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, 2003

                                       OR

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

                           Commission File No. 1-13638

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

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

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

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

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

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

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

                            12% Senior Notes due 2009

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

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

     Indicate by check mark whether the Registrant is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes |X| No |_|

     The approximate  aggregate market value of the voting and non-voting common
equity held by  non-affiliates  of the  Registrant as of June 30, 2003, the last
business day of the Registrant's most recently  completed second fiscal quarter,
was  $885,416,924  based on a price of $19.10 per share, the closing sales price
for the  Registrant's  common  stock as reported in the New York Stock  Exchange
Composite  Transaction  Tape on that  date.  As of March  5,  2004,  there  were
72,594,782  outstanding shares of the Registrant's  common stock, in addition to
7,394,000 shares held by a wholly owned subsidiary of the Registrant.

                       DOCUMENTS INCORPORATED BY REFERENCE

     The  information  required  by Part III  (Items  10,  11, 12, 13 and 14) is
incorporated  by reference from the  Registrant's  definitive  proxy  statement,
which the Registrant intends to file with the Commission not later than 120 days
after the end of the fiscal year covered by this Report.


<PAGE>


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                                PAGE
PART I
<S>          <C>                                                                                                  <C>
        ITEM 1.         BUSINESS..............................................................................    1

        ITEM 2.         PROPERTIES............................................................................    6

        ITEM 3.         LEGAL PROCEEDINGS.....................................................................    7

        ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................    8


PART II

        ITEM 5.         MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
                        STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
                        SECURITIES............................................................................    8

        ITEM 6.         SELECTED FINANCIAL DATA...............................................................    9

        ITEM 7.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                        CONDITION AND RESULTS OF OPERATIONS...................................................    10
        ITEM 7A.        QUANTITATIVE AND QUALITATIVE DISCLOSURES
                        ABOUT MARKET RISK.....................................................................    23
        ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................    24
        ITEM 9.         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                        ACCOUNTING AND FINANCIAL DISCLOSURE...................................................    24
        ITEM 9A.        CONTROLS AND PROCEDURES...............................................................    24

PART III
        ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................................    24
        ITEM 11.        EXECUTIVE COMPENSATION................................................................    24
        ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                        AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS........................................    25
        ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................    25
        ITEM 14.        PRINCIPAL ACCOUNTANT FEES AND
                        SERVICES..............................................................................    25
PART IV
        ITEM 15.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
                        ON FORM 8-K...........................................................................    25
                        SIGNATURES............................................................................    30


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<PAGE>

    CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     The  Private  Securities  Litigation  Reform  Act of 1995  provides a "safe
harbor" for certain  forward-looking  statements.  The factors  discussed herein
concerning the Company's  business and operations  could cause actual results to
differ  materially  from those contained in  forward-looking  statements made in
this Form 10-K Annual Report.  When used in this Form 10-K, the words  "intend",
"estimate", "believe", "expect" and similar expressions are intended to identify
forward-looking  statements.  In addition,  the following factors, among others,
could cause the Company's  financial  performance to differ materially from that
expressed in any forward-looking statements made by the Company:

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

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

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

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

o    Toy-production  delays  or  shortfalls,   continued  concentration  of  toy
     retailers  and toy  inventory  risk.  The  retail  toy  business  is highly
     concentrated.  The five largest  customers  for the toy  products  which we
     continue to have  manufactured for ourselves  accounted,  in the aggregate,
     for approximately 66% of our total toy sales in 2003. An adverse change in,
     or termination of, the relationship  between us or our major  toy-producing
     licensee  and one or more of our  major  customers  could  have a  material
     adverse effect on us. In addition,  the bankruptcy or other lack of success
     of one or more of our  significant  retailers  could decrease our earnings.
     Our production of excess products to meet anticipated retailer demand could
     result in markdowns and increased  inventory  carrying costs for us on even
     our most  popular  items.  If we fail to  anticipate  a high demand for our
     products,  however,  we face  the risk  that we may be  unable  to  provide
     adequate supplies of popular toys to retailers in a timely fashion, and may
     consequently lose sales opportunities.

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


                                       ii
<PAGE>

     the Chinese Yuan against the U.S. Dollar could reduce the  profitability of
     toys  which we  manufacture  in China,  and  reduce  the  demand for Marvel
     licenses by licensees who  manufacture in China.  Our ability,  and that of
     our licensees,  to obtain products from Chinese  manufacturers is dependent
     upon the United States' trade  relationship  with China.  The imposition of
     trade sanctions on China could result in significant  supply disruptions or
     higher  merchandise  costs to us. We and our licensees might not be able to
     find alternate  sources of manufacturing  outside China on acceptable terms
     even if we want or need to. Our  inability or our  licensees'  inability to
     find those alternate sources could have a material adverse effect on us.

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



                                      iii
<PAGE>
                                     PART I


ITEM 1. BUSINESS

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

General

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

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

     The Company and Sony  Pictures  Consumer  Products Inc. have entered into a
joint venture,  called Spider-Man  Merchandising LP, for the purpose of pursuing
licensing  opportunities  relating to characters based upon movies or television
shows  featuring  Spider-Man  and produced by Sony Pictures  Entertainment  Inc.
("Sony  Pictures").  The joint  venture's  current fiscal year ends on March 31,
2004. The Company will file unaudited financial  statements of the joint venture
as an amendment to this Annual  Report on Form 10-K within 90 days of that date,
in accordance with Rule 3-09 of Regulation S-X.

Marvel Licensing

     The Licensing division licenses the Company's  characters for use in a wide
variety of products,  including toys,  electronic games,  apparel,  accessories,
footwear,  collectibles and novelties.  As of December 31, 2003, The Company had
over 450 active license contracts in domestic and international markets.  Marvel
Licensing  also  receives  fees from the sale of licenses to a variety of media,
including  feature  films,  television  programs,  video  games,  animation  and
destination-based  entertainment  (including theme parks),  and from the sale of
licenses for promotional use.

     Feature Films

     The Company has licensed various Marvel  characters with studios for use in
motion  pictures.  For example,  the Company  currently  has licenses  with Sony
Pictures to produce motion pictures featuring  Spider-Man,  Ghost Rider and Luke
Cage and with Twentieth Century Fox to produce motion pictures  featuring X-Men,
The Fantastic  Four and Silver Surfer.  One Daredevil  film was released  during
February  2003  and a  spin-off  based on the  Elektra  character  is  presently
scheduled to be released in 2005. Spider-Man: The Movie was released in May 2002
and a sequel is presently scheduled to be released in July 2004. Marvel also has
outstanding  licenses  with film  studios for a number of its other  characters,
including The Hulk,  The Punisher,  and  Man-Thing.  Under these  licenses,  the
Company  generally  retains control over  merchandising  rights and receives not
less than 50% of merchandising-based royalty revenue.

    Television Programs

     The Company  licenses  Marvel  characters  for use in television  programs,
which fuel  additional  brand awareness for the Company's  characters.  In 2000,
Marvel Licensing began production of X-Men Evolution,  a half-hour animated show
that is  distributed  by Warner  Brothers and currently  appears on the WB Kids!
network and on foreign television stations. In 2001, a live action show entitled

                                      1

<PAGE>

Mutant X began airing on syndicated  television.  The newest Marvel program is a
half-hour animated show, produced by Sony Pictures,  featuring Spider-Man.  This
show  aired in the  Summer  of 2003 on MTV in the  United  States,  and is being
marketed for international distribution.

     Destination-Based Entertainment

     The Company  licenses  Marvel  characters for use at theme parks,  shopping
malls and  special  events.  For  example,  Marvel has  licensed  the  Company's
characters  for use as part of the Islands of Adventure  theme park at Universal
Orlando in Orlando,  Florida,  for character  appearances and short  live-action
shows at Universal Studios  Hollywood and for use in a Spider-Man  attraction at
the Universal  Studios  theme park in Osaka,  Japan.  In addition,  The Canadian
Niagara Group launched a  "retail-tainment"  destination at Niagara Falls in May
2003 that  incorporates  Marvel-based  characters  into rides,  games and retail
space.

    Toy Merchandise

     In July 2001,  the Company  entered into a 5 1/2 year  exclusive  licensing
agreement with an unrelated Hong Kong company,  Toy Biz Worldwide,  Ltd ("TBW"),
for the sale and manufacture of toy action figures and accessories,  and certain
other toys, that feature Marvel characters other than those based upon movies or
television  shows  featuring  Spider-Man and produced by Sony  Pictures.  TBW is
licensed  to use the Toy Biz name  for  marketing  purposes  but  Marvel  has no
ownership  interest  in  TBW or in any of  its  affiliates,  and  Marvel  has no
financial obligations or guarantees related to TBW or any of its affiliates. The
agreement  represents a strategic  decision by the Company to eliminate  much of
the risk and investment  previously  associated with the direct  manufacture and
sale of these  lines of toys  while  enabling  Marvel  to  participate  in their
success through ongoing  licensing fees. Under an agency agreement whose term is
the same as the  license  agreement,  Marvel's  Toy Biz  division  does  product
design,  marketing  and  sales for TBW with  respect  to  Marvel-licensed  toys,
including  toys  based on the  characters  in The Hulk,  Daredevil  and X-Men II
films,  which were released in 2003,  and receives fees for these services based
on the wholesale value of toys sold.

     Consumer Products

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

     Promotions

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

Marvel Publishing

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

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

                                       2
<PAGE>

     Customers, Marketing and Distribution

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

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

     For the years ended December 31, 2001,  2002 and 2003,  approximately  80%,
76% and 71%, respectively, of Marvel Publishing's net revenues were derived from
sales to the direct market.  Marvel  Publishing  distributes its publications to
the direct market through an unaffiliated  entity  (Diamond Comic  Distributors,
Inc.).   Marvel  prints  periodicals  to  order  for  the  direct  market,  thus
eliminating the cost of printing and marketing excess inventory.

     For the years ended December 31, 2001,  2002 and 2003,  approximately  10%,
14% and 12%, respectively, of Marvel Publishing's net revenues were derived from
sales to the mass  market.  The  Company  intends  to expand the line of product
specifically  targeting the mass market and, in 2003,  released the  young-adult
prose novel Mary Jane,  the first of a planned  list of  published  materials of
this type.  Marvel  Publishing's  sales to the mass  market also  include  trade
paperbacks:  compilations  of previously  printed  material  collected to tell a
"complete" story.

     In addition to revenues  from the sale of comic books to the direct  market
and  the  mass  market,   Marvel  Publishing  derives  revenues  from  sales  of
advertising,  subscriptions  and  other  publishing  activities,  such as custom
comics. For the years ended December 31, 2001, 2002 and 2003, approximately 10%,
10% and 17%, respectively, of Marvel Publishing's net revenues were derived from
those sources.  Advertising  income increased roughly 50% from 2002 to 2003, and
was a  major  driver  in this  subset.  In most  of  Marvel  Publishing's  comic
publications,  ten pages (three  glossy cover pages and seven inside  pages) are
allocated for advertising. Marvel Publishing permits advertisers to advertise in
a broad range of Marvel  Publishing's comic book publications or to advertise in
specific groups of titles whose readership's age is suited to the advertiser.

     In December 2003,  Marvel  acquired New York City-based  Cover Concepts,  a
company  specializing in the distribution of free,  sponsored  materials such as
textbook  covers,  coloring  books,  posters,  bookmarks  and other  educational
materials to public  schools  across the United  States.  Cover  Concepts  sells
advertising  space on those  materials.  Cover Concepts'  database enables it to
target specific demographic or age groups with branded products and samples.

Toy Biz

     Marvel's Toy Biz division  designs,  develops,  markets and  distributes  a
limited line of toys to the worldwide marketplace.  Toy Biz's products are based
upon movies and  television  shows  featuring  Spider-Man  and  produced by Sony
Pictures,  and upon the movie trilogy Lord of the Rings. As described above, the
Toy Biz division also performs certain  services for TBW,  including the design,
marketing and sales of TBW's  Marvel-licensed  toys. As  compensation  for these
services,  Marvel  receives a fee based on the wholesale value of toys sold. TBW
and/or its  affiliate  also provide  manufacturing  and  manufacturing-oversight
services for the Company,  and receive fees in return. The Spectra Star division
of Toy Biz (which ceased  manufacturing  operations in March 2003 and was closed
in July of 2003)  designed,  produced and sold kites in both mass market  stores
and specialty hobby shops.

