 1994, by and
                        between Andrews and Michael H. Diamond (incorporated by
                        reference to the Company's Annual Report on Form 10-K
                        for the fiscal year ended December 31, 1994 ("the 1994
                        10-K").

                                      51
<PAGE>

            10.26       Employment agreement dated as of December 15, 1994, by
                        and between Andrews and Arthur H. Bilger (incorporated
                        by reference to Andrews 1994 10-K).

            10.27       Employment Agreement dated as of August 1, 1995,
                        between Marvel and Jeffrey L. Kaplan (incorporated by
                        reference to the Marvel 1995 10-K).

            10.28       Employment Agreement dated as of January 26, 1996,
                        between Marvel and Scott C. Marden (incorporated
                        by reference to Marvel's 1996 10-K).

            10.29       Employment Agreement dated as of August 13, 1996,
                        between Marvel and David J. Schreff (incorporated by
                        reference to Exhibit 10.2 to the Marvel 1996 Third
                        Quarter 10-Q).

            10.30       Employment Agreement dated as of October 21, 1996,
                        between AGI Management Corp. and Scott M. Sassa
                        (incorporated by reference to the 1996 10-Q).

            10.31       Joint Venture Agreement dated December 9, 1994, between
                        Marvel Restaurants and EBCO Management, Inc.
                        (incorporated by reference to Exhibit 10.45 to the
                        Marvel 1994 10-K). Confidential treatment has been
                        granted for portions of this document.

            10.32       Amended and Restated Credit and Guarantee Agreement
                        dated as of August 30, 1994, among Marvel, Fleer Corp.,
                        the banks from time-to-time parties thereto, the
                        Co-Agents and Chemical Bank, as Administrative Agent.
                        (incorporated by reference to Exhibit 10.49 to the
                        Marvel Form 8-K filed September 15, 1994 (the "1994
                        Marvel August 8-K") and Exhibit 10.50 to the 1994
                        Marvel August 8-K).

            10.33       Term Loan and Guarantee Agreement dated as of August
                        30, 1994, among Marvel Comics Italia S.r.1., Marvel and
                        Instituto Bancario San Paolo Di Torino, S.p.A.
                        (incorporated by reference to Exhibit 10.50 to the 1994
                        Marvel August 8-K).

            10.34       Participation Agreement dated as of August 30, 1994,
                        among Instituto Bancario San Paolo Di Torino, S.p.A.,
                        New York Limited Branch, as Italian Lender, Chemical
                        Bank, as Administrative Agent, and the financial
                        institutions signatory thereto, as Participants.
                        (incorporated by reference to Exhibit 10.51 to the 1994
                        Marvel August 8-K).

            10.35       Credit and Guarantee Agreement dated as of April 24,
                        1995, by and among Marvel, Fleer Corp., Chemical Bank,
                        as Administrative Agent, and the financial institutions
                        parties thereto (incorporated by reference to Exhibit
                        (b)(3) to the Final Amendment to the Marvel 1995
                        Schedule 14D-1.

            10.36       First Amendment dated as of November 22, 1994, to the
                        Amended and Restated Credit and Guarantee Agreement by
                        and among Marvel, Fleer Corp., Chemical Bank, as
                        Administrative Agent, and the financial institutions
                        parties thereto (incorporated by reference to Exhibit
                        10.4 to the Form 8-K of Marvel Entertainment Group,
                        Inc. filed May 11, 1995.

                                      52
<PAGE>

            10.37       Second Amendment dated as of April 24, 1995, to the
                        Amended and Restated Credit and Guarantee Agreement by
                        and among Marvel, Fleer Corp., Chemical Bank, as
                        Administrative Agent, and the financial institutions
                        parties thereto (incorporated by reference to Exhibit
                        10.5 to the Form 8-K of Marvel Entertainment Group,
                        Inc. filed May 11, 1995.

            10.38       Consent Number 1 dated as of February 9, 1996, to the
                        Marvel's Credit Agreements with Chemical Bank, as
                        Administrative Agent, and the financial institutions
                        from time to time parties thereto (incorporated by
                        reference to the Marvel 1995 10-K).

            10.39       Third Amendment dated as of March 1, 1996, to the
                        Amended and Restated Credit and Guarantee Agreement by
                        and among Marvel, Fleer Corp., Chemical Bank, as
                        Administrative Agent, and the financial institutions
                        from time to time parties thereto (incorporated by
                        reference to the Marvel 1995 10-K.).

            10.40       Consent Number 2 and First Amendment dated as of March
                        1, 1996, to the Credit and Guarantee Agreement among
                        Marvel, Fleer Corp., the financial institutions from
                        time to time parties thereto, the Co-Agents and
                        Chemical Bank, as Administrative Agent (incorporated by
                        reference to the Marvel 1995 10-K.).

            10.41       Consent Number Three dated as of June 30, 1996 to the
                        Credit and Guarantee Agreement among Marvel, Fleer
                        Corp., the financial institutions from time to time
                        parties thereto, and The Chase Manhattan Bank (formerly
                        Chemical Bank) as administrative agent (incorporated by
                        reference to Exhibit 10.1 to Marvel's 1996 Second
                        Quarter 10-Q).

            10.42       Consent Number Two and Fourth Amendment, dated as of
                        June 30, 1996, to the Amended and Restated Credit and
                        Guarantee Agreement, by and among Marvel, Fleer Corp.,
                        the financial institutions from time to time parties
                        thereto, and The Chase Manhattan Bank (formerly named
                        Chemical Bank) (incorporated by reference to Exhibit
                        10.2 to the Marvel 1996 Second Quarter 10-Q).

            10.43       Line of Credit, dated as of March 27, 1996 between
                        Fleer Corp. and The Chase Manhattan Bank (formerly
                        named Chemical Bank). (incorporated by reference to
                        Exhibit 10.3 to the Marvel 1996 Second Quarter 10-Q).

            10.44       Consent, dated as of September 24, 1996 to the (a)
                        Participation Agreement, dated as of August 30,1994,
                        among Instituto Bancario San Paolo Di Torino, S. p. A.,
                        New York Limited Branch ("San Paolo"), the financial
                        institutions party thereto and The Chase Manhattan Bank
                        (formerly named Chemical Bank), as administrative agent
                        and (b) the Term Loan and Guarantee Agreement among
                        Panini S. p. A. (formerly named Marvel Comics Italia S.
                        r. L.), Marvel Entertainment Group, Inc. and San Paolo
                        (incorporated by reference to Exhibit 10.1 to the
                        Marvel 1996 Third Quarter 10-Q).

                                      53
<PAGE>

            10.45       Standstill Agreement and Amendment dated as of December
                        20, 1996 among the signatories thereto (incorporated by
                        reference to Exhibit 10.38 to the Marvel 1996 Form
                        10-K).

            10.46       Consent Number Four and Second Amendment dated as of
                        November 25, 1996, to the Credit and Guarantee
                        Agreement among Marvel, Fleer Corp., the banks and
                        other financial institutions, from time to time as
                        parties thereto and The Chase Manhattan Bank (formerly
                        Chemical Bank) as administrative agent (incorporated by
                        reference to Exhibit 10.39 to the Marvel 1996 Form
                        10-K).

            10.47       Waiver Number One or Fifth Amendment, dated as of
                        November 25, 1996, to the Amended and Restated Credit
                        and Guarantee Agreement among Marvel, Fleer Corp., the
                        banks and other financial institutions from time to
                        time as parties thereto and The Chase Manhattan Bank
                        (formerly Chemical Bank) as administrative agent
                        (incorporated by reference to Exhibit 10.40 to the
                        Marvel 1996 Form 10-K).

            10.48       Revolving Credit and Guaranty Agreement, dated as of
                        December 27, 1996, among Marvel, certain subsidiaries
                        of Marvel Entertainment Group, Inc., the banks party
                        thereto and The Chase Manhattan Bank, as agent
                        (incorporated by reference to Exhibit 10.41 to the
                        Marvel 1996 Form 10-K).

            10.49       First Amendment to Revolving Credit and Guaranty
                        Agreement, dated as of January 24, 1997 among Marvel,
                        certain subsidiaries of Marvel, the banks party thereto
                        and The Chase Manhattan Bank, as agent (incorporated by
                        reference to Exhibit 10.42 to the Marvel 1996 Form
                        10-K).

            10.50       Second Amendment to Revolving Credit and Guaranty
                        Agreement, dated as of February 11, 1997, among Marvel,
                        certain subsidiaries of Marvel Entertainment Group,
                        Inc., the banks party thereto and The Chase Manhattan
                        Bank, as agent (incorporated by reference to Exhibit
                        10.43 to the Marvel 1996 Form 10-K).

            10.51       License Agreement dated April 30, 1993, by and between
                        Toy Biz, Inc. and Marvel, as amended December 1, 1994
                        (incorporated by reference to Exhibit 10.9 to the Toy
                        Biz 1995 Registration Statement).

            10.52       Amendment dated November 22, 1995, to the License
                        Agreement dated April 30, 1993, as amended, between Toy
                        Biz and Marvel (incorporated by reference to Exhibit
                        10.48 to the Marvel 1996 Form 10-K).

            10.53       Amendment dated February, 1995, to the License
                        Agreement dated August 30, 1993, as amended, between
                        Toy Biz and Marvel (incorporated by reference to
                        Exhibit 10.9(b) to the Toy Biz 1995 Registration
                        Statement).

                                      54
<PAGE>

            10.54       License Agreement dated July 1, 1994, between Toy Biz
                        and Marvel (incorporated by reference to Exhibit 10.12
                        to the Toy Biz 1995 Registration Statement).

            10.55*      Fourth Amended and Restated Revolving Credit Agreement
                        and Term Credit Agreement, dated as of December 16,
                        1996 among Marvel IV Holdings Inc., the financial
                        institutions and the initial issuing bank named therein
                        and Citibank, N.A. as agent and related agreements
                        (incorporated by reference to the Andrews Annual Report
                        on Form 10-K for the year ended December 31, 1996 (the
                        "1996 10-K")).

            10.56*      Fifth Amended and Restated Revolving Credit Agreement
                        and Amended and Restated Term Credit Agreement, dated
                        as of March 20, 1997 among Mafco Finance Corp.
                        (formerly known as Marvel IV Holdings Inc.), the
                        financial institutions and the initial issuing bank
                        named therein and Citibank, N.A. as agent and related
                        agreements (incorporated by reference to the 1996
                        10-K).

            10.57*      First Amendment dated as of January 1, 1997 to
                        Employment Agreement dated October 28, 1993, between
                        Andrews and Paul E. Shapiro.

            21*         List of Subsidiaries

            24*         Powers of Attorney executed by Messrs. Perelman,
                        Gittis, Drapkin, Slovin and Bevins.

            27*         Financial Data Schedule

            *           Filed with this report

b)       Reports on Form 8-K during the fourth quarter of 1996
         None








                                      55
<PAGE>


                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

                                         ANDREWS GROUP INCORPORATED
                                                       (Registrant)




                                         By:/s/ William C. Bevins
                                         -------------------------------------
                                         William C. Bevins, Jr.
                                         President and Chief Executive Officer


                                         By:/s/ Joseph P. Page
                                         -------------------------------------
                                         Joseph P. Page
                                         Executive Vice President and
                                         Chief Financial Officer


                                         By:/s/ Laurence Winoker
                                         -------------------------------------
                                         Laurence Winoker
                                         Vice President and Controller
                                         (Chief Accounting Officer)
Dated:  April 15, 1997







<PAGE>




         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on April 15, 1997 in the
capacities indicated.


                                         By:    Ronald O. Perelman *
                                             --------------------------------
                                                    Ronald O. Perelman
                                                              Director


                                         By:  William C. Bevins, Jr. *
                                            --------------------------------
                                                William C. Bevins, Jr.
                                                              Director


                                         By: Donald G. Drapkin *
                                            --------------------------------
                                                     Donald G. Drapkin
                                                              Director


                                         By: Howard Gittis *
                                             --------------------------------
                                                        Howard Gittis
                                                              Director


                                         By: Bruce Slovin *
                                                          Bruce Slovin
                                             --------------------------------
                                                             Director




Date: April 15, 1997


         *The undersigned by signing his name hereto does hereby execute this
Annual Report pursuant to powers of attorney filed as exhibits to the Annual
Report.


                                       By:/s/ Laurence Winoker
                                            --------------------------------
                                              Laurence Winoker





<PAGE>





                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                           --------------------------

                     ITEM 8, ITEM 14 (A)(1) AND (2) AND (D)
  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
                          YEAR ENDED DECEMBER 31, 1996



         The following consolidated financial statements of Andrews Group
Incorporated and Subsidiaries are included in Item 8:

                                                                         Pages

Report of Independent Auditors ...........................................F-2

Consolidated Balance Sheets as of December 31, 1996 and 1995..............F-3

Consolidated Statements of Operations
   for the years ended December 31, 1996, 1995 and 1994...................F-4

Consolidated Statements of Stockholder's Deficit
   for the years ended December 31, 1996, 1995 and 1994...................F-5

Consolidated Statements of Cash Flows
   for the years ended December 31, 1996, 1995 and 1994...................F-6

Notes to Consolidated Financial Statements................................F-8

         The following financial statement schedules of Andrews Group
Incorporated is included in Item 14(d):

   Schedule I - Condensed Financial Information of Registrant............F-46

   Schedule II- Valuation and Qualifying Accounts........................F-49


All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.


                                      F-1
<PAGE>








                         REPORT OF INDEPENDENT AUDITORS



The Board of Directors and Stockholder
Andrews Group Incorporated



We have audited the accompanying consolidated balance sheets of Andrews Group
Incorporated and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholder's deficit and cash flows for
each of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Andrews Group Incorporated and subsidiaries at December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects,
the information set forth therein.


                                                              Ernst & Young LLP


New York, New York
March 28, 1997


                                      F-2




<PAGE>

                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                   (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                     --------------------------------------
                                                                                           1996                 1995
                                                                                     -----------------    -----------------
<S>                                                                                  <C>                 <C>
                                    ASSETS
Cash                                                                                 $           25.6     $           55.7
Accounts receivables, net                                                                       229.1                236.7
Inventories, net                                                                                 78.1                 82.4
Deferred taxes                                                                                  181.6                 50.8
Prepaid expenses and other                                                                       61.7                 68.3
                                                                                     -----------------    ----------------
   Total current assets                                                                         576.1                493.9

Property, plant and equipment, net                                                               99.6                 77.6
Goodwill and other intangibles, net                                                             317.6                912.8
Loans to affiliate                                                                              247.6                441.0
Other assets                                                                                     90.7                109.4
                                                                                     -----------------    ----------------
                                                                                     $        1,331.6     $        2,034.7
                                                                                     =================    ================

                     LIABILITIES AND STOCKHOLDER'S DEFICIT

Current liabilities:
   Current portion of long-term debt                                                 $           43.6     $           59.5
   Short-term borrowings                                                                         47.3                 13.3
   Accounts payable                                                                              98.5                104.8
   Accrued expenses                                                                             193.6                217.8
   Net liabilities held for sale                                                                 43.1                 52.7
   Liabilities subject to settlement under reorganization                                        20.0                    -
                                                                                     -----------------    ----------------
    Total current liabilities                                                                   446.1                448.1

Long-term debt                                                                                  407.8              1,667.3
Indebtedness to affiliates                                                                      297.8                307.1
Liabilities subject to settlement under reorganization                                        1,293.7                    -
Other liabilities                                                                                24.0                 67.2
Minority interest                                                                               100.6                113.8
Redeemable preferred stock of subsidiaries                                                        5.1                  5.1

Commitments and contingencies

Stockholder's deficit:
   Common stock, $1.00 par value; 1,000 shares
    authorized, issued and outstanding                                                              -                    -
   Additional paid-in-capital                                                                    40.7                 40.2
   Accumulated deficit                                                                       (1,284.2)              (614.5)
   Cumulative translation adjustment                                                                -                  0.4
                                                                                     -----------------    ----------------
      Total stockholder's deficit                                                            (1,243.5)              (573.9)
                                                                                     -----------------    ----------------
                                                                                     $        1,331.6     $        2,034.7
                                                                                     =================    ================


</TABLE>
                See notes to consolidated financial statements.