     During  2001 and 2002,  the only line of  products to account for more than
10% of the  Company's  consolidated  net revenue was the line of toys based upon
Spider-Man: The Movie. In 2003, the only product line accounting for over 10% of
the Company's  consolidated  net revenue was toys based on the Lord of The Rings
movie trilogy.


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     Design and Development

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

     Toy Biz relies on TBW and/or its affiliate to manufacture directly,  and to
oversee the  manufacture,  in China, of most of its products.  Toy Biz uses Acts
Testing Labs (H.K.)  Ltd., a leading  independent  quality-inspection  firm,  to
monitor quality control of Toy Biz products.

     Customers, Marketing and Distribution

     Toy Biz  markets and  distributes  its  products  in the United  States and
internationally,  with sales to customers in the United  States  accounting  for
approximately  77%, 77% and 76% of the Company's net toy sales in 2001, 2002 and
2003,  respectively.  Toy Biz products are aimed primarily at boys ages 4-12 and
collectors.

     Outlets for Toy Biz's products in the United States  include  specialty toy
retailers, mass merchandisers,  mail-order companies and variety stores, as well
as independent distributors who purchase products directly from Toy Biz and ship
them to retail outlets.  The Company's  customer base for toys is  concentrated.
Toy Biz's five largest  customers are Wal-Mart Stores,  Inc., Toys 'R' Us, Inc.,
Target Stores,  Inc. (a division of Target Corp.),  Kay-Bee Toy Stores and Kmart
Corporation, which accounted in the aggregate for approximately 56%, 66% and 66%
of the Company's total toy sales in 2001, 2002 and 2003,  respectively.  Kay-Bee
Toy Stores filed for  bankruptcy in January of 2004.  The amount owed by Kay-Bee
to the  Company,  pre-filing,  was not  significant  and  shipments  of  product
(collateralized by letters of credit in advance) continue to Kay-Bee.

     Toy Biz produces its  products  for foreign  customers  and for most of its
domestic  customers to order, and sells them "FOB" East Asia. When Toy Biz sells
products FOB East Asia, title to the products,  along with risk of loss,  passes
to the customer in Asia, where Toy Biz products are  manufactured.  Furthermore,
Toy Biz  does not  sell  either  on a  guaranteed-sale  (returnable)  basis or a
consignment basis. As a result of its sales terms and of the licensing to TBW of
most toy lines  previously  manufactured  and sold by the  Company,  Toy Biz has
significantly  reduced both the likelihood  that retailers will find  themselves
with excess Toy Biz  inventory  and the exposure of the Company to pressure from
retailers  for  concessions  in the event that  retailers do have excess Toy Biz
inventory that they want to mark down. In regard to its own  inventory,  Toy Biz
today maintains far less than before the inception of the license agreement with
TBW in 2001. Toy Biz has reduced inventory from  approximately  $15.9 million at
December  31, 2001 to  approximately  $6.6 million  (predominantly  Spider-Man 2
movie  product  necessary  for early Spring  planogram  set-ups) at December 31,
2003. Among the advantages of maintaining less inventory is that Toy Biz reduces
its risk of producing more products than can be sold. However,  the disadvantage
is that Toy Biz increases its risk of having fewer  products  available,  in the
event of unforeseen demand, than might otherwise have been sold.

Intellectual Property

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

Advertising

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

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<PAGE>

believes that  television  programs  underlying  the Company's toy product lines
increase exposure and awareness. The Company does not do significant advertising
for its licensing or publishing segments.

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

Competition

     The industries in which the Company competes are highly competitive.

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

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

     Toy Biz  competes,  on its own behalf and in its capacity as agent for TBW,
with many larger toy companies in the design and development of new toys, in the
procurement  of licenses and for adequate  retail shelf space for its  products.
The larger toy companies  include Hasbro,  Inc., Mattel Inc., and Jakks Pacific,
Inc. Many of these  competitors have greater  financial and other resources than
the Company.  The toy industry's  highly  competitive  environment  continues to
place cost pressures on manufacturers and distributors.  Discretionary  spending
among potential toy consumers is limited and the toy industry competes for those
dollars along with the makers of computers and video games.

Employees

     As of December 31, 2003, the Company employed 186 persons. The Company also
contracts for creative work on an as-needed basis with over 400 active freelance
writers and artists.  The Company's  employees are not subject to any collective
bargaining agreements.  Management believes that the Company's relationship with
its employees is good.

Financial Information about Geographic Areas

     The following table sets forth revenues from external customers  attributed
to geographic areas:
<TABLE>
<CAPTION>
                                           Revenue by Geographic Area
                                                 (in thousands)
                                2001                              2002                             2003
                     .........................        ..........................       ...........................
<S>                     <C>             <C>             <C>             <C>             <C>              <C>
                         U.S.         Foreign*             U.S.         Foreign*          U.S.           Foreign*
Licensing             $ 30,309         $ 9,703         $ 47,565         $31,997         $106,264         $ 82,940
Publishing              40,685           8,819           53,678          10,823           61,363           11,892
Toys                    70,996          20,712          118,873          36,110           64,607           20,560
                      --------         -------         --------         -------         --------         --------
Total                 $141,990         $39,234         $220,116         $78,930         $232,234         $115,392
                      ========         =======         ========         =======         ========         ========

* $3,176,  $21,807 and $64,755 of the foreign licensing  revenues for 2001, 2002
and 2003, respectively,  are attributable to royalties and service fees from toy
sales (mostly to customers located in the United States) generated by TBW, which
is based in Hong Kong.
</TABLE>


                                       5
<PAGE>

Government Regulations

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

The Acquisition of Marvel Entertainment Group, Inc.

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

     In connection  with the Company's  acquisition  of MEG out of bankruptcy in
October,  1998,  the Company  agreed to pay in cash all  administration  expense
claims  incurred in connection with MEG's  bankruptcy case (the  "Administration
Expense Claims"). Through 1999, the Company paid $33.9 million of Administration
Expense Claims.  During 2001, 2002 and 2003, the Company paid approximately $0.5
million,   $2.2  million  and  $0.6   million,   respectively,   of   additional
Administration   Expense   Claims.   The  Company  has   provided   reserves  of
approximately  $0.8  million,  as  of  December  31,  2003,  to  pay  additional
Administration  Expense Claims, and the Company expects that those reserves will
be sufficient for their purpose.

Available Information

     Marvel's  Internet  address is  www.marvel.com.  Marvel's annual reports on
Form 10-K,  quarterly  reports on Form 10-Q,  current  reports on Form 8-K,  and
amendments to those reports are available,  free of charge, on Marvel's Internet
website,  and are posted there as soon as  reasonably  practicable  after Marvel
electronically files them with the Securities and Exchange Commission. Marvel is
providing its Internet  address solely for the information of investors.  Marvel
does not intend the address to be an active link or to otherwise incorporate the
contents of the website into this report.

ITEM 2. PROPERTIES
<TABLE>
<CAPTION>

     The  Company has the following principal properties:

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

(1)  Used by all segments of the Company.

(2) Used by the Company's toy segment.

(3) Used by the Company's licensing segment.

(4)  The lease payments associated with the warehouse in Fife,  Washington,  are
     based on cubic feet, measured monthly,  and are subject to change depending
     on the capacity devoted to the inventory stored at this location.

(5)  Effective April 1, 2003, the property in San Luis, Mexico was leased by the
     Company to an unaffiliated party.
</TABLE>


                                       6
<PAGE>


ITEM 3. LEGAL PROCEEDINGS

     The  Company  is a party to  certain  legal  actions  described  below.  In
addition,  the Company is involved in various other legal proceedings and claims
incident to the normal  conduct of its  business.  Although it is  impossible to
predict the outcome of any legal proceeding and there can be no assurances,  the
Company  believes  that  its  legal  proceedings  and  claims  (including  those
described  below),  individually and in the aggregate,  are not likely to have a
material  adverse  effect on its financial  condition,  results of operations or
cash flows.

     Brian Hibbs,  d/b/a Comix Experience v. Marvel.  On May 6, 2002,  plaintiff
commenced  an action on behalf of himself and a purported  class  consisting  of
specialty  store  retailers  and  resellers  of Marvel  comic books  against the
Company and Marvel  Entertainment  Group, Inc. (a wholly owned subsidiary of the
Company) (the "Marvel  Defendants")  in New York State Supreme Court,  County of
New York,  alleging that the Marvel Defendants  breached their own Terms of Sale
Agreement in connection with the sale of comic books to members of the purported
class, breached their obligation of good faith and fair dealing(s), fraudulently
induced  plaintiff and other  members of the  purported  class to buy comics and
unjustly  enriched  themselves.  The relief sought in the complaint  consists of
certification  of the purported  class and the  designation  of plaintiff as its
representative,  compensatory  damages of $8 million on each cause of action and
punitive  damages  in an amount to be  determined  at trial.  The  parties  have
reached a proposed settlement in which the retailers and resellers would receive
a credit to their  account with  Marvel's  exclusive  distributor,  depending on
their prior  purchases of certain  comic book issues.  The parties have tendered
that  settlement to the Court for approval.  It is not known when the Court will
act on  this  matter  or how  long  it  will  take  for  final  approval  of the
settlement.  In the event the matter does not settle,  Marvel  intends to defend
vigorously against the claims made in this action on their merits.

     Stan Lee v. Marvel.  On November 12, 2002,  Stan Lee commenced an action in
the United States District Court for the Southern District of New York, alleging
claims for breach of his November 1, 1998 employment  agreement.  Mr. Lee claims
the right to a 10% profit  participation in connection with the Spider-Man movie
and other  film and  television  productions  that  utilize  Marvel  characters.
Pursuant to the terms of the  Employment  Agreement,  the  Company is  currently
paying Mr. Lee a salary of $1.0  million per year and  believes  that Mr.  Lee's
claim is without merit.  Marvel has answered the complaint and denied all of its
material  allegations.  The action is  currently in the  discovery  phase and no
trial date has been set.

     Marvel  Characters,  Inc.  v. Sony  Pictures  Entertainment  Inc. et al. On
February 25, 2003, Marvel Characters, Inc. ("MCI"), a wholly owned subsidiary of
Marvel  Enterprises,  Inc., filed suit against Sony Pictures  Entertainment Inc.
("SPE") and  related  entities,  in  California  Superior  Court for Los Angeles
County,  alleging,  among other  things,  that the 1999  license  agreement  for
Spider-Man  between MCI and SPE should be  dissolved  based on SPE's  fraudulent
representations to MCI during the negotiation of the license  agreement.  As the
Company has previously announced,  the suit is not an attempt to stop production
of the  Spider-Man  movie sequel or to change or upset any of the  merchandising
deals  that are in place for the  sequel.  On April 21,  2003,  in  response  to
Marvel's  complaint,  SPE filed a  cross-complaint  in which SPE alleges,  among
other things,  that MCI has breached the licensing agreement with respect to the
licensing of Spider-Man merchandise unrelated to Spider-Man:  The Movie to SPE's
financial  detriment.  Marvel  believes  that SPE's claims are without merit and
intends to defend  vigorously  against those claims.  The action is currently in
the discovery phase and no trial date has been set.

     Tribune  Entertainment  Company v. Marvel Enterprises,  Inc. On October 30,
2003, Tribune  Entertainment  Company  ("Tribune") filed a complaint against the
Company in New York State Supreme Court, New York County.  The complaint alleges
three  causes of  action:  fraud,  negligent  misrepresentation,  and  breach of
warranty,  all in  connection  with the  license  from the  Company  under which
Tribune produced the Mutant X television series (the "Tribune  License").  Prior
to release of the  Mutant X  television  series in 2001,  both the  Company  and
Tribune  were  sued by  Twentieth  Century  Fox Film  Corporation  ("Fox"),  the
licensee of the X-Men properties for motion pictures,  among other rights.  That
suit, which alleged breach of the 1993 X-Men movie license,  unfair competition,
copyright infringement and tortuous interference with contract, all arising from
the Tribune  License,  was settled between the Company and Fox in February 2003.
According to the action filed by Tribune on October 30,  2003,  Tribune  settled
with Fox on October 3, 2003.  Tribune's  October 30, 2003 complaint  against the
Company  alleges that the Company  misrepresented  the rights it was granting to
Tribune in the Tribune  License,  and that the Company  breached its warranty in
the Tribune  License that the Mutant X property did not conflict with the rights
of any third party. On December 11, 2003, the Company filed its answer,  denying
all material allegations of Tribune's complaint and asserting two counterclaims.
First,  the  Company  asserted a claim for  breach of  contract,  alleging  that
Tribune  has failed to pay the  Company  any  monies  under a  provision  of the
Tribune License that grants the Company a portion of Tribune's receipts from the


                                       7
<PAGE>

Mutant X series, as defined in the Tribune License.  Second, the Company alleged
that the 2001 Fox  litigation  was due to Tribune's  actions and  therefore  the
Company  is owed  indemnification  for its costs and  expenses  incurred  in its
defense of that litigation.  The current action is in the discovery phase and no
trial date has been set.


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

     During the fourth  quarter of 2003, no matters were  submitted to a vote of
security holders of the Company.


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASES OF EQUITY SECURITIES

     The principal  United States market in which the Company's  common stock is
traded is the New York Stock Exchange.  The Company's common stock is not listed
for trading on any other  securities  exchange  registered  under the Securities
Exchange Act of 1934.  The following  table sets forth,  for each fiscal quarter
indicated,  the high and low closing  prices for the  Company's  common stock as
reported in the New York Stock Exchange Composite Transaction Tape.

<TABLE>
<CAPTION>

         Fiscal Year                                 High                                Low
         -----------                                 ----                                ---
        <S>                                            <C>                              <C>
         2002
         First Quarter                               $ 8.35                             $ 3.55
         Second Quarter                              $ 9.15                             $ 4.70
         Third Quarter                               $ 7.15                             $ 4.15
         Fourth Quarter                              $ 9.40                             $ 6.00


         2003
         First Quarter                               $13.82                             $  9.16
         Second Quarter                              $24.50                             $13.55
         Third Quarter                               $23.75                             $16.75
         Fourth Quarter                              $31.64                             $23.05
</TABLE>
     As of March 9, 2004,  the  approximate  number of holders of the  Company's
common stock was 39,400.  This number  includes both  stockholders of record and
stockholders  who hold  stock in  "street  name,"  as  indicated  in a  security
position listing provided by Automatic Data Processing, Inc.

     The  Company  has not  declared  any  dividends  on the common  stock.  The
indenture  governing the Company's senior notes restricts the Company's  ability
to pay cash dividends on the common stock. See Item 7 - Management's  Discussion
and Analysis of Financial  Condition and Results of Operations.  On February 24,
2004, the Company  approved a 3-for-2 common stock split, in the form of a stock
dividend, to be distributed on March 26, 2004 to stockholders of record on March
12, 2004.  The above stock  prices have not been  adjusted to give effect to the
announced 3-for-2 common stock split.

Recent Sales of Unregistered Securities

Conversion of Preferred Stock into Common Stock

     On March 30, 2003, the Company converted all remaining  outstanding  shares
of its 8% cumulative convertible exchangeable preferred stock (the "8% Preferred
Stock")  (approximately  3.3 million  shares) at the stated  conversion  rate of
1.039 shares of the Company's common stock per each share of 8% Preferred Stock.
The shares of common  stock  were  issued  pursuant  to the  exemption  from the
registration requirements of the Securities Act of 1933 under Section 3(a)(9) of
that act. The Company issued approximately 3.5 million shares of common stock in
the conversion.  The conversion increased the trading float and liquidity of the
Company's common stock and  extinguished the Company's  obligation to redeem any
remaining  shares of 8%  Preferred  Stock for  $10.00 per share in cash in 2011.

                                       8
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

     The following table presents selected consolidated  financial data, derived
from the Company's audited financial statements,  for the five-year period ended
December  31, 2003.  The Company has not declared  dividends on its common stock
during any of the periods presented below.

<TABLE>
<CAPTION>


                                                                   Year Ended December 31,
                                         -----------------------------------------------------------------------------

                                             1999         2000            2001          2002          2003
                                             ----         ----            ----          ----          ----
                                                        (in thousands, except per share amounts)
Statements of Operations Data:
<S>                                     <C>            <C>            <C>            <C>            <C>
Net  sales ........................     $ 319,645      $ 231,651      $ 181,224      $ 299,046      $347,626
(Loss) income from continuing
operations ........................       (32,260)       (89,858)       (27,473)        26,774       151,648
(Loss) income from continuing
  operations per common share .....         (1.39)         (3.13)         (1.27)         (1.07)         2.25
Extraordinary item ................        (1,531)            --         32,738             --            --
Cumulative effect of change in
  accounting principle (1) ........            --             --             --         (4,164)           --
Net (loss) income (2) .............       (33,791)       (89,858)         5,265         22,610       151,648
Diluted net (loss) income
  per common share (2) ............         (1.43)         (3.13)         (0.31)         (1.18)         2.01
Preferred dividends ...............        14,220         15,395         16,034         68,132         1,163
Goodwill amortization (1) .........        24,277         23,769         23,465             --            --
Pro forma net (loss) income from
  Continuing operations (1) .......        (7,983)       (66,089)        (4,008)        26,774       151,648
Pro forma (loss) income from
  continuing operations per share
(1)(2)(3) .........................         (0.44)         (1.61)         (0.39)          (.71)         1.50
Pro forma net (loss) income (1) ...        (9,514)       (66,089)        28,730         22,610       151,648
Pro forma diluted net (loss) income
per common share (1)(2)(3) ........         (0.47)         (1.61)          0.25           (.79)         1.34


                                                                    December 31,
                                             1999         2000            2001          2002          2003
                                             ----         ----            ----          ----          ----

Balance Sheet Data:
Working capital ...................     $  91,919      $  43,067      $  29,990      $  32,604      $214,198
Total assets ......................       654,637        553,957        517,570        517,519       741,857
Borrowings ........................           --             --         37,000             --            --
Other non-current debt ............       250,000        250,000        150,962        150,962       150,962
Redeemable preferred stock ........       186,790        202,185        207,975         32,780            --
Stockholders' equity ..............       135,763         31,396         41,958        242,869       469,450


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


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


(3)  On February 24, 2004,  the Company  approved a 3-for-2 stock split,  in the
     form of a dividend,  to be distributed on March 26, 2004 to stockholders of
     record  on March  12,  2004.  The  stock  split  will  require  retroactive
     restatement  of all  historical  per share data in the quarter ending March
     31,  2004 as well as the  quarterly  and  annual  results  for the last two
     fiscal years.  Pro forma per share amounts in this table have been adjusted
     to take account of this stock split.

</TABLE>

                                       9
<PAGE>

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

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

     Set forth below is a discussion of the  financial  condition and results of
operations of the Company for the three fiscal years ended December 31, 2003.

Overview

    Management Overview of Business Trends

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

     A key  driver of  operating  results  is the  successful  release  of major
entertainment  programming,  such as movies,  published materials and television
shows, based on the Company's  characters,  which fuels demands for all products
based  on the  featured  characters.  In  2003,  the  Company  had  three  major
theatrical  releases that fueled growth in its businesses:  Daredevil,  The Hulk
and  X-Men  II.  These  releases  resulted  in  increased   awareness  of  these
characters,  which subsequently drove sales of Marvel-branded licensed products,
published  materials and toys based on these  characters.  The Company's results
are  partially  dependent  on the  successful  release of  theatrical  films and
acceptance  of products  developed  for the  characters  appearing in the films.
Marvel is also involved in the creative direction of all entertainment  projects
based on its characters.

Licensing

     Marvel's  licensing group is responsible for the  merchandising,  licensing
and  promotions  for  Marvel's  characters  worldwide.  The  licensing  group is
expanding its overseas  businesses through newly established  offices located in
London and Tokyo.  The licensing  group is pursuing a strategy of  concentrating
its licensee  relationships in a smaller number of high-quality  licensees,  and
negotiating higher guaranteed royalty amounts from each licensee.  The licensing
group is also focusing on entering into licenses in new product categories.  The
Company  typically enters into multi-year  merchandise  license  agreements that
specify   guaranteed   minimum  royalty   payments  and  include  a  significant
down-payment  upon  signing.  The Company  recognizes  license  revenue  when it
satisfies the requirements of completing the earnings process, which is normally
upon  the  effective  date  of  the  agreement.  The  remaining  balance  of the
guaranteed payments, accounts receivable, is due in accordance with the periodic
schedule as specified in each agreement.  If sales of the licensee's merchandise
are high  enough to  entitle  the  Company to  royalties  over the amount of the
minimum royalty guarantee (which excess amounts are defined as "overages"),  the
Company  receives the remaining  balance of the  guaranteed  payment sooner than
provided for in the agreement's payment schedule. Overages are not recognized as
revenue,  in most  cases,  until  the  minimum  guaranteed  payments  are  fully
collected.  Licensing  fees  collected in advance of the period in which revenue
would be recognized are recorded as deferred revenue.

Publishing

     Marvel's  publishing  group is in the process of expanding its  advertising
and  promotions  business  with an  increased  emphasis  on  custom  comics  and
in-school  marketing.  The publishing  business will also continue its long-term
focus on expanding  distribution  to new  channels,  like the mass  market,  and
expanding its product line to target new demographics, although the Company does
not expect  these  initiatives  to have a  significant  impact on 2004  revenue.
Growth in 2004 is expected to come  largely  from  expansion of the core product
lines of comics and trade paperbacks, and increased sales due to the anticipated
effects of future media events.

                                       10
<PAGE>

Toy Biz

     2004 business outlook for toys is closely tied to the scheduled  release on
July 2 of  Spider-Man 2.  Following up on the huge box office and  merchandising
success of the first  Spider-Man Movie (May,  2002),  Spider-Man 2 is one of the
Toy  Industry's  most highly  anticipated  events of 2004,  and  retailers  have
developed  strategies  to  fully  embrace  this  property.  However,  no one can
guarantee the box office  success of a movie release and sequels are  challenged
to outperform the original.

Revenues from Sales of the Company's Toys vs. from Licensed Toys

     The only toys  produced  by or for the  account of the Company are (i) toys
based on  Spider-Man  movies and  television  shows  produced  by Sony  Pictures
("Spider-Man  Movie  Toys") and (ii) toys  based on the Lord of the Rings  movie
trilogy.  Sales  of toys  produced  by or for the  account  of the  Company  are
recorded in the Company's toy segment.

     The Company has  licensed  the right to make all other toys based on Marvel
characters  to  licensees.  Royalties  received by the Company from the sales of
licensed toys are recorded in the Company's licensing segment, as royalties.

     Each year, the mix of  Marvel-character  toys sold includes some Spider-Man
Movie Toys and some licensed toys. If the mix in a given year is weighted toward
Spider-Man Movie Toys, the Company's toy segment revenue for that year will tend
to be higher,  and the Company's  licensing  segment  revenue for that year will
tend to be lower, than if the mix were weighted away from Spider-Man Movie Toys.

     In 2002, the first Spider-Man movie produced by Sony Pictures was released.
Partly as a result of the promotional  efforts made in anticipation of the movie
and the movie's strong  performance  at the box office,  the mix of toys sold in
2002 included a relatively  large number of Spider-Man Movie Toys. The Company's
toy segment revenue for 2002 was somewhat  higher,  and the Company's  licensing
segment  revenue  for  2002  was  somewhat  lower,  than  if  that  year's  main
Marvel-character movie had been based on any other Marvel character.

     In 2003, there was no release of a Spider-Man movie, and there were several
movies  released that featured  characters  (notably The Hulk) on which licensed
toys are based.  As a result,  the  Company's  toy segment  revenue for 2003 was
somewhat  lower,  and the  Company's  licensing  segment  revenue  for  2003 was
somewhat  higher,  than if there had been a Spider-Man  movie  release and fewer
movies released based on other Marvel characters.

     In July 2004, the second Spider-Man movie is scheduled to be released,  and
it is expected to drive toy sales more than any other  Marvel-character movie in
2004.  The Company  therefore  expects that,  in 2004 (as in 2002),  toy segment
revenues will be somewhat higher and licensing segment revenues will be somewhat
lower than if 2004's main Marvel-character  movie were based on any other Marvel
character.