                                      F-3



<PAGE>

                          ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                             CONSOLIDATED STATEMENTS OF OPERATIONS
                                      (DOLLARS IN MILLIONS)


<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                            ----------------------------------------------
                                                                                  1996            1995             1994
                                                                            --------------  --------------   -------------
<S>                                                                         <C>             <C>              <C>
Net revenues                                                                 $      745.5   $       828.9    $      514.8
Operating expenses:
   Direct costs                                                                     536.4           533.3           273.4
   Selling, general and administrative expenses                                     289.9           262.1           127.8
Amortization and write-down of goodwill and intangibles                             617.6            30.9            23.3
Restructuring                                                                        15.8            25.0               -
                                                                            --------------  --------------   ------------
Operating (loss) income                                                            (714.2)          (22.4)           90.3
                                                                            --------------  --------------   ------------

Other (expense) income:
   Interest expense                                                                (199.8)         (184.6)         (122.6)
   Interest and net investment income                                                58.6            37.6            10.1
   Gain on sale of business interests, net                                           22.0            14.3               -
   Amortization of debt issuance costs and other                                    (13.5)           (9.0)           (4.5)
                                                                            --------------  --------------   ------------
                                                                                   (132.7)         (141.7)         (117.0)
                                                                            --------------  --------------   ------------

Loss from continuing operations before income taxes, minority interest and
  equity in net income of investees                                                (846.9)         (164.1)          (26.7)
Benefit (provision) for income taxes                                                149.6            (5.8)          (30.6) 
Minority interest in loss (income) of subsidiaries                                   32.3            (7.3)          (12.2) 
Equity in net (loss) income of investees                                             (1.2)            1.7            11.9
                                                                            --------------  --------------   -------------
Loss from continuing operations                                                    (666.2)         (175.5)          (57.6)

Discontinued operations:
(Loss) income from discontinued operations, net of taxes
   and minority interest                                                            (39.9)          (60.1)           43.9
Gain on disposal of discontinued operations, net of taxes
   and minority interest                                                             43.4               -               - 
                                                                            --------------  --------------   -------------
Income (loss) from discontinued operations                                            3.5           (60.1)           43.9 

Loss before extraordinary item                                                     (662.7)         (235.6)          (13.7) 
Extraordinary item, net of taxes                                                     (7.0)           (3.3)              - 
                                                                            --------------  --------------   -------------
Net loss                                                                    $      (669.7)  $      (238.9)     $    (13.7)
                                                                            ==============  ==============   =============

</TABLE>

                See notes to consolidated financial statements.

                                      F-4



<PAGE>

                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
                             (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                                                                ADDITIONAL                        CUMULATIVE
                                                 COMMON           PAID-IN       ACCUMULATED       TRANSLATION
                                                  STOCK           CAPITAL         DEFICIT         ADJUSTMENT         TOTAL
                                              --------------   --------------  ---------------   --------------  --------------
<S>                                           <C>              <C>             <C>               <C>             <C>
   Balance, December 31, 1993                 $       -        $         8.2   $       (361.9)   $        (1.0)  $      (354.7)

       Currency translation adjustment                                                                    (0.2)           (0.2) 
       Net loss                                                                         (13.7)                           (13.7)
       Contributions, net                                                1.5                                               1.5 
       Effect of exercise of stock
         options of Marvel                                              22.9                                              22.9
                                              --------------   --------------  ---------------   --------------  --------------
    Balance, December 31, 1994                            -             32.6           (375.6)            (1.2)         (344.2)

       Currency translation adjustment                                                                     1.6             1.6
       Net loss                                                                        (238.9)                          (238.9)
       Contributions, net                                                0.8                                               0.8
                         
       Effect of exercise of stock
         options of Marvel                                               6.8                                               6.8 
                                              --------------   --------------  ---------------   --------------  --------------

    Balance, December 31, 1995                            -             40.2           (614.5)             0.4          (573.9) 

       Currency translation adjustment                                                                    (0.4)           (0.4)
       Net loss                                                                        (669.7)                          (669.7)
       Effect of exercise of stock
         options of Marvel                                               0.5                                               0.5 
                                              --------------   --------------  ---------------   --------------  --------------

    Balance, December 31, 1996                $           -    $        40.7   $     (1,284.2)   $         0.0   $    (1,243.5)
                                              ==============   ==============  ===============   ==============  ==============

</TABLE>


                See notes to consolidated financial statements.

                                      F-5



<PAGE>


                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                                 ----------------------------------
                                                                    1996        1995        1994
                                                                 ----------  ----------  ----------
<S>                                                                <C>         <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                        ($669.7)    ($238.9)     ($13.7)
                                                                 ----------  ----------  ----------
   Adjustments to reconcile net loss to net cash flows
    from operating activities:
      Depreciation and amortization                                  655.6        60.0        32.8
      Loss (income) from discontinued operations, net                 39.9        60.1      (43.9)
      Gain on disposal of discontinued operations, net               (43.4)          -           -
      Amortization of debt discount                                   72.3        64.5        57.4
      Undistributed earnings of investees                              1.2        (1.7)      (11.9)
      Minority interest in (loss) earnings of subsidiaries           (32.3)        7.3        12.2
      Distribution from unconsolidated subsidiary                        -         3.0           -
      Gain on sale of business interests, net                        (22.0)      (14.3)          -
      Extraordinary item                                               7.0         3.3           -
      Net (benefit) provison for deferred taxes                     (161.7)       (4.8)        6.0
   Changes in assets and liabilities, net of effects of 
      acquisitions, dispositions and previously unconsolidated
      subsidiaries 
         Decrease (increase) in assets                                13.6       (31.2)     (115.0)
         Increase in net liabilities held for sale and other
           liabilities                                                 5.3        42.0       199.7
                                                                 ----------  ----------  ----------
                                                                     535.5       188.2       137.3
                                                                 ----------  ----------  ----------
   Net cash flows from operating activities                         (134.2)      (50.7)      123.6
                                                                 ----------  ----------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of SkyBox, net of cash acquired                           -      (162.5)          -
   Acquisition of Panini Group, net of cash acquired                     -        (0.2)     (133.2)
   Net proceeds from sale of Marvel investment in Toy Biz             35.7           -           -
   Purchase of Marvel common stock                                       -        (8.2)      (21.5)
   Loans to affiliates, net                                          193.3      (216.4)     (224.6)
   Capital expenditures                                              (57.2)      (48.6)      (11.5)
   Other acquisitions and investments                                 (3.3)      (16.4)      (20.7)
                                                                 ----------  ----------  ----------
   Net cash flows from investing activities                          168.5      (452.3)     (411.5)
                                                                 ----------  ----------  ----------
</TABLE>

                                  (Continued)

                See notes to consolidated financial statements.

                                      F-6

<PAGE>

                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN MILLIONS)

                                   (Continued)

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                                 ----------------------------------
                                                                    1996        1995        1994
                                                                 ----------  ----------  ----------
<S>                                                                <C>         <C>          <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long term debt                                      277.6       422.2       502.5
   Repayment and repurchases of debt                                (324.9)      (74.5)      (11.5)
   Issuance of common stock, stock options and warrants                9.8        52.3        22.0
   Loans from affiliates, net                                         (9.3)       152.9    (220.0)
   Debt issuance costs and other, net                                (18.0)      (16.2)       (5.3)
                                                                 ----------  ----------  ----------
   Net cash flows from financing activities                          (64.8)      536.7       287.7
                                                                 ----------  ----------  ----------
Effect of exchange rate changes on cash                                0.4         2.0        (0.6)
Net increase (decrease) in cash                                      (30.1)       35.7        (0.8)
Cash at beginning of the period                                       55.7        20.0        20.8
                                                                 ----------  ----------  ----------
Cash at end of the period                                            $25.6       $55.7       $20.0
                                                                 ==========  ==========  ==========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
   Interest paid during the period                                   $32.3       $99.8       $35.6
   Taxes (refunded) paid during the period                            (6.1)       15.6         0.2
</TABLE>


                See notes to consolidated financial statements.

                                      F-7


<PAGE>


                   REVLON GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)


1.       BACKGROUND AND BASIS OF FINANCIAL STATEMENTS

BASIS OF PRESENTATION

         Andrews Group Incorporated ("Andrews", and together with its
subsidiaries, the "Company") is a wholly-owned subsidiary of MacAndrews &
Forbes Holdings Inc. ("M&F Holdings") which is a wholly-owned subsidiary of
Mafco Holdings Inc. ("Mafco Holdings"). Prior to June 4, 1990, the Company was
a 57% owned subsidiary of M&F Holdings. On June 4, 1990, a wholly-owned
subsidiary of M&F Holdings merged with and into the Company, and the Company
became a wholly-owned subsidiary of M&F Holdings (the "Andrews Merger").

         At December 31, 1996, Andrews had a 79% ownership interest in Marvel
Entertainment Group, Inc. ("Marvel") and a 41% ownership interest (86% voting
interest) in New World Communications Group Incorporated ("NWCG"), assuming
conversion of the then-outstanding NWCG Series B Preferred Stock. Through
Marvel, the Company operates in the youth entertainment business. Until the
NWCG Disposition in January 1997, the Company owned NWCG which operated in the
television broadcasting and production and distribution businesses (the
"broadcasting business").

         The Company's financial statements reflect for all periods presented,
Marvel and the Marvel Holding Companies on a consolidated basis. As more fully
described in Note 4, Marvel and the Marvel Holding Companies filed petitions
for relief under Chapter 11 of the United States Bankruptcy Code. As a result
of the Chapter 11 filing, it is uncertain as to whether Andrews will continue
to control a voting majority of Marvel and the Marvel Holding Companies. The
financial statements continue to consolidate these entities until resolution of
such matters.

         As a result of the NWCG Disposition (see note 3), the Company's
financial statements reflect for all periods presented, the net liabilities and
results of operations of the Company's broadcasting business as net liabilities
held for disposition and discontinued operations, respectively. The results of
operations of the broadcasting business are included in loss from discontinued
operations through September 24, 1996, the measurement date. The results of
operations of NWCG's San Diego Station from September 24, 1996 through the date
of sale of such station in November 1996, and the gain on sale of NWCG's San
Diego and Birmingham stations, is included in gain on disposal of discontinued
operations.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

         Sales are recorded upon shipment of products. Sales made on a
returnable basis are recorded net of provisions for estimated returns. These
estimates are revised, as necessary, to reflect actual experience and market
conditions. Subscription revenues generally are collected in advance for a one
year subscription and are deferred and recognized as income on a pro-rata basis
over the subscription period. Income from licensing of characters owned by
Marvel is recorded at the time characters are available to the licensee and
collection is reasonably assured. Receivables due more than one year beyond the
balance sheet date are discounted to their present value.

                                      F-8
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

ADVERTISING EXPENSE

         Advertising production costs are expensed when the advertisement is
first run. Media advertising costs are expensed on the projected sales method
during interim periods. Advertising expense was $69.0, $69.2, and $38.5 in
1996, 1995, and 1994, respectively. The amount of advertising costs included in
prepaid expenses and other as of December 31, 1996 and 1995 was $2.2 and $2.8,
respectively.

ROYALTIES

         Minimum guaranteed royalties, as well as royalties in excess of
minimum guarantees, are generally expensed as incurred based on sales of
related products.

USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
principal areas of judgment relate to provision for returns and other sales
allowances, doubtful accounts, the realizability of inventories, goodwill and
other intangible asset impairment, income taxes and pro forma information
related to stock options.

CASH AND CASH EQUIVALENTS

         Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.

INVENTORIES

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

PROPERTY, PLANT AND EQUIPMENT

         All expenditures for additions and improvements to property, plant and
equipment are capitalized and normal repairs and maintenance are charged to
expense as incurred. Construction-in-progress principally includes machinery
and equipment being constructed for the Company by outside vendors under
contract.

GOODWILL AND OTHER INTANGIBLES

         Goodwill and other intangibles, except goodwill related to the trading
card business, are amortized on the straight-line basis principally over 40
years. The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of goodwill and other intangibles is 


                                      F-9
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

to review the carrying value of goodwill and other intangibles if the facts and
circumstances suggest that they may be impaired. If this review indicates that
goodwill and other intangibles will not be recoverable, as determined based on
the undiscounted future cash flows of the Company, the carrying value of
goodwill and other intangibles will be reduced to its estimated fair value.

         During the fourth quarter of 1996, the Company recorded a non-cash
write-down to goodwill and other intangibles of approximately $581.7. Remaining
goodwill associated with Marvel's trading cards operations is approximately
$110.0, which will be amortized on a straight line basis over 15 years. See
Note 15.

INCOME TAXES

         The Company computes income taxes under the liability method. Under
the liability method, deferred income taxes are generally determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Net deferred tax assets are recorded when
it is more likely than not that such tax benefits will be realized.

DEFERRED CHARGES

         Deferred charges and other includes deferred debt issue costs, which
are mainly costs associated with the Company's credit facilities that are
amortized over the remaining term of the related agreements.

TRANSLATION OF FOREIGN CURRENCIES

         The financial position and results of operations of the Company's
foreign subsidiaries are measured using the local currency as the functional
currency. Assets and liabilities of subsidiaries are translated at the exchange
rate in effect at year-end. Income statement accounts and cash flows are
translated at the average rate of exchange prevailing during the period.
Translation adjustments arising from the use of differing exchange rates are
included in the cumulative translation adjustment account in stockholder's
deficit. Transaction adjustments arising from the use of differing exchange
rates, including intercompany account balances, are included in net income.

RECLASSIFICATION

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

3.       NWCG DISPOSITION

         On January 22, 1997 (the "NWCG Merger Date"), a special meeting (the
"Special Meeting") of stockholders of NWCG was held. At the Special Meeting,
the Agreement and Plan of Merger dated as of September 24, 1996 (the "NWCG
Merger Agreement"), by and among NWCG, The News Corporation Limited, a South
Australian corporation ("News Corp."), Fox Television Stations, Inc., a
Delaware 


                                     F-10
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

corporation in which News Corp. has an indirect interest ("Fox"), and Fox
Acquisition Co., Inc., a Delaware corporation and a wholly-owned subsidiary of
Fox ("Merger Sub"), was approved. Immediately following the Special Meeting,
the transactions contemplated by the NWCG Merger Agreement were consummated,
including the merger of Merger Sub with and into NWCG and a stock purchase
pursuant to the Stock Purchase Agreement dated as of September 24, 1996 (the
"NWCG Stock Purchase Agreement"), by and among News Corp., Fox and NWCG
(Parent) Holdings Corporation ("NWCG Parent") (the transactions contemplated by
the NWCG Merger Agreement and the NWCG Stock Purchase Agreement, collectively,
the "NWCG Merger").