     Net Sales

     The  Company's  net sales  are  generated  from (i)  licensing  the  Marvel
characters for use on merchandise,  toys, promotions,  feature films, television
programs,  theme parks and various other areas;  (ii) publishing comic books and
trade paperbacks,  including related advertising  revenues;  and (iii) marketing
and  distributing  Spider-Man  Movie Toys and toys based on characters  from the
Lord of the Rings movie trilogy,  as well as kites through the Company's Spectra
Star product line (which was closed in mid-2003).
<TABLE>
<CAPTION>

<S>                                                 <C>
Sales Mix by Segments:                        Years Ended December 31,
                                                2002           2003
                                                ----           ----
Licensing                                       26.6%         54.4%
Publishing                                      21.6%         21.1%
Toys                                            51.8%         24.5%
                                                -----         -----
Net Sales                                      100.0%        100.0%
                                               ======        ======
</TABLE>


                                       11
<PAGE>

     Licensing  net sales  increased in absolute  dollars and as a percentage of
total net sales due to the success of consumer  products  licensing  surrounding
2003 movie releases,  particularly  The Hulk, and continued  momentum in classic
Spider-Man  merchandise  (i.e.,  Spider-Man  merchandise not based on Spider-Man
movies or  television  shows  produced by Sony  Pictures).  Net sales in the toy
division decreased in absolute dollars and as a percentage of total net sales as
sales of toys  based on  Spider-Man:  The Movie  decreased  following  the movie
release in May 2002.  The  Company  expects  that,  in 2004,  toys will  replace
licensing as the Company's top revenue-producing segment. This anticipated shift
is due to the fact that in 2003,  the best selling Marvel toys were based on The
Incredible Hulk and classic Spider-Man toys, which are produced by TBW under its
Marvel  license with  revenues  classified  as royalty  income in the  Company's
licensing  segment.  Sales of  Spider-Man  movie  toys in 2004 are  expected  to
increase  substantially  over 2003 levels due to the release of  Spider-Man 2 in
July 2004, and those sales (which are recorded in the Company's toy segment) are
also expected to surpass the level of Spider-Man movie toys sold in 2002.

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

     The Company markets and distributes Spider-Man Movie Toys. In addition, the
Company began  marketing and  distributing  toys associated with the Lord of the
Rings movie toy license in 2001 which  coincided with the release in December of
2001 of the first of the films in the  trilogy.  The third and final  picture in
the trilogy was released in December 2003. An affiliate of TBW performs  certain
administrative   oversight   duties  in   connection   with  the  Company's  toy
manufacturing operations in China, for which the Company pays a commission.

     Operating Expenses: Cost of Sales

     Licensing Division:  During the twelve months ended December 31, 2001, 2002
and 2003,  there were  generally no material cost of sales  associated  with the
licensing of the Company's characters.

     Publishing  Division:  Cost of sales  for comic  book and  trade  paperback
publishing  consists of art,  editorial,  and printing costs.  Art and editorial
costs account for the most significant  portion of publishing cost of sales. Art
and editorial costs consist of compensation to editors, writers and artists. The
Company  generally  hires  writers  and  artists  on a  freelance  basis but has
exclusive employment contracts with certain key writers and artists. The Company
contracts  the  printing  of its  comic  books to  unaffiliated  companies.  The
Company's cost of printing is subject to fluctuations in paper prices.

     Toy Biz  Division:  Cost of sales for the toy business  consists of product
and  package   manufacturing,   shipping  and  agents'  commissions.   The  most
significant portion of cost of sales is product and package  manufacturing.  The
Company's toy manufacturing  takes place in China. A substantial  portion of the
Company's toy manufacturing contracts are denominated in Hong Kong dollars.

     In connection with the planned  discontinuance  of the Spectra Star product
line  within  Toy  Biz,  the  Company  increased  its  inventory  reserve  by an
additional $2.2 million in the fourth quarter of 2002. No provisions for similar
reserves were recorded in 2003.

     Operating Expenses: Selling, General and Administrative

     General  Corporate  Overhead:  Selling,  general and  administrative  costs
consist primarily of payroll,  and legal costs associated with active litigation
matters.

     Licensing  Division:  Selling,  general and  administrative  costs  consist
primarily  of  payroll,  royalties  owed to studio  partners  for their share of
license  income  and  development  costs  associated  with the  X-Men  Evolution
animated television series. The Company generally pays studio partners up to 50%
of merchandising-based  royalty revenue from the licensing of both "classic" and
"movie" versions of characters featured in the film.

                                       12
<PAGE>

     Publishing  Division:  Selling,  general and  administrative  costs consist
primarily of payroll, distribution fees and other miscellaneous overhead costs.

     Toy  Biz  Division:  Selling,  general  and  administrative  costs  consist
primarily of payroll,  advertising,  development costs, and royalties payable on
toys based on characters  licensed from third  parties,  such as New Line Cinema
(licensor of the Lord of the Rings characters), and on toys developed by outside
inventors,  and are offset via partial  reimbursement from TBW. Royalty payments
are also paid to Sony for Spider-Man Movie Toys.

     Operating Expenses: Depreciation and Amortization

     For the year ended December 31, 2001, depreciation and amortization expense
consisted of amortization of goodwill and other  intangibles,  tooling,  product
design and  development,  packaging design and equipment.  Amortization  expense
related to  goodwill  was  amortized  over an  assumed  20-year  life.  However,
effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets", and accordingly no longer amortizes goodwill, but is subject
to annual  impairment  tests in accordance with the statement (See Note 3 to the
Consolidated  Financial  Statements).  The  results  of the  Company's  goodwill
impairment  tests are  described  under  "Results of Operations of the Company -
Year ended  December 31, 2002 compared  with year ended  December 31, 2001." The
Company's  impairment reviews,  performed at December 31, 2002 and 2003, did not
result in an impairment  charge.  Amortization  expense relating to goodwill for
the year ended December 31, 2001 amounted to $23.5 million.

     Tooling,  product design and development and packaging design costs,  which
are  attributable to the toy business,  are normally  amortized over the life of
the  respective  product.  Amortization  of such costs amounted to $4.5 million,
$4.2 million, and $2.8 million during 2001, 2002 and 2003, respectively.

Results of Operations of the Company

     Year ended December 31, 2003 compared with year ended December 31, 2002
<TABLE>
<CAPTION>

                                        Years Ended December 31,
                                             (in thousands)

                                     2002       2003     Change
                                   --------    --------   ------
<S>                                <C>        <C>         <C>
Licensing                         $ 79,562    $189,204    138%
Publishing                          64,501      73,255     14%
Toys                               154,983      85,167    (45%)
                                   --------    --------   ------
Net Sales                         $299,046    $347,626     16%
                                   ========    ========   ======
</TABLE>

     The Company's net revenue increased  approximately  $48.6 million or 16% to
$347.6 million for the year ended December 31, 2003 from $299.0 million in 2002.
This  overall  growth  was fueled by a  significant  increase  in the  licensing
segment that was partially  caused by a shift from toy sales recorded in the toy
division  (for  toys  produced  by the  Company)  to toy sales  recorded  in the
licensing division (for toys produced by licensees). The improvements across the
various operating segments are detailed as follows:

o    Licensing:  Licensing revenue increased by approximately  $109.6 million or
     138% to $189.2  million (from $79.6  million in the 2002  period).  Factors
     contributing  to this  increase  include toy royalty  income  increasing to
     $44.5 million (from $13.2 million  recognized in 2002) and toy service fees
     increasing  to $35.2  million in 2003 (from $11.3  million in 2002).  These
     increases   were   generated   as   a   result   of   the   popularity   of
     Marvel-character-based  licensed  toy  lines,  predominantly  The  Hulk and
     Spider-Man  classic  lines.  Another  major driver was royalty  income from
     apparel and  accessories,  which  increased  $27.9 million or 247% to $39.2
     million (from $11.3 million in 2002) on the strength of classic properties.

o    Toys: Toy Biz segment revenues decreased by approximately  $69.8 million or
     45% to  $85.2  million  (from  $155.0  million  in the 2002  period).  This
     decrease  was  primarily  due to  slowing  sales  of  products  based  upon
     Spider-Man:  The Movie,  which was released in May 2002.  A new  Spider-Man
     movie,  scheduled  to be  released  in July 2004,  is  expected to drive an
     increase in 2004 sales of Spider-Man  Movie Toys.  The decrease in 2003 was
     partially offset by  stronger-than-expected  sales in the Lord of the Rings
     toy line, which increased 96% over 2002 sales.

                                       13
<PAGE>

o    Publishing: Publishing's revenue increased by approximately $8.8 million or
     14% to $73.3  million  (from  $64.5  million in the 2002  period) due to an
     increase in sales of comic books,  advertising income and custom publishing
     projects.  Revenue from the direct market  (specialty  comic retail stores)
     increased  approximately  $3.0 million to $51.9 million in 2003 (from $48.9
     million in 2002) and consists of sales of comic books and trade paperbacks.
     According to the  publication  Comics & Games Retailer,  Marvel  maintained
     approximately  a 41% share of the North  American comic market sold through
     specialty  comic retail  stores in both 2003 and 2002.  Advertising  income
     increased $2.1 million or 50% to $6.4 million in 2003, predominantly fueled
     by an increase in the number of advertisers.

     Gross Profit: Gross profit increased by $111.3 million to $268.2 million in
2003  as  compared  to  $156.9  million  in  2002.  The  Licensing,  Toy Biz and
Publishing  segments' gross profit  accounted for $189.2 million,  $39.0 million
and  $40.0  million,  respectively.  The  growth  in  Licensing  revenues  as  a
percentage  of total  revenues  (where gross profit as a percentage of sales can
approximate  95%)  increased  the  Company's  consolidated  gross  profit  as  a
percentage of sales to 77% in 2003 from 53% in 2002.
<TABLE>
<CAPTION>
Selling, General and Administrative Expenses                            Years Ended December 31,
                                                                              (in thousands)
                                                             2002       2003       2002       2003
                                                            -------    --------    ----       ----
<S>                                                        <C>          <C>         <C>        <C>
Licensing                                                  $ 19,476     $61,140     23%        56%
Publishing                                                   14,718      13,560     17%        13%
Toys                                                         34,303      14,830     40%        14%
Corporate                                                    17,303      19,352     20%        17%
                                                            -------    --------    ----       ----
Total Selling, General and Administrative Expenses          $85,800    $108,882    100%        100%
                                                            =======    ========    ====       ====

</TABLE>

     Selling,  general and administrative:  Selling,  general and administrative
(SG&A) expenses increased  approximately $23.1 million to $108.9 million in 2003
from $85.8 million in 2002. As a percentage of sales, SG&A expenses increased to
31% in 2003 versus 29% in 2002,  due  primarily to  increases  in the  Licensing
segment. The Licensing segment incurred higher costs of $41.7 million, primarily
due to an  increase  to $39.0  million of  royalties  to be shared  with  studio
partners versus $2.3 million in 2002. SG&A expenses in the publishing segment of
$13.6 million were  comparable  to the prior year.  The Toy Biz segment had SG&A
expenses of $14.8 million during 2003, down  significantly from $34.3 million in
2002 due to lower  sales  levels in 2003 and the  accelerated  write off of $7.9
million in prepaid  royalties  related to the Lord of the Rings toy license from
New Line Cinema in 2002.

     Equity in net  income of joint  venture:  For the year ended  December  31,
2003,  the  Company  recognized  $10.9  million in income as  compared  to $13.8
million in the  comparable  2002  period in  connection  with its 50% share in a
jointly owned limited partnership with Sony whose purpose is to pursue licensing
opportunities  for the  Spider-Man  character as appearing in motion picture and
television  shows  produced  by Sony  Pictures.  The  Company  accounts  for the
activity of this joint venture under the equity method.

     Depreciation  and  amortization:   Depreciation  and  amortization  expense
decreased  approximately  $1.5 million to approximately $4.3 million in the 2003
period (from approximately $5.8 million in the 2002 period).

     Amortization  of  goodwill:  During  the first  half of 2002,  the  Company
completed the first of the impairment tests of goodwill required under SFAS 142,
which was adopted effective January 1, 2002. Under the new rules, goodwill is no
longer subject to amortization but it is reviewed for potential impairment, upon
adoption  and  thereafter,  annually  or upon the  occurrence  of an  impairment
indicator.  The annual  amortization of goodwill,  which would have approximated
$23.5 million,  is no longer required.  Other  intangible  assets continue to be
amortized over their useful lives.  As a result of completing the required test,
the  Company  recorded  a  charge  in 2002  for  the  cumulative  effect  of the
accounting  change in the initial  amount of $4.6  million,  net of $2.6 million
tax,  representing the excess of the carrying value of the toy merchandising and
distribution  reporting  unit as compared to its  estimated  fair value.  In the
third and fourth quarters of 2002, the Company recorded quarterly adjustments of
$0.2 million and $0.2 million, respectively, to the income tax provision related
to this charge so as to properly  reflect the full year  effective  tax rate. At
December  31,  2002,  the net  cumulative  effect of this  change in  accounting
principle  was $4.2 million.  At December 31, 2003,  there were no indicators of
impairment.