         Pursuant to the NWCG Stock Purchase Agreement, Fox purchased (the
"NWCG Disposition") from NWCG Parent 2,682,236 shares of common stock of NWCG
owned by NWCG Parent and all of the outstanding shares of capital stock of NWCG
Holdings Corporation ("NWCG Holdings"). The consideration for such purchase was
1.45 American Depositary Shares of News Corp. ("ADSs"), each of which
represents four fully paid and non-assessable Preferred Limited Voting Ordinary
Shares, par value A$.50 per share, of News Corp., for each share of common
stock of NWCG directly or indirectly acquired by Fox pursuant to the NWCG Stock
Purchase Agreement, with the aggregate number of ADSs issued to NWCG Parent
reduced to an amount which approximated the accreted amount of the NWCG
Holdings Senior Secured Discount Notes due 1999 (the "Discount Notes")
outstanding at the effective time of the NWCG Merger. In addition, in
connection with the NWCG Disposition, Fox agreed to assume an aggregate of
$46.2 principal amount of debt of Four Star Holdings Inc. ("Four Star
Holdings").

         In connection with the NWCG Merger, the Company received 37,954,211
ADSs (with a market price of $17.625 per ADS on January 22, 1997) and 2,175,000
warrants to purchase ADSs (in exchange for 1,500,000 warrants to purchase
shares of NWCG previously held by the Company). The Company expects to record a
pre-tax gain in 1997 on the NWCG Disposition of approximately $720. Through
March 26, 1997, the Company sold 15,562,300 ADSs for net proceeds of $271.4.

         As a gain on the NWCG Disposition, net of transaction costs and
estimated results of operations during the phase-out period, is expected, the
net gain will be recognized on the disposal date. Losses of $12.2 for the
period from September 24, 1996 through December 31, 1996 have been deferred
until the disposal date. Revenues included in discontinued operations in 1996,
1995 and 1994 were $671.5, $605.0 and $396.9, respectively.

4.       CHAPTER 11 REORGANIZATION OF MARVEL AND MARVEL HOLDING COMPANIES

         Although Marvel's consolidated net revenues have increased through
1995 as a result of diversification into lines of business other than comic
book publishing, certain significant and long-term changes in market conditions
associated with Marvel's publishing and trading cards businesses have
significantly and adversely affected Marvel's net revenues and operating
results in recent periods.

         Marvel experienced significant operating losses during 1995 and 1996,
and failed to satisfy certain financial covenants contained in the Marvel
Credit Agreements (as defined below, see Note 6) beginning in the Fall of 1996.
Marvel commenced discussions in the Fall of 1996 with Andrews regarding an
equity infusion in order to provide for Marvel's cash requirements and with The
Chase 


                                     F-11
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

Manhattan Bank, agent bank for the Marvel Credit Agreements, regarding a
restructuring of the Marvel Credit Agreements.

         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 (each as defined below) and Toy Biz,
Inc. ("Toy Biz") all of which are active, as well as certain inactive
subsidiaries did not file petitions under the Bankruptcy Code.

         A Plan of Reorganization, filed on December 27, 1996 (as amended, the
"Plan"), contemplated pursuant to the Stock Purchase Agreement dated December
26, 1996, between Andrews and Marvel, Andrews, 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, 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, Marvel would acquire the Class A Common Stock not owned by Marvel,
Andrews or their affiliates pursuant to a Merger Agreement between Andrews and
Toy Biz and Stock Purchase Agreements with the two other principal stockholders
of Toy Biz. The Plan also contemplated a new $160 credit facility at Toy Biz to
be used for working capital purposes of Marvel, including Toy Biz, and to fund
Marvel's strategic initiatives. As of March 27, 1997, Marvel 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. The 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, and is available to Marvel
until 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 6.

         On February 12, 1997, the Office of the United States Trustee
appointed a committee of equity securityholders 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.

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


                                     F-12
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

Holdings Inc. ("Parent Holdings"), an indirect subsidiary of Andrews, issued
$251.7 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"), an indirect subsidiary of Andrews, 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
Marvel's common stock to secure such notes (the "Pledged Common Stock"), and an
additional approximately 2.9 million shares of Marvel common stock 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, which it owns, to secure the Parent Holding Notes, and Marvel III has
pledged the common stock of Parent Holdings, which it owns, 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
Bankruptcy Court. 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 Marvel 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, Marvel
and the Marvel Holding Companies filed a notice of appeal with respect to such
order.

         On March 7, 1997, Andrews exercised its right to terminate the Stock
Purchase Agreement with Marvel. On the same date, Andrews 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 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 Marvel common stock (other than Mafco
Holdings and its affiliates) and holders of the notes of the Marvel Holding
Companies would make a $365 infusion into Marvel as part of a new Plan of
Reorganization through a rights offering that would be backstopped by certain
members of the Creditors Committee, including an entity controlled by Carl
Icahn (the "Icahn Group") (as subsequently amended, the 


                                     F-13
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

"Committee Proposal"). The Committee Proposal did not specify whether all of
the $365 would be added to the equity of Marvel or whether a portion of the
proceeds would be used to repay borrowings under the Marvel Credit Agreements,
and does not contemplate Toy Biz becoming a wholly-owned subsidiary of Marvel.
The Committee Proposal contemplated that prior to confirmation of any plan of
reorganization reflecting the Committee Proposal, the current Board of
Directors of Marvel would be replaced by designees of the Creditors Committee.
Such proposal was subject to further negotiations with Marvel and Marvel's bank
lenders, but an agreement with these entities was never reached.

         On March 19, 1997, the Creditors Committee notified Marvel that on
March 25, 1997 it would cause the Holding Companies' Trustee to vote the
Pledged Stock to replace the Board of Directors of Marvel and the Marvel
Holding Companies. On March 24, 1997, the Court in the Debtor Companies'
bankruptcy cases issued a restraining order preventing the Creditors Committee
and the Holding Companies' Trustee from voting the Pledged Stock or otherwise
replacing the Board of Directors of Marvel 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 has been set for May 14,
1997. On March 28, 1997, the Creditors Committee also filed an emergency appeal
of the restraining order of the Bankruptcy Court issued on March 24, 1997
preventing the replacement of the Board of Directors of Marvel. A briefing
schedule has been set for the emergency appeal and a hearing date for such
appeal has been set for May 1, 1997.

         There can be no assurance that any plan of reorganization under the
Bankruptcy Code reflecting the Committee Proposal or a proposal made by any
other party will be proposed, or that if a plan is proposed, such plan of
reorganization will be confirmed under the Bankruptcy Code.

         If Marvel is unable to obtain confirmation of a plan of
reorganization, its creditors or equity security holders may seek other
alternatives for Marvel, including bids for Marvel or parts thereof through an
auction process.

         The accompanying consolidated financial statements have been prepared
on a going concern basis with respect to Marvel and the Marvel Holding
Companies, which assumes continuity of their operations, realization of their
assets and liquidation of their 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 Marvel's ability to continue as a going concern.

         Although there can be no assurance, Marvel believes that borrowings
under the DIP Loan and internally generated funds will be sufficient to enable
the Debtor Companies to meet their consolidated cash requirements, including
debt service through the date of maturity of the DIP Loan. The DIP Loan expires
April 30, 1997 and the maturity of the DIP Loan may be extended at the option
of Marvel to June 30, 1997. As part of the Plan, a group of lenders had
committed to lend $160 to Toy 


                                     F-14
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

Biz which could be used by Marvel and its subsidiaries, including Toy Biz to
fund working capital and strategic investments and repay borrowings outstanding
under the DIP Loan. Such commitments have been terminated as a result of the
withdrawal of the Andrews Investment and the Plan. In addition, the DIP Loan is
subject to a number of events of default and conditions of borrowings. 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, then the Debtor Companies will have to seek
one or more alternatives to provide for their 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 Marvel's businesses. Although there can be no assurance, Marvel
believes that its Panini subsidiary should be able to meet its cash
requirements, including for debt service and repayment, from permissible
advances by Marvel of borrowings under the DIP Loan, local borrowings and
internally generated funds. Marvel 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 foreseeable future.

         As part of the Chapter 11 process, the Debtor Companies have received
a significant amount of proofs of claims. Marvel is currently in the process of
reviewing these claims and have found that a majority of these claims are
without merit. Although Marvel believes that reserves as of December 31, 1996
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.

         Because the Marvel Holding Companies have no assets other than common
stock of Marvel and/or stock in Marvel Holdings and Parent Holdings, the
securityholders of the Marvel Holding Companies will likely receive only their
pro rata share of the Pledged Common Stock upon consummation of the Chapter 11
cases.

         In the event the bondholders seize the Pledged Stock, the Company will
recognize a substantial non-cash gain estimated at December 31, 1996 to be the
book value of the Company's negative investment in the Marvel Holding Companies
of approximately $1,060.0 and will have a related tax obligation to its parent
in accordance with its tax sharing agreement. To the extent the Marvel
liabilities are settled for less than their book value, Marvel may also
recognize a non-cash gain.




                                     F-15
<PAGE>


                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)



         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 at December 31, 1996:

         Total accrued expenses                                      $  20.0
                                                                     -------

         Debt:
             U.S. Term Loan Agreement                                  350.0
             Amended and Restated Credit Agreement                     120.0
             Additional Revolving Credit Facility                       15.0
             Marvel Holdings Notes                                     449.4
             Parent Holdings Notes                                     217.0
             Marvel III Notes                                          125.0
                                                                    --------
             Total debt                                              1,276.4

         Other long-term liabilities                                    17.3
         Total liabilities subject to settlement 
           under reorganization                                     $1,313.7
                                                                    ========

         Total bankruptcy reorganization items of $5.5 for the year ended
December 31, 1996 include professional charges and other costs typical to those
incurred by entities in bankruptcy.

5.       TOY BIZ COMMON STOCK OFFERINGS

         On March 2, 1995, Toy Biz, completed the Toy Biz IPO in which it
issued and sold 2,750,000 shares of Class A Common Stock at $18 per share. As
part of the Toy Biz IPO, a stockholder sold 700,000 shares of Class A Common
Stock at $18 per share. The net proceeds to Toy Biz, after deducting
commissions and offering expenses, of $44.1 were used to pay outstanding
amounts due under subordinated notes held by Marvel and the sole stockholder of
the predecessor to Toy Biz and for working capital and general corporate
purposes. In 1995, Marvel recorded a gain of $14.3 on the Toy Biz IPO in
recognition of the net increase in value of Marvel's investment in Toy Biz. In
August 1996, Toy Biz sold in an offering 700,000 shares of its Class A Common
Stock at a price to the public of $15 per share. As part of the Toy Biz
offering, Marvel sold 2.5 million shares of its Toy Biz Class A Common Stock.
In the third quarter of 1996, Marvel recorded a gain on the sale of this common
stock of approximately $22.0. The net proceeds to Toy Biz and Marvel were
approximately $9.3 and $35.7, respectively, after deducting amounts accrued for
fees and expenses.

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

                                     F-16
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         In connection with the Toy Biz IPO, Marvel, Mr. Perlmutter, certain
affiliates of Mr. Perlmutter, Mr. Arad and Toy Biz entered into a stockholders'
agreement (the "Stockholders' Agreement"). The Stockholders' Agreement provides
that , upon a change of control of Marvel, Marvel is obligated to convert its
shares of Class B Common Stock into Class A Common Stock, unless Mr. Perlmutter
and Mr. Arad consent to such shares remaining Class B Common Stock. In such an
event the Company would cease to account for Toy Biz as a consolidated
subsidiary.

6.       SHORT-TERM BORROWINGS AND DEBT

SHORT-TERM BORROWINGS

         Under credit arrangements for short-term borrowings arranged with a
group of banks, Panini may borrow up to Italian Lire 69.5 billion
(approximately $45.4 based on exchange rates at December 31, 1996) 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 December 31, 1996, the unused portion of the credit lines was Italian Lire
12.4 billion (approximately $8.1 based on exchange rates at December 31, 1996).
The weighted average interest rate on short-term borrowings as of December 31,
1996 was 6.3%.

         Marvel experienced significant operating losses during 1995 and 1996
and failed to satisfy certain financial covenants contained in the Marvel
Credit Agreements (as defined below). In addition, the filing of petitions for
relief and a plan of reorganization under Chapter 11 of the Bankruptcy Code in
Bankruptcy Court by the Debtor Companies is an event of default under the
Marvel Credit Agreements (as defined below).

         At the time that the Debtor Companies commenced their reorganization
cases, they anticipated that their financing needs would be satisfied through a
working capital facility extended by a group of financial institutions. Prior
to the Petition Date (December 27, 1996), the Debtor Companies undertook to
arrange such financing through different financial institutions and selected
Chase Securities Inc. to arrange such financing. No principal payments on the
pre-petition debt of the Debtor Companies will be made without the approval
from the Bankruptcy Court or until a plan of reorganization defining the
repayment terms has been confirmed. 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 Marvel Credit Agreements (as defined below).

         On the Petition Date, the Bankruptcy Court approved the DIP Loan dated
as of December 27, 1996, among Marvel, as borrower, the other Debtor Companies,
as guarantors, and The Chase Manhattan Bank, as lender, on an interim basis and
authorized Marvel to borrow up to $20 thereunder based upon the anticipated
cash needs of Marvel for a specified period pending a final hearing thereon.

         On January 24, 1997, the Bankruptcy Court entered an order (the "DIP
Order") approving the DIP Loan, as amended by the parties thereto to
incorporate resolutions to issues articulated by the Bankruptcy Court at the
final hearing to consider approval of the DIP Loan. The DIP Order authorized
Marvel to incur obligations under the DIP Loan not exceeding the commitment
amount of $100. The DIP Loan is scheduled 


                                     F-17
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

to expire 120 days from the Petition Date (extendible at Marvel's option in the
absence of default) and the date of the occurrence of certain specified events.

         The liens securing the DIP Loan prime the liens securing the Marvel
Credit Agreements (as defined below). The DIP Loan is necessary to the
successful prosecution of the reorganization cases and confirmation of a plan
of reorganization. Loans 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 to Alternate Base Rate loans. The interest rate on
Alternate Base Rate Loans at December 31, 1996, was 9.75%. 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. As of
December 31, 1996, $10.0 was borrowed under this facility. At March 28, 1997,
amounts available to borrow under this facility, net of amounts reserved under
letters of credit, were $43.1.

         In connection with the Marvel Credit Agreements, each of the Debtor
Companies executed security agreements and other collateral documents under
which such Debtor Companies granted the lenders under the Marvel Credit
Agreements security interests, liens, and mortgages in all or substantially all
of their respective properties and interests in property as collateral security
for the payment and performance of the obligations owing to such lenders. As at
the Petition Date, such lenders asserted liens against, and claimed an
entitlement to adequate protection of their liens on such properties and
interest in property.

         The DIP Loan includes various restrictive covenants prohibiting Marvel
from, among other things, incurring additional indebtedness, with certain
limited exceptions, making investments, except for certain limited exceptions,
including for Marvel'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 Marvel's
bankruptcy proceedings.

         In connection with approval of the DIP Loan and entry of the DIP
Order, the Debtor Companies consented to a grant of adequate protection to the
holders of Senior Secured Claims (as defined in the DIP Orders) in
consideration for the right to use cash collateral and obtain post-petition
financing under sections 363 and 364 of the Bankruptcy Code. Under the DIP
Order, the holders of Senior Secured Claims were granted the following
consideration as adequate protection to the extent of any diminution in the
value of their collateral: (i) a priority claim as contemplated by section
507(b) of the Bankruptcy Code, (ii) periodic cash payments in an amount equal
to current interest at the applicable non-default rate or rates provided for
pursuant to the Credit Agreements and accrued letter of credit fees calculated
at the rate or rates provided for in the Credit Agreements, and (iii) a lien on
the properties and interests in property of Marvel and the guarantors of the
Credit Agreements (including the capital stock of Toy Biz owned by Marvel),
which lien shall have a priority junior to the priming and other liens to be
granted in favor of The Chase Manhattan Bank under the DIP Loan.




                                     F-18
<PAGE>


                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         Debt consist of the following:

<TABLE>
<CAPTION>
                                                           December 31,         December 31,
                                                               1996                 1995
                                                         -----------------    -----------------
<S>                                                      <C>                   <C>                   
Marvel:
   U.S. Term Loan Agreement (a)                                $    350.0         $      350.0

   Amended and Restated Credit Agreement (a)                        120.0                 87.5

   Additional Revolving Credit Facility (a)                          15.0                    -
                                           
   Term Loan Agreement (a)                                          139.3                139.5
                          
   Other long term debt                                              16.3                  9.5
                       
Marvel Holdings Inc. 11.25% Discount Notes (b)                      449.4                402.8
                                              
Parent Holdings 11 7/8% Discount Notes (c)                          217.0                193.4
                                         
Marvel III 9 1/8% Senior Secured Notes (d)                          125.0                125.0
                                         
Mafco Finance Credit Agreement (e)                                  249.6                373.0
                                  
Andrews Group Incorporated:
   10% Debentures (f)                                                29.7                 26.8
                     
   12 3/4% Debentures (g)                                               -                 14.1
                        
Other notes and mortgages                                            16.5                  5.2
                                                               -----------        -------------
Subtotal                                                      $   1,727.8         $    1,726.8
Less amount reclassified*                                        (1,276.4)                   -
Less current maturities                                            (43.6)               (59.5)
                                                              ------------        -------------
Long-term debt                                          $          407.8          $   1,667.3
                                                         =================    =================
</TABLE>


* - Amounts as of December 31, 1996 have been reclassed to "Liabilities subject
to settlement under reorganization" in accordance with bankruptcy reporting
prescribed by Statement 90-7. See Note 4.

(a)      On December 20, 1996, the banks and financial institutions that were
         parties to the Marvel Credit Agreements entered into a Standstill
         Agreement and Amendment (the "Standstill Agreement") which grants
         Marvel the right, for any outstanding loans under the Marvel 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 Marvel 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 Marvel Credit Agreements will agree not to exercise
         any remedies against any subsidiary of Marvel which is not one of the
         Debtor Companies during the Standstill Period. Each lender under the
         Marvel 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 Marvel 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 expiration 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).

                                     F-19
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         Marvel'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 Marvel, 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 December 31, 1996 was approximately 8 17/32% to 8 7/8% per 
         annum, depending upon the length of the relevant interest period.

         In April 1995, Marvel 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 December 31, 1996, was approximately 8 19/32%
         to 8 11/16% depending upon the length of the relevant interest period.
         Interest on Alternate Base Rate Loans is payable quarterly in arrears,
         and interest on Eurodollar Rate Loans is payable at the end of the
         applicable interest period, except that if the interest period is six
         months, interest is payable ninety days after the commencement of the
         interest period and at the end of the interest period.

         On August 30, 1994, Marvel, 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 December 31, 1996, was approximately 10
         5/32%. 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 


                                     F-20
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         include various restrictive covenants prohibiting Marvel 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 Marvel, with certain exceptions, and from certain
         excess cash flow (as defined in the Amended and Restated Credit
         Agreement).

         During March 1996 and August 1996, Marvel amended the U.S. Term Loan
         Agreement, the Amended and Restated Credit Agreement and the Term Loan
         Agreement to, among other things: (1) provide for an additional $25.0
         revolving credit facility which was subsequently reduced to $15.0; (2)
         secure the borrowings with substantially all of Marvel's domestic
         assets, other than Marvel's investment in common stock of Toy Biz, and
         all of the capital stock of Marvel's domestic subsidiaries and 65% of
         the capital stock of Marvel's first tier foreign subsidiaries; and (3)
         amend certain financial covenants. The additional revolving credit
         facility is pari passu with the loans extended by the banks pursuant
         to Marvel's existing loan agreements (collectively with the U.S. Term
         Loan Agreement, the Amended and Restated Credit Agreement, the
         additional revolving credit facility, 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 December 31, 1996 was 8.5%.

         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.

         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 Marvel.

         The average cost of borrowings for the U.S. Term Loan Agreement, the
         Amended and Restated Credit Agreement and the Term Loan Agreement was
         approximately 8.83% for the year ended December 31, 1996. The average
         cost of borrowings for the U.S. Term Loan Agreement, the 


                                     F-21
<PAGE>

                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         Amended and Restated Credit Agreement and the Term Loan Agreement was
         approximately 8 7/8% for the year ended December 31, 1995. The average
         cost of borrowings for the Amended and Restated Credit Facility for
         the year ended December 31, 1994 was 5.6% , and the average cost of
         borrowings for the Term Loan Agreement was 9 1/2% for the four months
         ended December 31, 1994.

         The average cost of borrowings for the Toy Biz credit facility was
         approximately 8 1/4% and 8 1/2% for the years ended December 31, 1996
         and 1995, respectively.

         The revolving credit portion of the Amended and Restated Credit
         Agreement at December 31, 1996 was fully drawn. The Amended and
         Restated Marvel Credit Agreement requires the Company to pay a
         commitment fee of 1/4 to 3/8 of 1% per annum on the unused portion.

         Due to the extenuating circumstances involving the Marvel Credit
         Facilities and other debt as a result of the Chapter 11 filings, it is
         not practicable to estimate the fair value of these obligations as of
         December 31, 1996.

(b)      The Marvel Holdings Notes, which have a face value of $517.4, mature
         on April 15, 1998 and are secured by 48 million shares of Marvel
         common stock. There is no periodic payments of interest on the Marvel
         Holdings Notes which were offered at a substantial discount from their
         principal amount which represents a yield to maturity of 11 1/4%. The
         indenture pursuant to which the Marvel Holdings Notes were issued
         contain various restrictions on new indebtedness, sale or transfer of
         assets, payment of dividends and change in control. Additionally, the
         indenture requires Marvel Holdings to hold a majority of the
         outstanding shares of Marvel common stock at all times.

(c)      The Parent Holdings Notes, which have a face value of $251.7, mature
         on April 15, 1998 and are secured by 20 million shares of Marvel
         common stock owned directly by Parent Holdings and all of the
         outstanding shares of Marvel Holdings common stock. There is no
         periodic payments of interest on the Marvel Holdings Notes which were
         offered at a substantial discount from their principal amount which
         represents a yield to maturity of 11 7/8%. The indenture pursuant to
         which Parent Holdings Notes were issued contains various restrictions
         on new indebtedness, sale or transfer of assets, payment of dividends
         and change in control. Additionally, the indenture requires Parent
         Holdings to hold or cause Marvel Holdings together with Parent
         Holdings to hold a majority of the outstanding shares of Marvel common
         stock at all times.

         (d) The Marvel III Notes, which have a face value of $125.0, mature on
         February 15, 1998, and pay interest at an annual rate of 9 1/8% in
         semi-annual installments on February 15 and August 15 of each year,
         commencing August 15, 1994. The Marvel III Notes are guaranteed on a
         non-recourse basis by Parent Holdings, which guaranty is secured by a
         first priority lien on approximately 9.3 million shares of Marvel
         common stock.

         The bankruptcy filings of Marvel and the Marvel Holding Companies
resulted in an event of default pursuant to the indentures of the Marvel
Holding Companies. The estimated fair value of the Marvel 


                                     F-22
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

Holdings Notes, the Parent Holdings Notes and the Marvel III Notes at December
31, 1996 were $67.4, $28.2 and $23.1, respectively. The fair value of the
Company's long-term debt is estimated using indicative market rates. Because
considerable judgment is required in interpreting market data to develop
estimates of fair value, the estimates are not necessarily indicative of
amounts that could be realized or would be paid in a current market exchange.
The effect of using different market assumptions or estimation methodologies
may be material to the estimated fair value amounts.

         On February 27, 1997, the Bankruptcy Court entered an order lifting
the automatic stay in the Chapter 11 cases of the Marvel Holding Companies. On
March 19, 1997, the Creditors Committee notified Marvel that on March 25, 1997
it would cause the Holding Companies' Trustee to vote the Pledged Common Stock
to replace the Board of Directors of Marvel and the Marvel Holding Companies.
On March 24, 1997, the Court in the Debtor Companies' Bankruptcy cases issued a
restraining order preventing the Creditors Committee and the Holding Companies'
Trustee from voting the Pledged Stock or otherwise replacing the Board of
Directors of Marvel. On March 28, 1997, the Creditors Committee and the Holding
Companies' Trustee filed a motion with the Bankruptcy Court seeking a lifting
of the automatic stay in the Debtors 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 has been set for May 14,
1997. On March 28, 1997, the Creditors Committee also filed an emergency appeal
of the restraining order of the Bankruptcy Court issued on March 24, 1997,
preventing the replacement of the Board of Directors of Marvel. A briefing
schedule has been set for the emergency appeal and a hearing date for such
appeal has been set for May 1, 1997. If the Holding Companies' Trustee were to
among other things, vote the Pledged Common 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.

(e)      In July 1994, Mafco Finance Corp. (formerly Marvel IV Holdings Inc.),
         a wholly-owned subsidiary of the Company ("Mafco Finance"), entered
         into a bank credit agreement (the "Mafco Finance Credit Agreement")
         with Citibank, N.A. as agent for a group of banks. The Mafco Finance
         Credit Agreement provided for borrowings up to $240.0. The agreement
         was amended on June 29, 1995 and on December 15, 1995. On December 16,
         1996, Mafco Finance Corp. ("Mafco Finance") entered into an amended
         and restated credit agreement which provided for a $350.0 million term
         loan facility and a $300.0 revolving credit facility. At December 31,
         1996, there was $249.6 of outstanding borrowings under the revolving
         credit facility and $0 under the term loan facility. Such borrowings
         were repaid in full on March 13, 1997. On March 20, 1997, Mafco
         Finance entered into an amended and restated credit agreement (the
         "Amended Mafco Finance Credit Agreement") which provides for a $400.0
         term loan facility and $250.0 revolving credit facility. The Amended
         Mafco Finance Credit Agreement matures in March 1999. Pursuant to the
         Amended Mafco Finance Credit Agreement, Mafco Finance will be required
         to have no outstanding borrowings under the Revolving Credit Facility
         (other than outstanding letters of credit) for at least 30 consecutive
         days in each twelve consecutive month period. At March 26, 1997, there
         was $400.0 of outstanding borrowings under the term loan facility and
         $0 outstanding under the revolving credit facility. Borrowings
         outstanding under the Amended Mafco Finance Credit Agreement bear
         interest, as appropriate for the type of advance, at either (i) the
         Base Rate (as defined) plus a margin of 2.50% or (ii) LIBOR (as
         defined) plus a margin of 4.50%. Mafco Finance's obligations are
         guaranteed by certain subsidiaries and affiliates of the Company and
         the Amended Mafco Finance Credit Agreement contains customary
         affirmative and negative covenants and events of default. The ADSs are
         pledged as 


                                     F-23
<PAGE>

                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         security under the Amended Mafco Consolidated Credit Agreement, which
         limits the use of proceeds of any ADS sale.

(f)      In connection with the Andrews Merger, the Company issued 10% Senior
         Subordinated Debentures due 1999 (the "10% Debentures"). During 1992,
         in connection with the settlement of certain litigation, $4.1 face
         value of 10% Debentures were issued. The 10% Debentures have a face
         value of $31.2 and were recorded with an original issue discount. The
         10% Debentures pay interest semi-annually and mature on December 31,
         1999. The bankruptcy of Marvel resulted in an event of default
         pursuant to the indenture governing the 10% Debentures. However, in
         accordance with the settlement of certain litigation, the Company has
         agreed to exercise its optional right to redeem the 10% Debentures on
         June 30, 1997 and to use its best efforts to cause a registered broker
         to make a market in the 10% Debentures. The discount is amortized over
         the life of the debentures to June 1997. The unamortized discount at
         December 31, 1996 and 1995 was $1.7 and $4.5, respectively.

(g)      In July 1986, the Company issued $80.0 of 12 3/4% Subordinated
         Debentures due 1996 (the "12 3/4% Debentures"), of which $65.7
         principal amount was repurchased in 1988. The 12 3/4% Debentures paid
         interest semi-annually on January 1 and July 1 and matured on July 1,
         1996 when the remaining debentures were redeemed.

         The scheduled aggregate maturities of the Company's long term debt,
not subject to settlement under reorganization, per the underlying credit
agreements that support each debt facility are as follows:

                                             For the Years Ending December 31,
                                             ---------------------------------
1997...................................................$  43.6
1998...................................................   17.6
1999...................................................  277.8
2000...................................................   56.7
2001...................................................   43.6
2002 and thereafter....................................   12.1
                                                        ------
                                                        $451.4
                                                        ======

         The scheduled aggregate maturities of the Company's long term debt
which is not subject to settlement under reorganization per the underlying
credit agreements and indentures that support each debt facility are as
follows:

                                             For the Years Ending December 31,
                                             ---------------------------------
1997...................................................$   15.0
1998...................................................   894.1
1999...................................................    57.5
2000...................................................   125.0
2001...................................................   187.5
2002 and thereafter....................................   100.0
                                                       --------
                                                       $1,379.1
                                                       ========





                                     F-24
<PAGE>


                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)



7.       EMPLOYEE BENEFIT PLANS

SAVINGS PLANS

         The Marvel Entertainment Group, Inc. Savings and Investment Plan is a
defined contribution plan qualified under Section 401(k) of the Internal
Revenue Code of 1986, as amended, covering all full-time non-union salaried and
hourly employees who have at least one year of service and matches
contributions by employees in an amount equal to 100% of the first 3% of
eligible compensation contributed and 25% of the next 3% of eligible
compensation contributed, up to a maximum of 3.75% of the employees'
compensation. In addition, Toy Biz has a 401(k) Profit Sharing Plan and Trust
that covers all employees of Toy Biz over the age of twenty who have been
employed by Toy Biz for at least six months. Toy Biz matches contributions by
employees in an amount equal to 20% of that employee's contribution that does
not exceed 6% of the employee's compensation for that period. The provisions
for contributions under these plans were $.5 in 1996, 1995 and 1994.