     Interest  expense:  Net  interest  expense  decreased  approximately  $25.0
million for the year ended  December 31, 2003 as compared to 2002  primarily due
to the  accelerated  write-off  of  deferred  financing  costs of $21.1  million

                                       14
<PAGE>

associated  with the early  repayment of the Company's three year term bank loan
in 2002. Cash interest expense aggregated  approximately $29.4 million and $18.1
million  during  the years  ended  December  31,  2002 and  2003,  respectively.
Interest income  aggregated  approximately  $0.1 million and $1.9 million during
the years ended December 31, 2002 and 2003, respectively.

     Taxes:  The Company's  effective  tax rate for the year ended  December 30,
2003 (-1.3%) was lower than the Federal  statutory rate due primarily to release
of a portion of the valuation  allowance  against deferred tax assets applicable
to the  anticipated  utilization of net operating loss (NOL)  carryforwards  for
which benefit was not previously  recognized.  At December 31, 2003, the Company
has Federal NOL carryforwards of approximately $40 million,  which are scheduled
to expire in 2020. All of the Company's  pre-acquisition  Federal NOLs have been
fully  utilized by December 31, 2003 and  therefore,  the  Company's  income tax
credit for the year ended  December 31, 2003 is net of a non-cash tax  provision
of $15.1 million that reduced  goodwill and a non cash provision of $8.0 million
recorded in the fourth  quarter,  representing  amortization of a portion of the
previously  recorded deferred tax asset.  Additionally,  the Company has various
state and local NOL  carryforwards  of  approximately  $360 million,  which will
expire  in  various  jurisdictions  in years  2004  through  2022.  The  Company
continues  to be subject to tax in certain  state and local  jurisdictions.  The
Company  started to provide for income  taxes at a normal  effective  income tax
rate (approximately 40%) effective October 1, 2003.

     Due to the  inherent  difficulty  of  forecasting  certain  events  and the
success of certain  products  (e.g.,  release of feature films or the success of
toy  designs),  prior  to 2003  the  Company  determined  that  it did not  have
sufficient  positive evidence to recognize its deferred tax assets at such time.
However,  as a result of the income generated through September 30, 2003 and the
Company's  near-term  forecasts the Company  determined as of September 30, 2003
that it did have  sufficient  positive  evidence to  recognize  its deferred tax
assets and,  therefore,  the valuation  allowance  against Federal  deferred tax
assets  (principally  Federal  NOLs)  was  released.  Release  of the  valuation
allowance  resulted in a one-time  $31.5  million  ($0.42  basic and diluted per
share  for both the three and nine  month  periods  ended  September  30,  2003)
deferred  tax  benefit,  which was fully  recognized  as a credit to income  tax
expense in the three month period ended September 30, 2003.

     The Company is currently under  examination by the Internal Revenue Service
for the 1995 through 1998 years.  The Company has reached a tentative  agreement
on all matters with the IRS which will be reviewed in accordance with applicable
procedures.  The effects of these adjustments,  if agreed, would not be material
to the Company's financial position, results of operations or cash flows.

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

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

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

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

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

                                       15
<PAGE>

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

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

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

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

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

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


                                       16
<PAGE>

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

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

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

Liquidity and Capital Resources

     The Company's  primary  sources of liquidity are cash on hand and cash flow
from  operations.  The Company  anticipates that its primary needs for liquidity
will be to: (i) conduct its business; (ii) meet debt service requirements; (iii)
make capital expenditures; and (iv) pay administration expense claims.

     Net cash  provided  by the  Company's  operations  during  the years  ended
December 31, 2001,  2002 and 2003 were $9.9  million,  $75.0  million and $171.0
million, respectively.

     At December 31, 2003,  the Company had working  capital of $214.2  million,
including cash, certificates of deposit and commercial paper of $247 million.

     In an effort to reduce the redemption and dividend requirements  associated
with the Company's 8% Preferred Stock,  the Company  completed an Exchange Offer
on November 18, 2002,  when  approximately  17.6 million  (85%) shares of its 8%
Preferred  Stock were  tendered  in  exchange  for its common  stock.  Under the
Exchange  Offer,  1.39 shares of common  stock were issued for every share of 8%
Preferred Stock tendered.  In the fourth quarter of 2002, the Company recorded a
non-cash charge of $55.3 million  (representing the fair value of the additional
common  shares  issued  in  the  Exchange  Offer)  as a  preferred  dividend  in
connection with this exchange.

     Under the terms of the 8%  Preferred  Stock,  the Company was able to force
the conversion of all  outstanding  shares of 8% Preferred  Stock  following the
completion of 10  consecutive  trading days (ending March 18, 2003) on which the
closing  price of the Company's  common stock  exceeded  $11.55 per share.  As a
result,  and as the Company  announced on March 19, 2003, the Company forced the
conversion of all of the then  outstanding  8% Preferred  Stock.  The conversion
extinguished the Company's obligation to redeem any shares of 8% Preferred Stock
for $10.00 per share in cash in 2011.  The conversion was effective on March 30,
2003.  Earnings  per share in 2003 are  impacted  by a  full-year  effect of the
additional  common shares and the  elimination  of the preferred  stock dividend
associated with those shares exchanged.

     The Company  will be required to make a cash  payment,  at such time as the
amount thereof is determined,  to parties who were unsecured creditors of Marvel
Entertainment  Group,  Inc.,  prior to that company's  emergence from Chapter 11
proceedings on October 1, 1998. The Company initially  deposited $8 million into
a trust  account to satisfy the maximum  amount of such  payment.  Cumulatively,
through December 31, 2003, the Company received  approximately $2.2 million back
from the trust account,  primarily as a result of a settlement with the National
Basketball Association. The balance in the trust account as of December 31, 2003
is approximately $3.0 million.

                                       17
<PAGE>

     On February 25, 1999, the Company  completed a $250.0  million  offering of
senior  notes  in  a  private  placement  exempt  from  registration  under  the
Securities  Act of 1933 (the  "Securities  Act") pursuant to Rule 144A under the
Securities  Act. On August 20, 1999,  the Company  completed  an exchange  offer
under which it exchanged  virtually all of those senior notes,  which  contained
restrictions  on  transfer,   for  an  equal  principal  amount  of  registered,
transferable  senior notes (the "Senior  Notes").  The Senior Notes are due June
15, 2009 and bear interest at 12% per annum payable  semi-annually  on June 15th
and December 15th. The Senior Notes may be redeemed  beginning June 15, 2004 for
a redemption price of 106% of the principal amount,  plus accrued interest.  The
redemption  price  decreases  2% each  year  after  2004 and will be 100% of the
principal amount, plus accrued interest,  beginning June 15, 2007. Principal and
interest  on the Senior  Notes are  guaranteed  on a senior  basis  jointly  and
severally by each of the  Company's  domestic  subsidiaries.  As the Company has
announced,  it intends to redeem the Senior  Notes on June 15, 2004 on the terms
described above.

     On November 30, 2001,  the Company and HSBC Bank USA ("HSBC")  entered into
an agreement for a senior credit facility (the "HSBC Credit Facility") comprised
of a $20 million revolving letter of credit facility  renewable  annually for up
to three years and a $37.0 million multiple draw three year amortizing term loan
facility, which was used to finance the repurchase of a portion of the Company's
Senior Notes. On December 18, 2002, the Company amended the HSBC Credit Facility
to provide for a $15.0  million  revolving  credit  facility and a $15.0 million
letter of credit  facility.  As of December 31, 2003, $0.2 million of letters of
credit were  outstanding  and there were no borrowings  under the HSBC revolver.
The HSBC Credit  Facility  contains  customary  event of default  provisions and
covenants  restricting the Company's  operations and  activities,  including the
amount of capital expenditures,  and also contains certain covenants relating to
the  maintenance  of minimum  tangible net worth and minimum free cash flow. The
HSBC Credit Facility is secured by (a) a first priority perfected lien in all of
the assets of the Company; and (b) a first priority perfected lien in all of the
capital stock of each of the Company's domestic  subsidiaries.  Borrowings would
bear interest at prime or LIBOR-plus-two percent per annum.

     In  connection  with  the HSBC  Credit  Facility,  the  Company  and  Isaac
Perlmutter   entered  into  a  Guaranty  and   Security   Agreement   ("Security
Agreement").  Under the terms of the Guaranty, Mr. Perlmutter has guaranteed the
payment of the Company's obligations under the HSBC Credit Facility in an amount
equal to 25% of all principal  obligations  relating to the HSBC Credit Facility
plus an amount, not to exceed $10.0 million, equal to the difference between the
amount required to be in the cash reserve account  maintained by the Company and
the actual  amount on deposit  in such cash  reserve  account at the end of each
fiscal quarter;  provided that the aggregate amount guaranteed by Mr. Perlmutter
will not exceed $30.0 million.  Under the terms of the Security  Agreement,  Mr.
Perlmutter  has provided the  creditors  under the HSBC Credit  Facility  with a
security interest in the following types of property, whether currently owned or
subsequently  acquired by him: all promissory  notes,  certificates  of deposit,
deposit  accounts,  checks and other  instruments  and all  insurance or similar
payments or any  indemnity  payable by reason of loss or damage to or  otherwise
with respect to any such property. This guaranty continues with the current HSBC
revolving and letter of credit facilities.

     In  consideration  for the  Security  Agreement,  the  Company  issued  Mr.
Perlmutter  immediately  exercisable  warrants on November  30, 2001 to purchase
3,867,708 shares of the Company's common stock.  These warrants have an exercise
price of $3.11 and a life of five years.  The aggregate value of the exercisable
warrants was  approximately  $10.5  million and is included in the  Consolidated
Balance Sheet at December 31, 2001 as deferred financing costs.  During February
2002,  Mr.  Perlmutter  guaranteed  approximately  $4.4 million  relating to the
Company's  corporate office lease agreement as well as certain letters of credit
totaling  approximately  $0.2  million,  which are  included  within his maximum
guarantee  of $30.0  million,  for which the  Company  granted  him  warrants to
purchase 735,601 shares of common stock at an exercise price of $3.11 and a life
of five years.  Based on the cumulative  amounts  guaranteed by Mr.  Perlmutter,
4,603,309  warrants were  exercisable as of December 31, 2002. The fair value of
the  warrants  was  estimated  at the date of issuance  using the  Black-Scholes
option pricing model with the following assumptions:  risk free interest rate of
4.16%; no dividend yield; expected volatility of 0.92; and expected life of five
years. The aggregate value of the exercisable  warrants of  approximately  $13.0
million was included in the Consolidated Balance Sheet starting in November 2001
as deferred  financing  costs. Due to the prepayment of the Company's term loan,
all related  deferred  financing  costs,  have initially been amortized over the
initial three year term of the HSBC Credit Facility using the effective interest
method and were subsequently  written off on an accelerated basis as of December
31, 2002. During 2003, all of such warrants were exercised.

     Capital  expenditures  by the Company  during the years ended  December 31,
2001,  2002 and 2003 were  approximately  $7.2  million,  $3.0  million and $3.5
million, respectively.

                                       18
<PAGE>

      The following table sets forth the Company's Contractual Obligations as of
December 31, 2003:
<TABLE>
<CAPTION>

          Contractual
          Obligations                                  Payments Due By Period
--------------------------------------------------------------------------------------------
                                              Less than                            More Than
    (Amounts in thousands)        Total        1 Year    1-3 Years   3-5 Years     5 Years
--------------------------------------------------------------------------------------------
<S>                               <C>           <C>         <C>         <C>          <C>
Long Term Debt Obligations        $150,962      $  --       $ --       $ --     $150,962
--------------------------------------------------------------------------------------------
Capital Lease Obligations               --         --         --         --           --
--------------------------------------------------------------------------------------------
Operating Lease Obligations         10,355      3,404      5,538        848          565
--------------------------------------------------------------------------------------------
Purchase Obligations                    --         --         --         --           --
--------------------------------------------------------------------------------------------
Other Long-Term Liabilities
Reflected on the Registrant's
Balance Sheet under GAAP               636         --        570         66           --
--------------------------------------------------------------------------------------------
Expected pension benefit
payments                            12,889      1,215      2,395      2,428        6,851
--------------------------------------------------------------------------------------------
Total                             $174,842     $4,619     $8,503    $ 3,342     $158,378
--------------------------------------------------------------------------------------------
</TABLE>

     The Company is obligated to make payments under various royalty  agreements
of approximately $35,000 during the year ending December 31, 2004.