PENSION PLANS AND POSTRETIREMENT BENEFITS

         Fleer and SkyBox have noncontributory defined benefit pension plans
for salaried employees. Effective as of September 1, 1996, such pension plans
were merged with Fleer becoming the plan sponsor. The benefits are based on the
employee's years of service and highest five years of compensation.
Contributions are intended to provide for benefits attributed to service to
date and for those expected to be earned in the future. Employees are eligible
to participate in the pension plan after two years of service at which time
they are fully vested. The projected benefit obligation was $17.7 and $17.9 and
plan assets were approximately $14.5 and $15.0 at December 31, 1996 and 1995,
respectively. Pension expense for all periods was insignificant.

         Fleer has a postretirement medical and life insurance plan for
salaried employees who retire after the age of 62. The Company accounts for
these benefits in accordance with Statement of Financial Accounting Standards
No. 106 "Employers' Accounting for Postretirement Benefits Other Than
Pensions". Benefits include postretirement coverage of medical insurance for
the life of the retiree and spouse. The plan has only a limited number of
participants. Fleer's policy is to fund postretirement benefit costs as
payments are made to participants. At December 31, 1996, 1995 and 1994, and for
the years then ended, the postretirement benefit obligation and expense were
insignificant.

STOCK OPTION PLAN

         Under the terms of the Marvel Entertainment Group, Inc. Amended and
Restated Stock Option Plan (the "Stock Option Plan"), incentive stock options
("ISOs"), non-qualified stock options ("NQSOs") and stock appreciation rights
("SARs") may be granted to key employees of, or consultants to, the Company and
any of its affiliates from time to time. In May 1995, Marvel was authorized to
increase the aggregate number of shares of Marvel common stock as to which
options and rights may be granted under the Stock Option Plan from 11,000,000
to 16,000,000 shares, including options described below.




                                     F-25
<PAGE>


                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)


         Information with respect to options under the Stock Option Plan
follows:
<TABLE>
<CAPTION>

                                                                                                                 Weighted
                                                                                                                  Average
                                                                                                                 Exercise
                                                    Shares                  Option price per share                 Price
                                            ----------------------      -------------------------------     -------------------
<S>                                         <C>                         <C>                                  <C>       
Outstanding at January 1, 1994.......              9,120,333                $2.0625 - $26.75
Canceled-------------------------------------        (10,001)                2.0625 - $14.50
Exercised..................................       (3,012,732)                2.0625 - $14.50
Granted....................................        1,975,000                13.6875 - $18.50
                                            ----------------------
Outstanding at December 31, 1994...........        8,072,600                 2.0625 - $26.75
Exercised..................................       (1,046,940)                2.0625 - $14.50
Canceled...................................       (1,267,002)                2.0625 - $17.625
Granted....................................        2,200,000                  14.25 - $15.50
                                            ----------------------
Outstanding at December 31, 1995...........        7,958,658                 2.0625 - $26.75
Exercised..................................         (106,993)                2.0625 -  $7.75                       $11.945
Canceled...................................       (1,128,668)                2.0625 - $26.75                        15.658
Granted....................................        1,745,000                 5.00   - $12.625                     $  9.850
                                            ----------------------
Outstanding at December 31, 1996...........        8,467,997                $2.0625 - $16.75
                                            ======================
</TABLE>

         At December 31, 1996, 6,078,867 shares (6,656,000 shares at December
31, 1995) were exercisable and 1,722,343 shares (1,732,000 shares at December
31, 1995) were available for future grants of options and rights. The weighted
average fair value of options granted under the Stock Option Plan during 1996
was $.67 per share.
<TABLE>
<CAPTION>


                                 Options Outstanding                                                Options Exercisable
                         -------------------------------------                              -----------------------------------
                             Number               Weighted                                     Number 
                         Outstanding at            Average             Weighted             Exercisable at         Weighted
     Ranges of             December 31,           Remaining             Average              December 31,           Average
   Exercise Prices            1996            Contractual Life       Exercise Price              1996            Exercise Price
   ---------------            ----            ----------------       --------------              ----            --------------
<S>                       <C>               <C>                     <C>                      <C>                  <C>
   $2.00 - $5.00            1,546,000                5.4                  $2.54               1,296,000               $2.06
   $5.01 - $10.00           3,468,300                6.7                  $8.87               3,067,500               $8.90
   $10.01-$15.00            2,973,700                8.3                 $13.71               1,502,033              $13.99
   $15.01-$20.00              479,997                8.2                 $16.26                 213,334              $16.04
                            ---------                                                         --------
                            8,467,997                7.1                  $9.83               6,078,867               $9.83
                            =========                                                         =========

</TABLE>

         Toy Biz's 1995 Stock Option Plan provides for the issuance of stock
options ("Toy Biz Options") and SARs for up to 1,350,000 shares of Class A
Common Stock at a fair market value at the time of grant. One-third of the Toy
Biz Options become exercisable at the date of grant (the "Grant Date"), and the
balance of the Toy Biz Options become exercisable in equal increments on the
first and second anniversaries of the Grant Date. At December 31, 1996 and
1995, Toy Biz Options for 691,211 and 329,187, respectively were exercisable.
As of December 31, 1996, no SARs have been granted and Toy Biz Options with
respect to 186,321 shares of Class A Common Stock are available for future
grant. The weighted average fair value of Toy Biz Options granted during 1995
and 1996 were $6.85 per share and $6.15 per share, respectively.


                                     F-26
<PAGE>




                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)



         Information with respect to options under Toy Biz's 1995 Stock Option
Plan follows:
<TABLE>
<CAPTION>

                                                    Shares                     Weighted Average
                                                                                Exercise Price
                                            ----------------------      -------------------------------
<S>                                         <C>                         <C>         
Outstanding at January 1, 1995.............             -                              -
Forfeited..................................           (33,268)                     $18.000
Exercised..................................           (20,130)                     $18.000
Granted....................................         1,049,000                      $18.173
                                            ----------------------
Outstanding at December 31, 1995...........           995,602                      $18.183
Exercised..................................           (22,664)                     $18.000
Forfeited..................................           (47,303)                     $18.119
Granted....................................           195,250                      $17.111
                                            ----------------------
Outstanding at December 31, 1996...........         1,120,885                      $18.002
                                            ======================
</TABLE>

         The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on date of grant, no compensation expense
is recognized. The Company has adopted the disclosure-only provisions under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS
123"). For the purposes of SFAS 123 pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options' vesting period.
The Company's pro forma information follows:

                                        1996                    1995
                                 ------------------      ------------------
Net loss, as reported                 ($669.7)                ($238.9)
Pro Forma net loss                    ($675.7)                ($241.8)



         The fair value for each option grant under the Stock Option Plan was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for the various grants made during
1995 and 1996: risk free interest rates ranging from 5.40% to 6.53%; no
dividend yield; expected volatility ranging from .466 to .487 and expected life
of three years. The fair value for each option grant under Toy Biz's 1995 Stock
Option Plan was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for the various
grants made during 1995 and 1996: risk free interest rates ranging from 5.26%
to 7.19%; no dividend yield; expected volatility of .354 and expected lives of
three to five years. The option valuation models were developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, the option valuation models require
the input of highly subjective assumptions including the expected stock price
volatility. Because Marvel and Toy Biz's employee stock options have
characteristics significantly different from those traded options, and because
changes in the subjective input assumptions can materially affect the fair
value estimate in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

                                     F-27
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         The value of the options granted under the Stock Option Plan is 
directly related to the value of Marvel's Common Stock.  The closing sale 
prices for Marvel's common stock and Toy Biz Common Stock as of 
March 27, 1997 were $2.50 per share and $9.25 per share, respectively.  
Presently, there is no plan of reorganization.  There can be no assurances 
that the holders of equity interests of Marvel will receive any consideration 
for such equity interests under any plan of reorganization.

8.       PREFERRED STOCK OF SUBSIDIARY

         In June 1989, Four Star Holdings issued 5,127 shares of Adjustable
Rate Cumulative Preferred Stock at $1,000 per share to former New World
Entertainment Ltd. ("NW Entertainment") management stockholders in connection
with the acquisition of NW Entertainment, a former subsidiary included in the
NWCG Disposition. The dividend rate is 60% of the sum of LIBOR plus 1 1/2% to be
paid quarterly on February 1, May 1, August 1 and November 1. At its option,
Four Star Holdings may redeem the preferred stock at par. The preferred stock
is non-voting and has a mandatory redemption requirement at par on June 8,
1999.

9.       DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

ACCOUNTS RECEIVABLE, NET:

                                     1996                    1995
                              ------------------      ------------------

Accounts receivable .........   $    275.3              $    314.6
Less: Allowances.............       (46.2)                  (77.9)
                              ------------------      ------------------
                                $    229.1              $    236.7
                              ==================      ==================

         The decrease in the allowance is primarily due to the provisions
recorded by Marvel in the fourth quarter of 1995 in connection with the
discontinuance of certain mass market points of distribution for the trading
card business for which there were no similar provisions of such magnitude in
1996.

         Marvel performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Receivables
generally are due within 30-90 days. At December 31, 1996, Marvel did not have
any significant concentrations of credit risk.

INVENTORIES:

                                         1996                    1995
                                  ------------------      ------------------
Finished goods....................  $    69.4               $    58.8
Work in process...................       16.3                    22.3
Raw materials.....................       22.0                    23.7
Less: Reseerve for obsolescence ..      (29.6)                  (22.4)
                                  ------------------      ------------------
                                    $    78.1               $    82.4
                                  ==================      ==================

         The increase in the reserve for obsolescence is primarily due to the
increased provisions recorded by Marvel for the trading card business.

                                     F-28
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

PROPERTY, PLANT AND EQUIPMENT (AT COST), NET:

         Depreciation and amortization of property, plant and equipment are
provided on the straight-line basis over the estimated asset lives indicated
below.

                                                       1996            1995   
                                                  -------------   ------------
Land and buildings (20 to 33 years for buildings) $    55.3       $    37.3
Machinery and equipment (3 to 10 years)                65.1            54.1
Furniture and fixtures (5 to 10 years)                  7.3             6.0
Leasehold improvements and other (3 to 10 years)        2.7             2.8
Construction-in-progress                                1.8             1.3
                                                  -------------   ------------
                                                       132.2           101.5
Less:  Accumulated depreciation and amortization      (32.6)          (23.9)
                                                  -------------
                                                                  ------------
                                                  $    99.6       $    77.6
                                                  =============   ============

         Depreciation and amortization was $19.3, $13.9 and $3.3 in 1996, 1995
and 1994, respectively. This increase primarily resulted from an increased
investment in product tooling to support Toy Biz's expanded product line.

GOODWILL AND OTHER INTANGIBLES, NET (SEE NOTE 15):

                                            1996                    1995
                                     ------------------      ------------------
Goodwill and other intangibles......   $    656.4              $   974.9
Less:  Accumulated amortization.....       (338.8)                 (62.1)
                                     ------------------      ------------------
                                       $    317.6                $ 912.8
                                     ==================      ==================

ACCRUED EXPENSES AND OTHER:
<TABLE>
<CAPTION>

                                                                          1996                   1995
                                                                   ------------------      -----------------
<S>                                                                  <C>                     <C>     
Royalties and incentives......................................       $    23.0               $   21.4
Reserve for returns...........................................            51.2                   59.0
Other.........................................................           139.3                  137.4
Less amounts reclassed to liabilities subject to settlement 
  under reorganization (See Note 4)...........................           (20.0)                  -                              
                                                                   ------------------      -----------------  
                                                                     $   193.5              $   217.8        
                                                                   ==================      =================  
</TABLE>
                                                                  

10.      RELATED PARTY TRANSACTIONS

         During the years ended December 31, 1996, 1995 and 1994, Toy Biz
accrued royalties of $1.8, $5.7 and $6.5 to Mr. Arad for toys he invented or
designed.

         During 1994, Marvel entered into an apparel license with Classic
Heroes, Inc., an affiliate of Toy Biz controlled by a non-Mafco director of Toy
Biz. Under the contract, Marvel recognized $5.0 of income in 1994. In 1995,
Marvel, at its initiation, terminated the contract and incurred $4.0 of costs,
which has been charged to operations.

                                     F-29
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         "Other assets" at December 31, 1996 and 1995 includes $0.3 and $2.9 of
debt securities issued by M&F Holdings and an affiliate that were purchased in
the open market.

         At March 26, 1997, December 31, 1996 and December 31, 1995, Mafco
Holdings and affiliates had outstanding advances to the Company of $64.0,
$297.8 and $307.1, respectively. At March 26, 1997, December 31, 1996 and
December 31, 1995, Mafco Finance had advanced $391.6, $247.6 and $441.0,
respectively, to Mafco Holdings and its subsidiaries and at March 26, 1997, the
Company had advanced $221.0 to Mafco Holdings and its subsidiaries.

         In addition to the Pledged Stock, approximately 2.9 million shares of
Marvel's common stock are subject to a negative pledge under the indenture to
the notes issued by Marvel Holdings and approximately 0.3 million shares of
Marvel's common stock were pledged to secure obligations of subsidiaries of
Mafco Holdings.

         At December 31, 1996 and 1995, the Company has unsecured loans
totaling $1.8 and $1.7 to certain executive officers of the Company and Marvel.
At December 31, 1996, Marvel had unsecured loans totaling $0.5 to one of
Marvel's executive officers.


                                     F-30
<PAGE>




                   ANDREWS GROUP INCORPORATED AND SUBSIDIARIES 
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
                       (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)



11.      INCOME TAXES

         Components of the provision for income taxes consisted of the
following:


<TABLE>
<CAPTION>
                                                          Year ended December 31,
                                               -------------------------------------------
                                                    1996          1995       1994
                                                  --------      --------   --------- 
<S>                                           <C>            <C>           <C>
Income (loss) from continuing 
    operations before income taxes, 
    minority interest, equity in net 
    income of investees and 
    extraordinary items:
      Domestic                                $  (837.1)      $ (198.7)     $ (38.3)
      Foreign                                      (9.8)          34.6         11.6
                                               -----------    ----------   ----------
                                              $  (846.9)      $ (164.1)     $ (26.7)
                                               ===========    ==========   ==========
(Benefit) provision for income taxes:
 current:
      Federal                                 $    (5.0)       $  (0.1)     $  12.9
      State and local                               2.9            2.9          6.7
      Foreign                                      (0.4)           8.1          4.4
                                               -----------    ----------   ----------
                                                   (2.5)          10.9         24.0
Deferred:
   Federal                                       (148.5)         (12.8)         3.2
   State and local                                  4.2            1.0          1.7
   Foreign                                         (2.8)           6.7          1.7
                                               -----------    ----------   ----------

                                                 (147.1)          (5.1)         6.6
                                               -----------    ----------   ----------
Total                                         $  (149.6)       $   5.8         30.6
                                               ===========    ==========   ==========
</TABLE>

         The Company provides for taxes as if it had filed a separate
consolidated tax return. The Company is included in the consolidated federal
and certain state and local income tax returns of Mafco Holdings. Toy Biz files
separate federal, state and local income tax returns.

         During 1996, the Company, other than Marvel, recorded a federal
benefit on its loss for the year ended December 31, 1996 and for previously
unrecognized net operating losses carried forward from previous years due to
the taxable gain recorded in 1997 in connection with the NWCG Disposition. The
1996 provision also includes income taxes related to earnings of subsidiaries
which file separate tax returns.

         The provisions for federal income taxes in 1995 and 1994 related
primarily to the earnings of subsidiaries which file separate tax returns.
Marvel was not included in the federal consolidated 


                                     F-31
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

returns of the Company for periods prior to May 18, 1993 and subsequent to June
30, 1994. At June 30, 1994, the Company's ownership percentage in Marvel was
reduced below 80%, thus causing the company to treat Marvel as having
deconsolidated for tax purposes. However, Marvel is still included in the
consolidated federal tax return of Mafco Holdings, as Mafco Holdings, through
the Company and other affiliates maintains greater than 80% ownership in
Marvel. For 1995 and 1994, the Company has not recorded a benefit for its
separate company loss, including those of its subsidiaries, for the periods in
which Marvel was not a member of the Company's consolidated group as the
Company is not assured that it will be able to realize benefit for such losses
in the future. The state and local and foreign tax provisions relate primarily
to the operations of Marvel and Toy Biz.

         A portion of the deferred foreign tax provision for the year ended
December 31, 1994 relates to the utilization of foreign net operating loss
carryforwards and has been recorded as a credit to goodwill.

         The approximate effect of temporary differences that gave rise to
deferred tax balances at December 31, 1996 and 1995, were as follows:

<TABLE>
<CAPTION>
                                                          1996            1995
                                                      -------------   ----------
<S>                                                   <C>              <C>
Gross deferred tax assets:
   Trade receivables, net                               $  3.5          $  5.1
   Inventory                                              13.6             -
   Sales returns reserves                                 21.7             -
   Restructuring reserve                                  22.4             -
   Accounts payable and accrued expenses                   -              41.4
   Other assets                                            -              16.0
   Reserve related to foreign investment                   7.5             7.3
   Foreign net operating loss carryforward                28.9             8.0
   Domestic net operating loss carryforward              189.8           128.2
   Tax credit carryforwards                                4.7             -
    Other liabilities                                     11.2             -
                                                      -------------   ----------
Total deferred tax asset                                 303.3           206.0
Valuation allowance                                      (94.9)         (116.2)
                                                      -------------   ----------
   Net deferred tax asset                                208.4            89.8

Gross deferred liabilities:
   Equity investments                                      3.4              -
   Net liabilities held for sale                          75.1            73.1
   Depreciation/amortization                              20.9            14.4
   Licensing income                                        6.6            14.4
   Other liabilities, net                                  2.4            32.7
                                                      -------------   ----------
Total deferred tax liability                             108.4           134.6
                                                      -------------   ----------
   Net deferred tax asset (liability)                  % 100.0         % (44.8)
                                                      =============   ==========

</TABLE>

         At December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $552.3 which expire between 1998 and 2011.

                                     F-32
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         At December 31, 1996, the Company has provided a partial valuation
allowance relating to its net operating losses due to uncertainty as to the
realization of taxable income in the future.

         The effective tax rate on loss from continuing operations before
income taxes, minority interest, equity in net income of investees and
extraordinary item varies from the current statutory federal income tax rate as
follows (shown in percent):
<TABLE>
<CAPTION>

                                                                Year ended December 31,
                                                     --------------------------------------------
                                                       1996               1995              1994
                                                     --------            -------           ------
         <S>                                         <C>                <C>               <C>    
         Statutory Rate                               (35.0%)            (35.0%)           (35.0%)
         State and local taxes, net                    (1.1)               2.1              20.5
         Non-deductible amortization                   23.5                3.9              20.7
         Foreign taxes                                 (0.4)               2.5               2.5
         Increase (decrease) in valuation allowance    (4.6)              29.4             110.5
         Non-taxable gain (loss)                         --                1.2              (0.2)
         Other                                         (0.1)              (0.6)             (4.4)
                                                     ---------         --------           -------
         Effective rate                              (17.7%)               3.5%            114.6%
                                                     =======             ======            ======
</TABLE>

         The Company has not provided for taxes on undistributed foreign
earnings of approximately $3.9 and $26.0 at December 31, 1996 and 1995,
respectively, as the Company intends to permanently reinvest these earnings in
the future growth of the business. Determination of the amount of unrecognized
deferred U.S. income tax liability is not practicable because of the
complexities associated with its hypothetical calculations.

         In the event that the stock ownership in Marvel by members of the
Mafco Holdings-affiliated group were to decline below 80% (measured by vote or
value), Marvel and its subsidiaries would cease to be members of the Mafco
Holdings-affiliated group, at such time for tax purposes (a "
deconsolidation"). A deconsolidation would occur if, among other things, the
Holding Companies' Trustee were to foreclose on the Pledged Stock or the
Holding Companies' Trustee were to seek or exercise certain remedies under the
indentures pursuant to which the Marvel Holding Companies issued their
respective notes, such as the right to exercise all voting rights with respect
to the Pledged Stock.

         In the event of a deconsolidation, the Company would recognize a
substantial non-cash gain and would have a related tax obligation to its parent
in accordance with its tax sharing agreement.





                                     F-33
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)


12.      COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

         Consolidated rent expense under operating leases covering production
facilities, office facilities, warehouse facilities and equipment was $9.9,
$7.5 and $4.8 for the years ended December 31, 1996, 1995 and 1994,
respectively. These leases expire through 2005 and are subject to price
escalations for certain costs. Aggregate future minimum rental commitments,
excluding amounts included within restructuring charges, for these leases as of
December 31, 1996 were as follows:

                                For the Years Ending December 31 31,
                          -----------------------------------------------
1997                                           $4.9
1998                                            3.9
1999                                            3.2
2000                                            2.5
2001                                            1.3
2002 and thereafter                             0.7


SPORTS AND ENTERTAINMENT LICENSING CONTRACTS

         Minimum payments under Marvel's sports and entertainment license
agreements are $66.0, $55.3, $33.8, $6.1 and $6.7 in 1997, 1998, 1999, 2000 and
2001 respectively and $6.0 for 2002 and thereafter.

LEGAL MATTERS

         REORGANIZATION LEGAL PROCEEDINGS OF MARVEL AND MARVEL HOLDING COMPANIES

         On December 27, 1996, the Debtor Companies and the Marvel Holding
Companies filed petitions under Chapter 11 of the Bankruptcy Code (see Note 4)
and in connection with such filings have been parties to various legal
proceedings.

         The Holding Companies' Trustee has alleged that events of defaults
under each of the Marvel Holding Companies indentures have occurred by reason
of the commencement of the Debtor Companies' cases under the Bankruptcy Code.
The Holding Companies' Trustee has also alleged that the majority ownership and
the anti-injunction provisions of each of the indentures have been violated.
Marvel is not a party to any of the indentures governing the notes issued by
the Marvel Holding Companies. In addition, the Company believes the allegations
of the Holding Companies' Trustee are either without merit or will be resolved
in connection with the prosecution of the reorganization cases of the Marvel
Holding Companies. The Holding Companies' Trustee has also alleged that it may
assert a claim based on alleged "tortious interference" occasioned by Marvel's
filing of the Plan. The Company believes that any such allegations are
completely without merit.

         There are twenty-seven purported class and derivative actions brought
by stockholders of Marvel and holders of bonds issued by the Marvel Holding
Companies and one action brought by a purported class of Toy Biz shareholders
presently pending in the Delaware Court of Chancery (collectively, the
"Delaware Actions") that challenge, among other things, the Andrews Investment.

                                     F-34
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         Twenty-one of the twenty-seven Delaware Actions assert either claims
on behalf of a purported class of all Marvel shareholders or shareholder
derivative claims on behalf of Marvel, or both. The complaints allege, among
other things, that the Andrews Investment represents a breach of defendants'
fiduciary duties because the proposed purchase price per share is unfair and
such purchase would dilute the minority shareholders' interest in Marvel.
Plaintiffs in these actions seek to enjoin the Andrews Investment, to rescind
the Andrews Investment if it is in fact consummated prior to the entry of the
Court's judgment, to recover damages for defendants' alleged conduct and to
recover costs and disbursements in pursuing these actions, including reasonable
attorneys' fees. These actions have been consolidated for all purposes by order
of the Delaware Court of Chancery. A consolidated complaint has not yet been
filed.

         Six of the Delaware Actions assert claims on behalf of a purported
class consisting of the holders of bonds issued by the Marvel Holding
Companies. These complaints allege, among other things, that the Andrews
Investment, if consummated, would be a breach of defendants' duty of fair
dealing and good faith owed to the holders of the bonds because the Andrews
Investment would result in the substantial dilution of Marvel's outstanding
stock, which is security for the bonds, and will thus diminish the value of the
bonds. These actions have been separately consolidated by order of the Delaware
Court of Chancery. The consolidated complaint in these six actions do not name
any of the Chapter 11 Debtor Companies as defendant. The parties to the
consolidated complaint have agreed to defer the filing of an answer.

         All of the foregoing Delaware Actions name varying defendants
consisting in the aggregate of Marvel, Andrews Group, MacAndrews Holdings,
Parent Holdings, Marvel III, Marvel Holdings, Ronald O. Perelman, William C.
Bevins, Donald G. Drapkin, Michael Fuchs, Frank Gifford, E. Gregory
Hookstratten, Morton L. Janklow, Quincy Jones, Stan Lee, Scott C. Marden, Terry
C. Stewart and Kenneth Ziffren.

         One of the pending Delaware Actions asserts claims on behalf of a
purported class of all Toy Biz shareholders. Holl v. Toy Biz, Inc., Marvel
Entertainment Group, Inc., Andrews Group, Inc., Ronald O. Perelman, Joseph M.
Ahearn, Avi Arad and Issac Perlmutter, C.A. No. 15359, was filed on November
15, 1996. The complaint alleges, among other things, that defendants Perelman,
Ahearn, Arad and Perlmutter are breaching their fiduciary duties in pursuing
the proposed offers of Marvel and Andrews Group to purchase Toy Biz stock. In
addition, the complaint alleges that defendant Marvel is aiding and abetting
the individual defendants in their unlawful conduct. Damages in an unspecified
amount are sought for the alleged breach of fiduciary duties by defendants.
Plaintiffs also seek to enjoin the consummation of the transaction, to rescind
the transaction in the event it is consummated and to recover costs and
disbursements and reasonable allowances for plaintiff's counsel. This case has
been stayed by stipulation of the parties.

         No classes have been certified in any of the Delaware Actions. On
December 27, 1996, the Debtor Companies and the Marvel Holding Companies filed
a petition for protection under Chapter 11 of the United States Bankruptcy
Code. As a result of Marvel's filing, all of the Delaware Actions with respect
to Marvel are automatically stayed pursuant to 11 U.S.C. Section 362. On March
7, 1997, Andrews Group terminated the Stock Purchase Agreement with Marvel and
withdrew the proposal for the Andrews Investment. On the same date, Andrews
Group informed Toy Biz and the two other principal stockholders of Toy Biz that
the transactions contemplated by the Merger Agreement and the Stock Purchase
Agreements with Toy Biz and each of such principal stockholders, respectively,
would not be consummated.

                                     F-35
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         Piels v. Marvel Entertainment Group, Inc., Ronald O. Perelman, Andrews
Group, Inc. and MacAndrews & Forbes Holdings Inc., Index No. 96-605702, was
commenced on November 14, 1996. This action, filed in New York Supreme Court,
County of New York, asserts claims on behalf of a purported class of all Marvel
shareholders. Named as defendants are Marvel, Ronald O. Perelman, Andrews Group
and MacAndrews Holdings. The complaint alleges, among other things, that the
defendants have breached their fiduciary duties in connection with the Andrews
Investment. Specifically, plaintiff alleges that Marvel's minority shareholders
are being directly damaged by defendants' actions with respect to the Andrews
Investment. Plaintiff seeks injunctive relief, damages in an unspecified amount
and costs and disbursements, including reasonable attorneys' fees. By orders
dated February 25, 1997, the New York Supreme Court denied plaintiff's motion
for a preliminary injunction and granted defendants' motion to dismiss the
action based on forum non conveniens.

         OTHER LEGAL PROCEEDINGS

         On March 9, 1995, a complaint purporting to be a class action was
filed against SkyBox, certain of SkyBox's officers and directors and Marvel in
the Delaware Court of Chancery, New Castle County, entitled Strougo v. Lorber,
et al., C.A. No. 14107 ("Strougo"). The complaint generally alleged that SkyBox
and certain of its officers and directors breached their fiduciary duties by
agreeing to be acquired by Marvel at an allegedly unfair and inadequate price,
failing to consider other potential purchasers in a manner designed to obtain
the highest possible price for SkyBox's stockholders and not acting in the best
interest of stockholders. The complaint also alleged that Marvel aided and
abetted the breaches of fiduciary duty committed by the other defendants named
in the complaint. The complaint sought preliminary and permanent injunctions
against consummation of the merger, damages, costs and experts' fees and
expenses. This case was dismissed without prejudice.

         On March 16, 1995, a complaint purporting to be a class action was
filed against SkyBox and certain of SkyBox's officers and directors in the
Delaware Court of Chancery, New Castle County, entitled Krim and Gerber v.
SkyBox International Inc., et al., C.A. No. 14127. The complaint generally made
allegations similar to those contained in the Strougo complaint and sought
similar injunctive and other relief. This case was dismissed without prejudice.

         Marvel is a defendant in a purported class action filed on July 26,
1996 in the United States District Court for the Eastern District of New York
entitled Fishman, et al v. Marvel Entertainment Group, Inc., CV-96-3757 (SJ),
by four persons who allegedly purchased sports and entertainment cards
manufactured by Fleer/SkyBox. The action is directed against standard business
practices in the trading card industry, including the practice of randomly
placing insert cards in packages of sports and entertainment trading cards, and
alleges that these practices constitute illegal gambling activity in violation
of state and federal law. Fleer/SkyBox's principal competitors in the trading
card industry have been separately sued for employing the same or similar
practices. On March 11, 1997, a similar action as Fishman against a competitor
of Fleer/SkyBox entitled Schwartz, et. al. v. Upper Deck No. 96CV3408 - B (AJB)
(S.D. Cal.), was dismissed with leave to replead. The plaintiffs in that action
filed an amended complaint on March 24, 1997. On April 2, 1997, a similar
action as Fishman against another competitor of Fleer/SkyBox entitled Price,
et. al. v. Pinnacle Brands, No. 3:96-CV-2150-T (N.D. Tex.), was dismissed with
prejudice. In addition, certain of the various sports organizations and
entertainment companies that issue licenses to Fleer/SkyBox (as well as the
other major trading card companies) in connection with the manufacture of
sports and entertainment 


                                     F-36
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

trading cards have also been separately sued and are alleged to be engaged in
aspects of the purportedly illegal gambling operations. Plaintiffs seek
certification of a class of persons who within four years prior to the filing
of the complaint purchased packages of trading cards that might contain
randomly inserted cards, and recovery of treble damages. On September 30, 1996,
the Company filed a motion to dismiss the complaint. Plaintiffs filed their
opposition to the motion on or about December 2, 1996. No discovery has
commenced. Plaintiffs have not specified the amount of damages sought, but
generally allege that members of the purported class have been damaged as a
result of their purchases of trading cards during the four years preceding the
commencement of the action. As set forth above, on or about December 27, 1996,
the Company filed a voluntary petition in the United States Bankruptcy Court
for the District of Delaware. As a result, the action was automatically stayed
pending the outcome of the bankruptcy proceeding. It is not possible at this
early stage of the case to predict the outcome with certainty. In the opinion
of the Company, the action lacks merit and the Company intends to defend it
vigorously.