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

     The Company  believes  that cash on hand,  cash flow from  operations,  and
other  sources of liquidity  will be  sufficient  for the Company to conduct its
business,  meet debt service  requirements,  make capital  expenditures  and pay
administration expense claims.

Critical Accounting Policies and Estimates

General

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

Revenue Recognition

Merchandise Sales, Sales Returns and Customer Allowances

     Merchandise sales,  including toys and all  non-subscription  related comic
book sales,  are recorded  when title and risk of  ownership  have passed to the


                                       19
<PAGE>

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

Subscription Revenues

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

License Revenues

     Revenue from licensing of characters owned by the Company,  are recorded in
accordance with guidance  provided in Securities and Exchange  Commission  Staff
Accounting  Bulletin  No.  104  "Revenue  Recognition"  (an  amendment  of Staff
Accounting  Bulletin  No.  101  "Revenue  Recognition").  Under the  guidelines,
revenue is recognized when the earnings process is complete.  This is considered
to have occurred when persuasive  evidence of an agreement  between the customer
and the Company exists,  when the characters are made available to the licensee,
when the fee is fixed or determinable and when collection is reasonably assured.
Receivables  from licensees due more than one year beyond the balance sheet date
are  discounted to their  present  value.  Revenues  related to the licensing of
animated  television  series are recorded in accordance  with AICPA Statement of
Position 00-2,  "Accounting by Producers or  Distributors  of Films." Under this
Statement of Position,  revenue is recognized when persuasive evidence of a sale
or licensing arrangement with a customer exists, when an episode is delivered in
accordance  with the terms of the  arrangement,  when the license  period of the
arrangement  has begun and the  customer  can  begin  its  exhibition,  when the
arrangement fee is fixed or determinable, and when collection of the arrangement
fee is reasonably assured.

     For licenses involving minimum payment obligations to the Company, when the
Company  has  performed  its  obligations  under  the  agreement,  if  any,  and
collection is reasonably  assured,  Staff  Accounting  Bulletin No. 104 "Revenue
Recognition"  (an  amendment  of Staff  Accounting  Bulletin  No.  101  "Revenue
Recognition") requires that revenue be recognized prior to the collection of all
amounts   ultimately  due.  The  Company's  license   agreements  often  include
nonrefundable  minimum  guaranteed  royalties  which are payable by the licensee
over the life of the  agreement.  GAAP requires  that revenue from  licensing be
recognized when  substantially all Company  obligations,  if any, are performed,
generally  at  the  inception  of  the  license,  and  reasonable  assurance  of
collectibility  is determined.  For contracts not providing  minimum  guaranteed
royalties  (e.g.,  studio  licenses),  the Company  records license revenue when
reported by such licensees (i.e.,  based upon royalties earned from the sales of
the related character-based merchandise).

     Revenue  recognized under license  agreements during the years December 31,
2001,  2002 and 2003 was  generated  within the  business  categories  set forth
below.  The "Toy  service  fee"  category  relates to fees  earned for  services
rendered  for  the  design,   development,   marketing  and   merchandising   of
Marvel-based  toys  under  license  with  TBW.  The  "Other"  category  includes
domestics, collectibles and other.

<TABLE>
<CAPTION>
                                                 Years Ended December 31,
                                                      (in thousands)

                                                2001        2002        2003
                                                ----        ----        ----
<S>                                             <C>         <C>         <C>
Apparel and Accessories                       $ 7,718     $11,346     $39,218
Entertainment (including studios, themed
  attractions and electronic games)            14,756      39,529      50,589
Toy royalties                                   5,413      13,184      44,526
Toy service fees                                  950      11,293      35,175
Other                                          11,175       4,210      19,696
                                             --------    --------    --------
Totals                                       $ 40,012    $ 79,562    $189,204
                                             ========    ========    ========

</TABLE>

                                       20
<PAGE>

Allowance for Doubtful Accounts

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

Excess and Obsolete Inventory

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

Molds and Tools

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

Product and Package Design Costs

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

Goodwill and Other Intangibles

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

                                       21
<PAGE>


     Effective  January 1, 2002,  the Company  adopted  Statement  of  Financial
Standards No. 142,  "Goodwill and Other Intangible  Assets," and was required to
analyze its goodwill for impairment  issues during the first six months of 2002,
and then on a periodic basis thereafter.  Goodwill is no longer amortized but is
subject to an annual (or under certain  circumstances more frequent)  impairment
test based on its  estimated  fair  value.  Other  intangible  assets  that meet
certain  criteria will continue to be amortized  over their useful lives and are
also subject to an impairment test based on estimated fair value. Estimated fair
value is typically  less than values based on  undiscounted  operating  earnings
because fair value  estimates  include a discount  factor in valuing future cash
flows. There are many assumptions and estimates  underlying the determination of
an impairment  loss.  Another estimate using  different,  but still  reasonable,
assumptions  could  produce  a  significantly   different   result.   Therefore,
impairment losses could be recorded in the future.  The first of such impairment
tests was  performed  during the first six months of 2002 which  resulted in the
recording of a one-time  non-cash  charge with respect to its toy  merchandising
and  distribution  reporting  unit  (See  Note 3 to the  Consolidated  Financial
Statements for further details.) The Company performed annual impairment reviews
at December 31, 2002 and 2003, which did not result in an impairment  charge and
will perform future annual reviews as of December 31 of each subsequent year.

Royalties

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

     The  Company  also shares  revenues  with studio  partners  for  characters
portrayed in theatrical releases.  Typically,  the studio is paid roughly 50% of
the total  license  income  derived from both classic and movie  licensing for a
specific  character,  in most cases net of a  distribution  fee  retained by the
Company,  and in some instances with some  adjustments  for characters that have
generated sales prior to the theatrical release.  This adjustment acts to reduce
the effective  percentage  share with the studios.  In 2003, the Company accrued
$39.0  million  ($2.3  million in 2002) for the share of royalties due to Studio
partners.

Accounting for Joint Venture

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

Commitments and Contingencies

     The Company is a party to certain  legal  actions as  described in Item 3 -
Legal  Proceedings and is involved in various other legal proceedings and claims
incident to the normal  conduct of its  business.  Although it is  impossible to
predict the outcome of any outstanding legal proceeding and there can be no such
assurances, the Company believes that its legal proceedings and claims including
those  described  in  Item  3 -  Legal  Proceedings,  individually  and  in  the
aggregate,  are not likely to have a material  adverse  effect on its  financial
condition, results of operations or cash flows.

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

                                       22
<PAGE>

Recent Accounting Pronouncements

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

     The Company  accounts for its stock  options  under  Accounting  Principles
Board Opinion No. 25,  "Accounting for Stock Issued to Employees" ("APB 25") and
related  Interpretations.  Under  APB 25,  because  the  exercise  price  of the
Company's employee stock options equals the market price of the underlying stock
on date of grant, no compensation expense is recognized. The Company has elected
to follow the disclosure-only provisions under SFAS No. 148. For the purposes of
SFAS No. 148 pro forma  disclosures,  the estimated fair value of the options is
amortized to expense over the options' vesting period.
<TABLE>
<CAPTION>
   The Company's pro forma information follows:
                                                                                      Years Ended December 31,
                                                                                   2001        2002        2003
                                                                                 -------------------------------

                                                                                 (in thousands, except per share
                                                                                                data)

<S>                                                                             <C>         <C>         <C>
Net (loss) income, as reported..............................................    $  5,265    $ 22,610    $151,648
Net (loss) income attributable to common stock..............................     (10,769)    (45,522)    150,485
Net (loss) income per share attributable to common stock - diluted (1)......       (0.31)      (1.18)       2.01
Stock based employee compensation cost, net of tax, if FAS 123 was applied..       5,226       3,935       6,661
Pro forma net (loss) income.................................................          39      18,675     144,987
Pro forma net (loss) income attributable to common stock....................     (15,995)    (49,457)    143,824
Pro forma net (loss) income per share attributable to common stock - diluted (1)   (0.47)      (1.28)       1.90

(1)  On February 24, 2004,  the Company  approved a 3-for-2 stock split,  in the
     form of a dividend,  to be distributed on March 26, 2004 to stockholders of
     record  on March  12,  2004.  The  stock  split  will  require  retroactive
     restatement  of all  historical  per share data in the quarter ending March
     31,  2004 as well as the  quarterly  and  annual  results  for the last two
     fiscal  years.  Pro forma per share  amounts  adjusted  for the stock split
     would have been as follows:

Net (loss) income per share attributable to common stock - diluted..........      (0.21)        (.78)       1.34
Pro forma net (loss) income per share attributable to common stock - diluted      (0.31)        (.85)       1.27

</TABLE>

     In January 2003,  the Financial  Accounting  Standards  Board (FASB) issued
Interpretation  No.  46,   "Consolidation  of  Variable  Interest  Entities,  an
Interpretation of Accounting Research Bulletin (ARB) No. 51." The interpretation
introduces a new  consolidation  model, the variable  interests model,  based on
potential  variability  in gains and losses of the entity  being  evaluated  for
consolidation.  It provides  guidance  for  determining  whether an entity lacks
sufficient  equity or the entity's equity holders lack adequate  decision-making
ability.  These entities,  variable interest entities (VIEs),  are evaluated for
consolidation  based  on  their  variable  interests.   Variable  interests  are
contractual, ownership or other interests in an entity that expose their holders
to the  risks and  rewards  of the VIE.  Application  of the  interpretation  is
required in financial  statements  that have  interests in  structures  that are
commonly  referred to as special  purposes  entities  for periods  ending  after
December  15,  2003.  For all other  types of  variable  interest  entities  the
interpretation  is required for periods ending after March 15, 2004.  Management
does not  believe  that  this  will  have a  material  impact  on the  Company's
financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company has  operations in Hong Kong. In the normal course of business,
the  operations  are  exposed to  fluctuations  in currency  values.  Management
believes that the impact of currency fluctuations do not represent a significant
risk in the  context of the  Company's  current  international  operations.  The
Company does not generally  enter into derivative  financial  instruments in the
normal  course  of  business,  nor are such  instruments  used  for  speculative
purposes.  In December 2003,  the Company opened offices in London,  England and
Tokyo, Japan, to expand international  licensing.  Future international licenses
may be  denominated  in other  currencies  which  will  subject  the  Company to
additional currency fluctuation risks.


                                       23
<PAGE>

     Market risks  related to the Company's  operations  result  primarily  from
changes in interest rates. At December 31, 2003, the Company's Senior Notes bore
interest at a fixed rate. A 10% increase or decrease in the interest rate on the
Company's credit facility is not expected to have a significant future impact on
the Company's financial position or results of operations.

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


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The  financial  statements  required  by  this  item,  the  report  of  the
independent  auditors  thereon  and the  related  required  financial  statement
schedule  appear on pages F-2 to F-34. See the  accompanying  Index to Financial
Statements  and  Financial  Statement  Schedule on page F-1.  The  supplementary
financial  data required by Item 302 of Regulation S-K appears in Note 16 to the
December 31, 2003 Consolidated Financial Statements.


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

     Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

     Based  upon their  evaluation  of the  Company's  disclosure  controls  and
procedures  as of the  end of the  fiscal  year  covered  by  this  report,  the
Company's  Chief Executive  Officer and Chief  Financial  Officer have concluded
that such  controls and  procedures  are  effective.  There were no  significant
changes  in the  Company's  internal  controls  or in other  factors  that could
significantly  affect such  internal  controls  subsequent  to the date of their
evaluation.


                                    PART III

Item 10. Directors and Executive Officers of the Registrant

     The information  required by Item 10 is incorporated herein by reference to
the information appearing under the captions "Election of Directors," "Executive
Officers," "Section 16(a) Beneficial  Ownership Reporting  Compliance" and "Code
of Ethics" in the  Company's  definitive  proxy  statement to be filed not later
than April 29, 2004, with the Securities and Exchange Commission.


Item 11. Executive Compensation

     The information  required by Item 11 is incorporated herein by reference to
the information  appearing  under the caption  "Executive  Compensation"  in the
Company's  definitive proxy statement to be filed not later than April 29, 2004,
with the Securities and Exchange Commission.


Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management AND
          RELATED STOCKHOLDER MATTERS

     The information  required by Item 12 is incorporated herein by reference to
the  information  appearing  under the caption  "Security  Ownership  of Certain
Beneficial Owners and Management" in the Company's definitive proxy statement to
be filed not later  than  April  29,  2004,  with the  Securities  and  Exchange
Commission.


                                       24
<PAGE>

Item 13. Certain Relationships and Related Transactions

     The information  required by Item 13 is incorporated herein by reference to
the information  appearing under the caption "Certain  Relationships and Related
Transactions" in the Company's  definitive proxy statement to be filed not later
than April 29, 2004, with the Securities and Exchange Commission.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The information  required by Item 14 is incorporated herein by reference to
the  information  appearing  under the caption  "Ratification  of Appointment of
Independent Accountants" in the Company's definitive proxy statement to be filed
not later than April 29, 2004, with the Securities and Exchange Commission.


                                     PART IV

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

     (a)  Documents Filed with this Report

          1.   Financial Statements

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

          2.   Financial Statement Schedule

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

          3.   Exhibits

          See  the accompanying Exhibit Index immediately below.

     (b)  Reports on Form 8-K.

          During  the last  quarter of 2003,  the  Company  filed the  following
          Current Reports on Form 8-K:

          1.   Current Report on Form 8-K filed October 9, 2003, reporting Items
               7 and 12.

          2.   Current  Report on Form 8-K filed  November 12,  2003,  reporting
               Items 7 and 12.

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




                                      25
<PAGE>





                                            EXHIBIT INDEX


Exhibit No.

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

3(i).1    Restated  Certificate of Incorporation.  (Incorporated by reference to
          Exhibit 4.1 of the Company's  Current Report on Form 8-K dated October
          13, 1998 and filed with the  Securities  and  Exchange  Commission  on
          October 14, 1998.)

3(i).2    Certificate of Amendment of the Restated Certificate of Incorporation.
          (Incorporated  by  reference  to Exhibit 3.2 of the  Company's  Annual
          Report on Form 10-K for the year ended December 31, 2001.)

3(ii)     Amended and  Restated  Bylaws,  as amended  through  the date  hereof.
          (Filed herewith.)

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

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

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

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

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

10.1      1998 Stock  Incentive Plan.  (Incorporated  by reference to Annex A of
          the Company's  Information  Statement on Schedule 14C,  filed with the
          Securities and Exchange Commission on December 30, 1998.*

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

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

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

                                       26
<PAGE>


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

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

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

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

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

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

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

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

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

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

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

                                       27
<PAGE>


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

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

10.18     Amendment to  Employment  Agreement,  dated as of December 2, 2002, by
          and between the Company and F. Peter Cuneo. (Incorporated by reference
          to Exhibit 10.15 of the  Company's  Annual Report on Form 10-K for the
          year ended December 31, 2002.)*

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

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

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

10.22     Amendment  to  Employment  Agreement  with Avi Arad dated  December 9,
          2002.  (Incorporated  by reference  to Exhibit  10.1 of the  Company's
          Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.)*

10.23     Employment  Agreement by and between the Company and Alan Fine,  dated
          as of August 13, 2001.  (Incorporated by reference to Exhibit 10.18 of
          the Company's  Annual Report on Form 10-K for the year ended  December
          31, 2002.)*

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

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

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

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

10.28     Amendment  No. 1 to  Employment  Agreement,  dated as of November  21,
          2002, by and between the Company and Allen S. Lipson. (Incorporated by
          reference to Exhibit 10.23 of the Company's Annual Report on Form 10-K
          for the year ended December 31, 2002.)*

10.29     Amended and Restated  Employment  Agreement,  dated as of November 21,
          2002, by and between the Company and Allen S. Lipson. (Incorporated by
          reference to Exhibit 10.24 of the Company's Annual Report on Form 10-K
          for the year ended December 31, 2002.)*

                                       28
<PAGE>

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

10.31     Amendment No. 1, dated November 12, 2002, to Employment Agreement with
          Bill  Jemas.  (Incorporated  by  reference  to  Exhibit  10.2  of  the
          Company's  Quarterly  Report  on  Form  10-Q  for  the  quarter  ended
          September 30, 2003.)*

10.32     Amendment No. 2, dated October 13, 2003, to Employment  Agreement with
          Bill  Jemas.  (Incorporated  by  reference  to  Exhibit  10.3  of  the
          Company's  Quarterly  Report  on  Form  10-Q  for  the  quarter  ended
          September 30, 2003.)*

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

10.34     Employment  Agreement,  dated as of May 28,  2002,  by and between the
          Company and Kenneth P. West.  (Incorporated  by  reference  to Exhibit
          10.27 of the  Company's  Annual Report on Form 10-K for the year ended
          December 31, 2002.)*

10.35     Employment  Agreement,  dated as of August 1, 2003, by and between the
          Company and Timothy  Rothwell.  (Incorporated  by reference to Exhibit
          10.1 of the  Company's  Quarterly  Report on Form 10-Q for the quarter
          ended September 30, 2003.)*

10.36     Employment Agreement, dated as of October 15, 2003, by and between the
          Company and Bruno Maglione. (Filed herewith.)*

10.37     Employment  Agreement,  dated as of December 11, 2003,  by and between
          the Company and David Maisel. (Filed herewith.)*

10.38     Employment  Agreement,  dated as of February 24, 2004,  by and between
          the Company and John N. Turitzin. (Filed herewith.)*

21        Subsidiaries of the Registrant. (Filed herewith.)

23.1      Consent of Independent Auditors. (Filed herewith.)

23.2      Consent of Independent Auditors. (Filed herewith.)

23.3      Consent  of  Independent  Auditors.  (Filed  herewith.)

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

31.1      Certification  by Chief Executive  Officer  pursuant to Section 302 of
          the Sarbanes-Oxley Act. (Filed herewith.)

31.2      Certification  by Chief Financial  Officer  pursuant to Section 302 of
          the Sarbanes-Oxley Act. (Filed herewith.)

32        Certification  pursuant  to  Section  906 of the  Sarbanes-Oxley  Act.
          (Furnished herewith.)

*Management contract or compensatory plan or arrangement.

                                       29
<PAGE>


                                   SIGNATURES

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


                                        MARVEL ENTERPRISES, INC.

                                        By: /s/  Allen S. Lipson
                                        ---------------------------------------
                                        Allen S. Lipson
                                        President and Chief Executive Officer
                                        Date: March 11, 2004



                                       30
<PAGE>




                                POWER OF ATTORNEY

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

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

<TABLE>
<CAPTION>

Signature                               Title                                      Date

<S>                             <C>                                             <C>
/s/ Allen S. Lipson        President and Chief Executive Officer               March 11, 2004
---------------------
Allen S. Lipson            (principal executive officer)


/s/ Kenneth P. West        Chief Financial Officer                              March 11, 2004
---------------------
Kenneth P. West            (principal financial and accounting officer)


/s/ Morton E. Handel       Chairman of the Board of Directors                   March 11, 2004
---------------------
Morton E. Handel


/s/ F. Peter Cuneo         Vice Chairman of the Board of Directors              March 11, 2004
---------------------
F. Peter Cuneo


/s/ Isaac Perlmutter       Vice Chairman of the Board of Directors              March 11, 2004
---------------------
Isaac Perlmutter


/s/ Avi Arad               Director                                             March 11, 2004
---------------------
Avi Arad


/s/ Sid Ganis              Director                                             March 11, 2004
---------------------
Sid Ganis


/s/ Richard Solar          Director                                             March 11, 2004
---------------------
Richard Solar


/s/ James F. Halpin        Director                                             March 11, 2004
---------------------
James F. Halpin


/s/ Lawrence Mittman       Director                                             March 11, 2004
---------------------
Lawrence Mittman
</TABLE>


                                       31
<PAGE>




                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                  AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE

<TABLE>
Marvel Enterprises, Inc.
<S>                                                                                                          <C>
Report of Independent Auditors..........................................................................     F-2
Consolidated Balance Sheets as of December 31, 2002 and  2003...........................................     F-3
Consolidated Statements of Operations for the years ended December 31, 2001, 2002 and 2003..............     F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended December        F-5
    31, 2001, 2002 and 2003.............................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002, and 2003.............     F-6
Notes to Consolidated Financial Statements..............................................................     F-7


Consolidated Financial Statement Schedule

Schedule II-Valuation and Qualifying Accounts...........................................................    F-34
</TABLE>

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




























                                      F-1
<PAGE>




                         REPORT OF INDEPENDENT AUDITORS

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

     We have  audited the  accompanying  consolidated  balance  sheets of Marvel
Enterprises, Inc. as of December 31, 2003 and 2002, and the related consolidated
statements of operations,  stockholders'  equity and comprehensive  income,  and
cash flows for each of the three years in the period  ended  December  31, 2003.
Our audits also include the financial  statement schedule listed in the Index at
Item 15(a).  These financial  statements and schedule are the  responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

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

     In our opinion,  the financial statements referred to above present fairly,
in  all  material  respects,  the  consolidated  financial  position  of  Marvel
Enterprises, Inc. at December 31, 2003 and 2002, and the consolidated results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 2003, in conformity  with  accounting  principles  generally
accepted in the United States.  Also, in our opinion,  the related  consolidated
financial statement schedule, when considered in relation to the basic financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.

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


                                                        /s/Ernst & Young LLP


New York, New York
February 27, 2004

















                                      F-2

<PAGE>




                            MARVEL ENTERPRISES, INC.
                                DECEMBER 31, 2003
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
                                                                                        December 31, December 31,
                                                                                             2002         2003
                                                                                         (in thousands, except
                                                                                                share data)
ASSETS
Current assets:
<S>                                                                                      <C>          <C>
  Cash and cash equivalents......................................................        $ 53,690     $ 32,562
  Certificates of deposit and commercial paper...................................              --      214,457
  Accounts receivable, net.......................................................          43,420       51,820
  Inventories, net ..............................................................          16,036       12,975
  Distribution receivable from joint venture, net................................           2,102        2,056
  Deferred income taxes, net ....................................................              --       18,197
  Deferred financing costs.......................................................             667          667
  Prepaid expenses and other current assets......................................           6,700        2,273
                                                                                        ---------     --------
        Total current assets                                                              122,615      335,007

Molds, tools and equipment, net..................................................           6,997        5,811
Product and package design costs, net ...........................................             859        1,433
Goodwill, net ...................................................................         365,604      341,708
Intangibles, net.................................................................             649          335
Accounts receivable, non-current portion.........................................          17,284       26,437
Deferred income taxes, net.......................................................              --       28,246
Deferred financing costs.........................................................           3,446        2,779
Other assets.....................................................................              65          101
                                                                                        ---------     --------
        Total assets.............................................................       $ 517,519    $ 741,857
                                                                                        =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable...............................................................        $ 11,607     $ 18,455
  Accrued royalties..............................................................          12,800       32,936
  Accrued expenses and other current liabilities.................................          35,571       35,359
  Administration expense claims payable .........................................           1,303          788
  Unsecured creditors payable ...................................................           3,034        2,963
  Deferred revenue ..............................................................          25,696       30,308
                                                                                        ---------     --------
        Total current liabilities................................................          90,011      120,809
Senior notes     ................................................................         150,962      150,962
Accrued rent.....................................................................             897          636
                                                                                               --           --
        Total liabilities........................................................         241,870      272,407
                                                                                          -------      -------
8% cumulative convertible exchangeable redeemable preferred stock, $.01 par value,
75,000,000 shares authorized, 3,276,544 issued and  outstanding in  2002 and none
issued and outstanding in  2003, liquidation preference $10 per share............          32,780           --
                                                                                          -------      -------
Stockholders' equity:
Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued.......              --           --
Common stock, $.01 par value, 250,000,000 shares authorized, 68,534,135 issued and
61,140,135 outstanding in 2002 and 79,804,137 issued and 72,410,137 outstanding
  in 2003........................................................................             685          798
Deferred stock compensation......................................................            --         (4,857)
Additional paid-in capital.......................................................         486,106      567,308
Accumulated deficit..............................................................        (208,419)     (57,934)
Accumulated other comprehensive loss.............................................          (2,548)      (2,910)
                                                                                         --------      -------
        Total stockholders' equity before treasury stock.........................         275,824      502,405
Treasury stock, 7,394,000 shares.................................................         (32,955)     (32,955)
                                                                                         --------     --------
        Total stockholders' equity ..............................................         242,869      469,450
                                                                                          -------      -------

        Total liabilities and stockholders' equity ..............................        $517,519     $741,857
                                                                                         ========     ========


                 See Notes to Consolidated Financial Statements.