         Marvel and two of its officers, William C. Bevins and Terry C.
Stewart, are named as defendants in a purported class action entitled Brian
Barry SEP IRA v. Marvel Entertainment Group, Inc., pending in the United States
District Court for the Southern District of New York. The complaint seeks
unspecified damages on behalf of a proposed class of purchasers of the
Company's Common Stock from April 11, 1994 to December 31, 1994 for alleged
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
as amended, as well as Rule 10b-5 promulgated thereunder. Plaintiff alleges
that the defendants, through their own statements and those of analysts,
artificially inflated the price of Marvel common stock by creating earnings
expectations which Marvel did not meet. Plaintiff also contends that the
defendants failed to timely disclose softness in the publishing and sports
trading card markets which led to Marvel's not attaining its purported earnings
target. Plaintiff claims that the individual defendants, because of their
corporate positions, are liable under the securities laws as control persons of
Marvel. The defendants moved to dismiss the complaint in its entirety on
February 23, 1996. On April 8, 1997, the District Court granted the defendants
motion to dismiss without prejudice. As set forth above, on or about December
27, 1996, Marvel filed a voluntary petition in the United States Bankruptcy
Court for the District of Delaware. As a result, any further action against
Marvel is automatically stayed pending the outcome of the bankruptcy
proceeding.

         Marvel is named as a defendant in two actions which have been
consolidated for all purposes with certain related actions in proceedings now
pending in the Los Angeles County Superior Court. The consolidated cases center
around the ownership of certain rights in the production and distribution of a
live action motion picture based on the "SPIDER-MAN" character owned by Marvel.
Once the automatic stay governing all litigation involving Marvel is lifted by
the Delaware Bankruptcy Court, Marvel intends to assert its own claims to those
rights.

         In the lead case, a dispute between 21st Century Film Corporation
("21st Film"), Carolco Pictures, Inc. ("Carolco") and related entities, 21st
Film claims that it still possesses rights under an agreement with Marvel to
produce and distribute a live action film based on the "SPIDER-MAN" character,
although it had assigned all of its rights to Carolco. Metro Goldwyn Mayer,
Inc. ("MGM") has succeeded to the litigation position of both 21st Film and
Carolco in the respective bankruptcy proceeding of those two companies. In
addition to its purchase of 21st Film and Carolco litigation positions, MGM is
a plaintiff in a separate case that has been deemed related to the lead and
consolidated cases. Marvel has answered the complaint denying MGM's
allegations.

                                     F-37
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         An additional lawsuit, between Carolco and Columbia Tristar Home Video
("Columbia"), concerns the videocassettes rights to any such film, and a third
lawsuit, between Carolco and Viacom International, Inc. ("Viacom"), involves
television rights. Both Columbia and Viacom claim that, before 21st Film
assigned its rights under its agreement with Marvel to Carolco, 21st Film had
licensed ancillary rights to each company. Each seeks to enforce its respective
rights. Viacom, however, brought a separate suit naming Marvel, and Marvel has
answered that complaint, denying Viacom's allegations.

         In its answer and other pleadings, Marvel contends that it is the sole
and exclusive holder of the unencumbered right to produce and distribute a live
action based on the "SPIDER-MAN" character. Marvel contends that all rights to
produce or distribute a "SPIDER-MAN" film under its agreement with Carolco and
21st Film have reverted to Marvel.

         Marvel has notified the Court in the consolidated action that Marvel
has filed for bankruptcy protection, and that the bankruptcy court filing stays
all further proceedings in the consolidated lawsuit as to Marvel. Subject to
further proceedings in the bankruptcy court, Marvel has stated that it intends
to defend vigorously the Viacom lawsuit and the MGM lawsuit, and to defend
vigorously and assert its exclusive rights to produce and distribute a live
action film based on the "SPIDER-MAN" character.

         In February 1989, Robert Eckstein, et al. brought an action for
violation of Federal securities laws against NW Entertainment, then a
subsidiary of Andrews, and other parties (the "Eckstein Action"). In October
1988, Ralph Majeski, et al. brought an action for fraud, misrepresentation,
breaches of contract and fiduciary duty and pendent state law claims against NW
Entertainment and other parties (the "Majeski Action"). Classes were certified
in both actions. In March 1992, the court granted a motion for summary judgment
and dismissed both the Eckstein Action and the Majeski Action. Plaintiffs in
the Majeski Action filed a motion for reconsideration, which was denied by the
District Court on June 2, 1992. Notices of Appeal were filed in both actions.

         The plaintiffs in the Majeski action filed a lawsuit in the Circuit
Court of Milwaukee County, Wisconsin on March 8, 1993 (the "Majeski State Court
Action"). The Majeski State Court Action alleges essentially the same pendent
state law claims that had been asserted in the federal Majeski Action.

         On August 20, 1993, the Court of Appeals for the Seventh Circuit
vacated the district court judgments and remanded the cases to the district
court for further proceedings. On November 18, 1993 the defendants filed a
Petition for Writ of Certiorari with the United States Supreme Court, seeking
review of the Court of Appeals Order. The defendant's petition was denied on or
about January 18, 1994.

         In November 1993, both the Eckstein and Majeski plaintiffs filed
motions seeking leave to amend the complaints. The defendants did not oppose
the Eckstein plaintiffs' motion because those plaintiffs' did not add new
claims or assert new theories. The Majeski plaintiffs' motion seeks to amend
their Section 10(b) and breach of fiduciary duty claims, add a claim for treble
damages under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.
ss.ss. 1961-68 and delete certain common law claims and pursue them in a
separate proceeding. The defendants filed papers opposing 


                                     F-38
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

the Majeski plaintiffs' proposed amendments. A hearing on the foregoing motions
was held on January 26, 1994. On January 27, 1994 the Court granted the
Eckstein plaintiffs' motion to amend and took the Majeski plaintiff's motion to
amend under consideration. The Majeski State Court Action was voluntarily
dismissed by the plaintiffs.

         In February 1994, the defendants filed motions for summary judgment in
both actions. On August 31, 1994, the court denied the Majeski plaintiffs'
motion to amend their first amended complaint, granted the defendants' motions
for summary judgment in both the Eckstein and Majeski Actions and dismissed
both actions with prejudice. The Eckstein plaintiffs filed a motion for
reconsideration on September 15, 1994, which was denied by the court on October
28, 1994. Both the Eckstein and Majeski Actions were appealed by the plaintiffs
to the United States Court of Appeals for the Seventh Circuit. Oral argument
for these appeals was held on April 17, 1995. On June 26, 1995, the Court of
Appeals affirmed the judgments of the District Court in favor of the
defendants. On July 10, 1995, the Eckstein plaintiffs filed a petition for
rehearing and suggestion of rehearing en banc. The petition was denied by the
Court of Appeals on July 21, 1995. Neither the Eckstein or Majeski plaintiffs
sought review of the Seventh Circuit's decision in the Supreme Court.

         On July 27, 1995, the district court entered a final order taxing
costs against the Majeski plaintiffs in favor of the defendants in the sum of
$0.1. The Court of Appeals for the Seventh Circuit affirmed that decision, in
an unpublished order, on January 24, 1996, and issued its mandate on February
15, 1996. No petition for writ of certiorari in the Supreme Court has not yet
expired.

         On or about July 6, 1995, the Majeski plaintiffs filed a purported
class action lawsuit in the Circuit Court for Milwaukee County, Wisconsin,
entitled Ralph Majeski, et al. v. Balcor Entertainment Company Ltd., et al.,
Case No. 95CV006579 (the "Second Majeski State Court Action"). The Second
Majeski State Court Action is based on allegations similar to those in the
Federal Court Majeski Action, and seeks similar relief. The complaint alleges
claims based on state law asserting, among other things, breach of fiduciary
duties, negligent and intentional misrepresentation and deceit, breach of
contract, and a derivative claim on behalf of another defendant, Balcor Film
Investors, and its successor. On October 23, 1995, plaintiffs filed an amended
complaint, which made only minor, technical changes. On November 2, 1995, the
court entered its order, without objection from the defendants, certifying the
plaintiff-class and directing that notice be sent to all class members. NW
Entertainment filed a motion to dismiss the complaint for lack of personal
jurisdiction.

         On November 16, 1995, plaintiffs filed a Second Amended Complaint
adding as a defendant the most recently appointed co-trustee of the BFI Trust.
The newly-named defendant, joined by all other defendants, thereafter removed
the case to United States District Court. On November 20, 1995, the District
Court granted plaintiff's motion to remand and returned the case to the Circuit
Court, Milwaukee County, State of Wisconsin.

         Following discovery, the defendants withdrew their motion to dismiss
for lack of personal jurisdiction, and filed an answer denying liability and
asserting affirmative defenses. The case is set for trial on October 6, 1997.

                                     F-39
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

         The Company is involved in various other legal proceedings and claims
incident to the normal conduct of its business. Although it is impossible to
predict the outcome of any outstanding legal proceeding, the Company believes
that all of its non-bankruptcy legal proceedings and claims, individually and
in the aggregate, are not likely to have a material adverse effect on its
financial condition or results of operations. As a result of the Debtors
Companies filing of petitions pursuant to the Bankruptcy Code, Marvel's legal
proceedings, other than the Debtor Companies bankruptcy proceedings, have been
automatically stayed. Marvel has obtained a lifting of the automatic stay in
the Fishman case in order to allow Marvel to pursue its motion to dismiss.

13.      QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                               Year ended December 31, 1996
                                       ------------------------------------------------------------------------------
                                           1st             2nd             3rd             4th
                                         Quarter         Quarter         Quarter        Quarter*           Total
                                       ------------    ------------    ------------    ------------    --------------
                                                                       
<S>                                     <C>                <C>           <C>            <C>            <C>  
Net revenue                               $  189.6        $ 182.2           209.4           164.3            745.5
Operating income (loss)                        9.1           (2.3)          (10.6)         (710.4)          (714.2)
Loss before extraordinary item
   and cumulative effect                     (52.6)         (41.5)          (35.5)         (533.1)          (662.7)
Net loss                                     (52.6)         (41.5)          (35.5)         (540.1)          (669.7)
</TABLE>

<TABLE>
<CAPTION>
                                                               Year ended December 31, 1995
                                       ------------------------------------------------------------------------------
                                           1st             2nd             3rd             4th
                                         Quarter         Quarter         Quarter         Quarter           Total
                                       ------------    ------------    ------------    -------------   --------------
<S>                                 <C>             <C>             <C>             <C>              <C>  
Net revenue                           $   157.9        $  169.2       $  269.0         $  232.8             828.9
Operating income (loss)                     9.8           (11.5)          52.0            (72.7)            (22.4)
Loss before extraordinary item
   and cumulative effect                  (36.7)          (54.4)         (37.5)          (107.0)           (235.6)
Net loss                                  (36.7)          (57.7)         (37.5)          (107.0)           (238.9)

</TABLE>


*Reflects fourth quarter charges including a writedown of goodwill and other
intangibles of approximately $581.7, a valuation allowance of approximately
$32.2 provided to offset deferred tax assets of Marvel previously recorded and
$175.0 reduction in the valuation allowance on deferred tax assets of the
Company other than Marvel, and benefit for current year operating losses of the
Company, other than Marvel.

14.      GEOGRAPHIC SEGMENTS

         The Company operates in a single business segment. Information related
to the Company's geographic segments for the years ended December 31, 1996,
1995 and 1994 is presented below. Substantially all of the Company's foreign
net revenues were derived from Europe.

         Operating profit, as presented below, is total sales less operating
expenses, amortization of goodwill and other intangibles, restructuring
charges, and identifiable miscellaneous income and expense. Unallocated income
and expenses represent interest expense, net interest and investment income,
foreign exchange loss (gain), gain on sale of Toy Biz common stock, equity in
net income of unconsolidated 


                                     F-40
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

subsidiaries, reorganization item and general
corporate expenses incurred to manage all of the Company's activities.

         Identifiable assets, as presented below, are those assets used in each
geographic area. Corporate assets are principally cash, certain property and
equipment and nonoperating assets. Export sales, including those to affiliates,
are not significant.

         The majority of the Company's foreign sales and thus the majority of
the risk of foreign currency fluctuations relate to Panini. As a hedge against
foreign currency fluctuation, the financing for the acquisition of Panini in
1994 has been denominated in Panini's functional currency. Additionally, from
time to time, Panini may enter into foreign currency forward exchange
contracts, swaps and options as hedges of various intercompany transactions. At
December 31, 1996 and 1995, outstanding forward exchange contracts were
insignificant. Additionally, the fluctuation in Panini's functional currency
for the years ended December 31, 1996 and 1995 was not significant.

GEOGRAPHIC AREAS:

                                             Year Ended December 31,
                                     1996          1995           1994
                                  -----------------------------------------
Net revenues:
       Domestic ..........        $  462.8       $  579.9       $  427.5
       Foreign ...........           309.9          278.6           97.5
       Eliminations ......           (27.2)         (29.6)         (10.2)
                                  ----------     ----------     ----------
                                  $  745.5       $  828.9       $  514.8
                                  ==========     ==========     ==========
  Operating (loss) profit:
       Domestic ..........        ($ 718.9)      ($  44.5)      $   81.3
       Foreign ...........            13.1           44.6           19.4
                                  ----------     ----------     ----------
                                    (705.8)           0.1          100.7

  Unallocated expenses, net         (141.1)        (164.2)        (127.4)
                                   ----------     ----------     ----------

  Loss from continuing 
   operations before income 
   taxes, minority interest,
   equity in net income of 
   investees and extraordinary 
   items......................   ($  846.9)       ($164.1)       $ (26.7)
                                  ==========     ==========     ==========



                                                    December 31,
                                              1996                 1995
                                        ---------------------------------

Identifiable assets:
     Domestic.........................    $    455.6             $ 1,095.5
     Foreign..........................         342.3                 324.0
     Corporate........................         533.7                 615.2
                                        -------------           ----------
                                          $   1,331.6            $ 2,034.7
                                        =============           ==========



                                     F-41

<PAGE>


                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)



15.      UNUSUAL CHARGES

         RESTRUCTURING:

         In the fourth quarter of 1995, Marvel recorded restructuring charges
of $25.0 related primarily to the publishing and confections operations. As
part of the restructuring, Marvel has terminated approximately 275 employees,
covering editorial, production, distribution and administrative employee groups
and accordingly, provided $10.7 of termination benefits, of which $8.8 has been
paid as of December 31, 1996. Additionally, approximately $6.7 relates to
facility closures and consolidation costs, of which $5.4 has been paid as of
December 31, 1996, and $7.6 relates to other costs, of which $4.7 has been paid
as of December 31, 1996. A substantial portion of the remaining amount of $6.1
as of December 31, 1996, which is included in accrued expenses and other, is
scheduled to be paid in accordance with the terms of various agreements.

         In the fourth quarter of 1996, Marvel 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 of a certain
confections facility. As part of the restructuring, Marvel has terminated
approximately 200 employees, covering editorial, production, distribution and
administrative employee groups and, accordingly, provided for $6.6 of
termination benefits. Additionally, approximately $9.2 of the restructuring
charges relates to write-down of fixed assets and facility closure.

         GOODWILL AND OTHER INTANGIBLES WRITE-DOWN:

         Goodwill related to the trading card operations of Fleer and SkyBox
was initially recorded at the time of their respective acquisitions. This
goodwill represented the excess of the purchase price over the valuation of the
net assets acquired in each acquisition. Among other things, the goodwill
amortization period was based on Marvel's expectations of future performance at
the time of acquisition, considering historical performance and industry
trends. These expectations assumed various growth rates in revenue and
sufficient cash flow from operations to repay acquisition indebtedness.

         There has been a significant and continued contraction in the trading
card market since the Fleer and SkyBox acquisitions, 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 1994
strike. Marvel believes that all of these factors have negatively affected the
sports trading card business, causing Marvel 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, in 1996,
Marvel's sales of entertainment trading cards has been adversely affected by
lack of commercial success of properties licensed from third parties as well as
the lower demand 



                                     F-42
<PAGE>
                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

for trading cards based on comic book characters. In response, Marvel has
undertaken several strategic actions to mitigate the effect of such contraction
However, to date these actions have not been sufficient to overcome the overall
decline in the sales of entertainment cards.

         As described above, continuing operating losses in the trading card
and publishing businesses, as well as significant long-term changes in industry
conditions, indicated to Marvel that there may be asset impairment. During the
fourth quarter of 1996, Marvel evaluated the recoverability of the carrying
value of long-lived assets related to Marvel, including goodwill and other
intangibles, in accordance with its previously stated accounting policies and
recorded a non-cash writedown of goodwill of approximately $252.9 related to
Fleer and SkyBox. Marvel recognized an impairment on a going concern basis
related to certain assets of the trading card business because the future
undiscounted cash flows of the assets were estimated to be insufficient to
recover their related carrying value. The write down was recorded based on the
difference between the carrying value of the asset and the fair value estimated
by independent appraisals on a going concern basis. As part of the bankruptcy
proceedings and reorganization efforts involving Marvel, certain appraisals of
Marvel's business units were prepared by investment banking firms. No such
adjustment was required for the assets of Marvel's ongoing publishing activity.
Considerable judgment was used to estimate future cash flows and fair value.
Accordingly, actual results could vary significantly from such estimates.
Subsequent to this write-down Marvel's goodwill related to trading cards was
approximately $110 which will be amortized over 15 years.

         The foregoing charge was based on a going concern assumption. In the
event of a sale of assets, there can be no assurance that actual results or
valuations will not vary significantly from the foregoing.

         In addition, Marvel has recorded, in the fourth quarter of 1996, an
approximate $19.8 non-cash write-down of goodwill and other intangibles related
to the write off of long-lived assets, including goodwill and other
intangibles, related to the closing of Heroes World and the discontinuance of
certain magazines for children.

         Goodwill of the Marvel Holding Companies relates to the tender offer
for Marvel shares in 1993 and subsequent open market purchases of Marvel common
stock. As a result of the condition in Marvel's operating businesses described
above and the bankruptcy filing of Marvel, the Company recorded a non-cash
charge of $303.2 to write off such goodwill.




                                     F-43


<PAGE>

                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)


16.      FINANCIAL STATEMENTS OF ENTITIES OPERATING UNDER CHAPTER 11

The combined condensed balance sheet as of December 31, 1996 of the Debtor 
Companies and to Marvel Holding Companies is as follows (See Note 4): 

<TABLE>
<CAPTION>
<S>                                                     <C>
ASSETS 
Current assets: 
 Cash..................................................   $  15.2 
 Accounts receivable, net..............................      57.5 
 Inventories, net......................................      22.1 
 Income tax receivable.................................      11.8 
 Prepaid expenses and other............................       7.3
                                                        --------- 
  Total current assets.................................     113.9 

Property, plant and equipment, net.....................       9.3 
Goodwill and other intangibles, net....................     193.0 
Deferred charges and other.............................      31.4 
Investments in and advances to subsidiaries, at cost ..      50.2 
                                                        --------- 
  Total Assets ........................................   $ 397.8 
                                                        ========= 

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
 Accounts payable......................................   $  29.2 
 Accrued expenses and other ...........................      93.2 
 Short term borrowings.................................      10.0 
 Liabilities subject to settlement under 
  reorganization.......................................      20.0 
                                                        --------- 
  Total current liabilities............................     152.4 

Other long-term liabilities............................      11.6 
Liabilities subject to settlement under 
 reorganization........................................   1,293.7 
                                                        --------- 
  Total Liabilities....................................   1,457.7 
                                                        --------- 
Stockholders' deficit:
 Additional paid-in capital............................    (109.1) 
 Accumulated deficit...................................    (950.3) 
 Cumulative translation adjustment.....................      (0.5) 
                                                        --------- 
  Total Stockholders' Deficit..........................  (1,059.9) 
                                                        --------- 
  Total Liabilities and Stockholders' Deficit .........   $ 397.8 
                                                        ========= 
</TABLE>

                                      F-44

<PAGE>

                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)



The combined condensed statement of operations for the year ended December 
31, 1996 of the Debtor Companies and the Marvel Holding Companies is as follows:

<TABLE>
<CAPTION>
<S>                                                                    <C>
Net revenues..........................................................   $ 290.1 

Cost of sales.........................................................     236.7 

Selling, general & administrative expenses............................     127.8 

Restructuring charges.................................................      15.8 

Depreciation and amortization ........................................      10.7

Amortization and write-off of goodwill, intangibles and deferred 
 charges .............................................................     608.7 

Interest expense, net.................................................     119.9 

Gain on sale of Toy Biz common stock..................................      22.0 

Equity in net loss of unconsolidated subsidiaries and other, net .....     (23.4) 
                                                                        --------- 

Loss before reorganization items, provision for income taxes, 
 minority interest and extraordinary item.............................    (830.9) 

Reorganization items..................................................       5.5 
                                                                        --------- 

Loss before provision for income taxes................................    (836.4) 

Provision for income taxes............................................      18.6 

Minority interest in loss of subsidiaries.............................     (44.0) 
                                                                        --------- 

Net loss..............................................................  ($ 811.0) 
                                                                        ========= 
</TABLE>

                                      F-45




<PAGE>

                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
          SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                   CONSOLIDATED BALANCE SHEETS (PARENT ONLY)
                   (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                            --------------------------
                                                                                                 1996          1995
                                                                                            ------------  ------------
<S>                                                                                        <C>           <C>
   ASSETS
Prepaid expenses and other                                                                         $0.3          $0.5
Deferred income taxes                                                                             175.0             - 
                                                                                            ------------  ------------
                Total current assets                                                              175.3           0.5 

Investments in and advances to subsidiaries net of
   cumulative losses and distributions                                                           (706.9)         42.2
Net assets held                                                                                    18.1          18.6
Other assets                                                                                        5.3           7.7
                                                                                            ------------  ------------
  Total assets                                                                                  ($508.2)        $69.0
                                                                                            ============  ============

 LIABILITIES AND STOCKHOLDER'S  DEFICIT

Current portion of long-term debt                                                                 $29.7         $14.3
Accrued expenses                                                                                   14.2          15.5
                                                                                            ------------  ------------
                Total current liabilities                                                          43.9          29.8

Long-term debt                                                                                      0.9          27.6
Indebtedness to subsidiaries and affiliates                                                       686.9         581.9
Other liabilities                                                                                   3.6           3.6

Stockholder's deficit:
   Common stock $1.00 par value; 1,000 shares
      authorized, issued and outstanding                                                              -             - 
   Additional paid-in-capital                                                                      40.7          40.2
   Accumulated deficit                                                                         (1,284.2)       (614.5)
   Cumulative translation adjustment                                                                  -           0.4
                                                                                            ------------  ------------
      Total stockholder's deficit                                                              (1,243.5)       (573.9)
                                                                                            ------------  ------------
                                                                                                ($508.2)        $69.0
                                                                                            ============  ============

</TABLE>
                                     F-46


<PAGE>

                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
          SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    STATEMENTS OF OPERATIONS (PARENT ONLY)
                             (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                              ------------------------------------------
                                                                                  1996           1995          1994
                                                                              --------------  ------------  ------------
<S>                                                                           <C>             <C>           <C>
General and administrative expenses                                                    $5.6         $10.4          $4.1
                                                                              --------------  ------------  ------------

Operating loss                                                                         (5.6)        (10.4)         (4.1)
                                                                              --------------  ------------  ------------

Other (expenses) income:
         Interest expense                                                             (40.5)        (56.0)        (52.2)
         Interest and investment income                                                 0.3           0.5           0.7
         Amortization of goodwill and debt issuance costs                              (0.7)         (0.7)         (0.7)
         Miscellaneous, net                                                            (0.3)         (0.3)         (0.2)
                                                                              --------------  ------------  ------------
                                                                                      (41.2)        (56.5)        (52.4)
                                                                              --------------  ------------  ------------
Loss from continuing operations before income taxes, equity
         in net income (loss) of subsidiaries and investees                           (46.8)        (66.9)        (56.5)
Benefit for deferred income taxes                                                     175.0            -             -
Equity in net (loss) income of subsidiaries                                          (797.4)       (171.5)         35.8
Equity in net income of investees                                                        -             -            9.4
                                                                              --------------  ------------  ------------

Loss from continuing operations before extraordinary items                           (669.2)       (238.4)        (11.3)
Loss from discontinued operations                                                      (0.5)         (0.5)         (2.4) 
                                                                              --------------  ------------  ------------

Net loss                                                                            ($669.7)      ($238.9)       ($13.7)
                                                                              ==============  ============  ============

</TABLE>

                                     F-47



<PAGE>

                  ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
          SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    STATEMENTS OF CASH FLOWS (PARENT ONLY)
                             (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>

                                                                                    Year ended December 31,
                                                                            ----------------------------------------
                                                                               1996          1995          1994
                                                                            ------------  ------------  ------------
<S>                                                                         <C>           <C>           <C>
CASH FLOW FROM OPERATING ACTIVITIES:
   Net loss                                                                    ($669.7)      ($238.9)       ($13.7)
                                                                            ------------  ------------  ------------

   Adjustments to reconcile net loss to net cash flows from operating
    activities:
      Depreciation and amortization                                                  0.8          0.8           1.8
      Loss from discontinued operations                                              0.5          0.5           2.8
      Benefit for deferred income taxes                                           (175.0)         -             -
      Equity in net loss of subsidiaries and investees                             797.4        171.5         (45.2)
      Amortization of debt discount                                                  3.1          2.8           2.2 
      Change in assets and liabilites:
            Decrease in accounts receivable                                           -           0.3           1.5
            (Decrease) increase in accrued expenses                                 (1.3)         0.4           -
            Decrease (increase) in other assets                                      2.1          3.9          (2.0)
                                                                            ------------  ------------  ------------
                                                                                   627.6        180.2         (38.9)
                                                                            ------------  ------------  ------------
   Net cash flows from operating activities                                        (42.1)       (58.7)        (52.6)
                                                                            ------------  ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Loans to affiliates, net                                                         -            14.0           -
   Investments in and (distributions from) subsidiaries, net                      (40.5)       (100.4)        144.7
   Other, net                                                                       -            (4.3)          -
                                                                            ------------  ------------  ------------
      Net cash flows from investing activities                                    (40.5)        (90.7)        144.7
                                                                            ------------  ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from net loans from affiliates and issuance of debt                   105.0         154.0         (96.8)
   Repayment of debt                                                              (14.5)          -            (2.1)  
   Contributions, net                                                               -             0.8           1.5
   Other, net                                                                     (7.9)          (5.4)          5.3
                                                                            ------------  ------------  ------------
      Net cash flows from financing activities
                                                                                   82.6         149.4         (92.1)
                                                                            ------------  ------------  ------------

Net decrease in cash and cash equivalents                                           -             -             -
Cash and cash equivalents at beginning of the period                                -             -             -
                                                                            ------------  ------------  ------------
Cash and cash equivalents at end of the period                                     $0.0          $0.0          $0.0
                                                                            ============  ============  ============

Supplemental schedule of cash flow information:
     Interest paid during the period                                               $9.8          $5.0          $3.3


</TABLE>
                                     F-48

<PAGE>


                                    ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
                                  SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS
                                               (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>


                                                                                                             Balance
                                                 Balance at    Charged to      Charged                          at
                                                  Beginning    Costs and        Other                         End of
                                                  of Period     Expenses     Accounts(c)    Deductions        Period
                                                ------------ ------------   ------------   ------------    ------------   
<S>                                             <C>          <C>           <C>             <C>             <C>
DESCRIPTION
Year ended December 31, 1996
Deducted from asset accounts:
   Allowance for returns ....................    $    61.6    $    41.0     $     -        ($   83.9) (a)   $     18.7

   Allowance for doubtful accounts and other
     allowances..............................         16.3         52.7           -            (41.5) (b)         27.5

   Reserve for inventory obsolescence........         22.4         23.5           -            (16.3)             29.6

Included in Accrued Expenses & Other:
     Reserve for Returns ....................         59.0        129.1           -           (136.9) (a)         51.2
                                                ------------ ------------   ------------   ------------    ------------   
Totals                                           $   159.3    $   246.3     $     -        $  (278.6)       $    127.0
                                                ============ ============   ============   ============    ============   


Year ended December 31, 1995
Deducted from asset accounts:
   Allowance for returns....................     $    21.0    $   101.5     $     3.8      ($   64.7) (a)   $     61.6
   Allowance for doubtful accounts and other
         allowances.........................           2.5         24.1           4.0          (14.3) (b)         16.3
   Reserve for inventory obsolescence........          1.7         33.6           9.8          (22.7)             22.4
Included in Accrued Expenses & Other:
   Reserve for Returns ......................         47.6        163.7           7.5         (159.8) (a)         59.0
                                                ------------ ------------   ------------   ------------    ------------   
Totals                                           $    72.8    $   322.9     $    25.1       $ (261.5)       $    159.3
                                                ============ ============   ============   ============    ============   

Year ended December 31, 1994
Deducted from asset accounts:
   Allowance for returns.....................    $    15.8    $    86.4     $     -        $   (81.2)(a)    $     21.0
   Allowance for doubtful accounts ..........           .9           .2           1.9            (.5)(b)           2.5
   Reserve for inventory obsolescence........           .7          7.3            .3           (6.6)              1.7
Included in Accrued Expenses & Other:
     Reserve for Returns ....................         12.1         97.9          15.6          (78.0)(a)          47.6
                                                ------------ ------------   ------------   ------------    ------------   
Totals                                           $    29.5    $   191.8     $    17.8      $  (166.3)       $     72.8
                                                ============ ============   ============   ============    ============   
</TABLE>
------------------

(a) Actual returns
(b) Doubtful accounts written off, less recoveries
(c) Primarily represents amounts acquired


                                             F-49