</TABLE>

                                      F-3
<PAGE>


                            MARVEL ENTERPRISES, INC.
                                DECEMBER 31, 2003
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
                                                                             Years Ended December 31,
                                                                           2001         2002         2003
                                                                           -----        ----         ----
                                                                         (in thousands, except per share
                                                                                        data)
<S>             <C>                                                    <C>          <C>          <C>
Net sales (Note 15) ................................................   $ 181,224    $ 299,046    $ 347,626
Cost of sales ......................................................      88,709      142,103       79,466
                                                                       ---------    ---------    ---------
Gross profit .......................................................      92,515      156,943      268,160
Operating expenses:
     Selling, general and administrative ...........................      62,048       85,800      108,882
     Pre-acquisition litigation charge .............................       3,000         --           --
     Administration expense claims payable no longer required ......      (3,474)        --           --
     Depreciation and amortization .................................       5,559        5,433        4,024
     Amortization of goodwill and other intangibles ................      23,764          339          314
                                                                       ---------    ---------    ---------
        Total operating expenses ...................................      90,897       91,572      113,220
Other income, net ..................................................        --          1,351        1,413
Equity in net (loss) income of joint venture .......................        (325)      13,802       10,869
                                                                       ---------    ---------    ---------
Operating income ...................................................       1,293       80,524      167,222
Interest expense ...................................................      29,174       41,997       18,718
Interest  income and other expenses, net ...........................       1,055          149        1,868
                                                                       ---------    ---------    ---------
(Loss) income before income tax expense, extraordinary gain and
    cumulative effect of change in accounting principle ............     (26,826)      38,676      150,372
Income tax expense (benefit) .......................................         647       11,902       (1,276)
                                                                       ---------    ---------    ---------
(Loss) income before extraordinary gain and cumulative effect of
    change in accounting principle .................................     (27,473)      26,774      151,648
Extraordinary gain, net of income tax expense of $11,273 ...........      32,738         --           --
                                                                       ---------    ---------    ---------
Income before cumulative effect of change in accounting
     principle .....................................................       5,265       26,774      151,648
Cumulative effect of change in accounting  principle,  net of income
     tax benefit of $3,002 .........................................        --          4,164         --
                                                                       ---------    ---------    ---------
Net income .........................................................       5,265       22,610      151,648
Less: preferred stock dividends ....................................      16,034       68,132        1,163
                                                                       ---------    ---------    ---------
Net (loss) income attributable to common stock .....................   $ (10,769)   $ (45,522)   $ 150,485
                                                                       =========    =========    =========
Basic and diluted net (loss) income per share:
Weighted average shares outstanding:
      Weighted average shares for basic earnings per share .........      34,322       38,514       66,903
      Effect of dilutive stock options .............................        --           --          7,891
      Effect of dilutive preferred stock conversion ................        --           --            832
                                                                       ---------    ---------    ---------
Weighted average shares for diluted earnings per share .............      34,322       38,514       75,626
Net (loss) income per share (Note 17):
      Basic
        Before cumulative effect of accounting change and
          extraordinary gain .......................................   $   (1.27)   $   (1.07)   $    2.25
        Cumulative effect of accounting change and extraordinary
          gain .....................................................        0.96        (0.11)        --
                                                                       ---------    ---------    ---------
                                                                       $   (0.31)   $   (1.18)   $    2.25
                                                                       =========    =========    =========
      Diluted
        Before cumulative effect of accounting change and
          extraordinary gain .......................................   $   (1.27)   $   (1.07)   $    2.01
        Cumulative effect of accounting change and extraordinary
          gain .....................................................        0.96        (0.11)        --
                                                                       ---------    ---------    ---------
                                                                       $   (0.31)   $   (1.18)   $    2.01
                                                                       =========    =========    =========

                 See Notes to Consolidated Financial Statements.
</TABLE>


                                      F-4
<PAGE>






                            MARVEL ENTERPRISES, INC.
                                DECEMBER 31, 2003

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME


<TABLE>
<CAPTION>
                                                                                                   Accumulated
                                                                          Additional                  Other
                                      Common       Common     Deferred     Paid-In    Accumulated Comprehensive   Treasury
                                      Stock        Stock       Stock      Capital      Deficit        Loss         Stock      Total
                                                                        (in thousands)

<S>                                     <C>          <C>        <C>            <C>       <C>           <C>           <C>        <C>
Balance at December 31, 2000 ...      33,702         411        --        216,068     (152,128)        --        (32,955)    31,396
Conversion  of  preferred  stock
    to common  stock ...........       1,065          10        --         10,234         --           --           --        0,244
Warrants exercised .............        --          --          --              5         --           --           --            5
Warrants issued ................        --          --          --          1,980         --           --           --        1,980
Warrants issued to
stockholder/director ...........        --          --          --         10,482         --           --           --       10,482
Preferred dividends ............        --          --          --           --        (16,034)        --           --      (16,034)
Net income .....................        --          --          --           --          5,265         --           --        5,265
Other comprehensive loss .......        --          --          --           --           --         (1,380)        --       (1,380)
                                                                                                                          ---------
Comprehensive income ...........        --          --          --           --           --           --           --        3,885
                                   ---------   ---------   ---------    ---------    ---------    ---------    ---------  ---------
Balance at December 31, 2001 ...      34,767         421        --        238,769     (162,897)      (1,380)     (32,955)    41,958
Conversion  of  preferred  stock
    to common stock ............      25,714         257        --        243,070         --           --           --      243,327
Warrants exercised .............         295           2        --             (2)        --           --           --          --
Warrants issued to .............        --          --          --          2,567         --           --           --        2,567
stockholder/director
Preferred dividends ............        --          --          --           --        (68,132)        --           --      (68,132)
Employee stock options exercised         364           5        --          1,702         --           --           --        1,707
Net income .....................        --          --          --           --         22,610         --           --       22,610
Other comprehensive loss .......        --          --          --           --           --         (1,168)        --       (1,168)
                                                                                                                          ---------
Comprehensive income ...........        --          --          --           --           --           --           --       21,442
                                   ---------   ---------   ---------    ---------    ---------    ---------    ---------  ---------
Balance at December 31, 2002 ...      61,140         685        --        486,106     (208,419)   $  (2,548)     (32,955)   242,869
Conversion  of  preferred  stock
    to common stock ............       3,501          35        --         33,908         --           --           --       33,943
Warrants exercised .............       4,853          49        --         15,172         --           --           --       15,221
Preferred dividends ............        --          --          --           --         (1,163)        --           --       (1,163)
Employee stock options exercised       2,713          27        --         12,629         --           --           --       12,656
Tax  benefit  of  stock  options
exercised ......................        --          --          --         14,189         --           --           --       14,189
Restricted stock grants ........         203           2      (5,306)       5,304         --           --           --          --
Amortization of restricted
    stock grants ...............        --          --           449         --           --           --           --          449
Net income .....................        --          --          --           --        151,648         --           --      151,648
Other comprehensive loss .......        --          --          --           --           --           (362)        --         (362)
                                   ---------   ---------   ---------    ---------    ---------    ---------    ---------  ---------
Comprehensive income ...........        --          --          --           --           --           --           --      151,286
                                   ---------   ---------   ---------    ---------    ---------    ---------    ---------  ---------
Balance at December 31, 2003 ...   $  72,410   $     798   $  (4,857)   $ 567,308    $ (57,934)   $  (2,910)   $ (32,955) $ 469,450
                                   =========   =========   =========    =========    =========    =========    =========  =========
</TABLE>

                See Notes to Consolidated Financial Statements.


                                      F-5
<PAGE>

                            MARVEL ENTERPRISES, INC.

                                DECEMBER 31, 2003

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                   Years Ended December 31,
                                                                               2001        2002         2003
                                                                             ---------  -----------    -------
                                                                                      (in thousands)
<S>                                                                       <C>          <C>          <C>
Net income ............................................................   $   5,265    $  22,610    $ 151,648
Adjustments to reconcile net income to net cash (used in)
   provided by operating activities:
     Depreciation and amortization ....................................      29,323        5,772        4,338
     Provision for doubtful accounts ..................................       3,470        3,335        1,123
     Amortization of deferred financing charges .......................       2,136       21,151          667
     Non-cash charge for compensatory stock option and restricted stock        --           --            903
     Tax benefit of stock option exercised ............................        --           --         14,189
     Gain from sale of fixed assets ...................................        --           --           (118)
     Deferred income taxes ............................................        --         10,907      (21,382)
     Pre-acquisition litigation charge ................................       3,000         --           --
     Administration expense claims no longer required .................      (3,474)        --           --
     Cumulative effect of change in accounting principle, net of
       income tax benefit..............................................        --          4,164         --
     Extraordinary gain, net of income tax provision ..................     (32,738)        --           --
     Equity in net loss (income) of joint venture .....................         325      (13,802)     (10,869)
     Distributions from joint venture .................................       1,081       10,031       16,394
     Changes in operating assets and liabilities:
        Accounts receivable ...........................................      (3,543)     (16,501)     (18,676)
        Inventories ...................................................      21,864        4,880        3,061
        Prepaid expenses and other current assets .....................      (5,676)       6,228        4,427
        Deferred charges and other non-current assets .................         (25)          74          (36)
        Accounts payable, accrued expenses and other  current
          liabilities .................................................     (11,114)      16,137       25,282
                                                                           ---------    ---------   ---------
Net cash provided by operating activities .............................       9,894       74,986      170,951
                                                                           ---------    ---------   ---------
Cash flow used in investing activities:
     Payment of administration expense claims and unsecured
       creditor claims ................................................      (2,231)      (4,402)        (586)
     Purchases of molds, tools and equipment ..........................      (4,311)      (2,068)      (1,712)
     Proceeds from sale of fixed assets ...............................        --           --            263
     Expenditures for product and package design costs ................      (2,934)        (927)      (1,830)
     Purchase of certificates of deposit and commercial paper .........        --           --       (214,457)
     Other intangibles and acquisition consideration ..................        (516)          (1)      (1,180)
                                                                           ---------    ---------   ---------
Net cash used in investing activities .................................      (9,992)      (7,398)    (219,502)
                                                                           ---------    ---------   ---------
Cash flow from financing activities:
     Repurchase of senior notes .......................................     (32,108)        --           --
     Proceeds from (repayments of) credit facility ....................      37,000      (37,000)        --
     Deferred financing costs .........................................      (6,011)        (196)        --
     Employee stock options exercised .................................        --          1,707       12,202
     Proceeds from exercise of stock warrants .........................           5         --         15,221
                                                                           ---------    ---------   ---------
Net cash (used in) provided by financing activities ...................      (1,114)     (35,489)      27,423
                                                                           ---------    ---------   ---------
     Net (decrease) increase in cash and cash equivalents .............      (1,212)      32,099      (21,128)
     Cash and cash equivalents at beginning of year ...................      22,803       21,591       53,690
                                                                           ---------    ---------   ---------
     Cash and cash equivalents at end of year .........................   $  21,591    $  53,690    $  32,562
                                                                           =========    =========   =========
Supplemental disclosure of cash flow information:
     Interest paid  (1) ...............................................   $  15,362    $  29,388    $  18,116
     Income taxes paid, net of refunds ................................       2,889          428        3,363
     Other non-cash transactions:
             Preferred stock dividends ................................      16,034       68,132        1,163
             Value of warrants issued in connection with credit facility     12,462        2,567         --
             Value of senior notes received in satisfaction of licensing
             fees from a third party  ................................       20,000         --           --
</TABLE>

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


                 See Notes to Consolidated Financial Statements.

                                      F-6

<PAGE>




                            MARVEL ENTERPRISES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2003


1.   Description of Business and Basis of Presentation

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

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

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









                                      F-7
<PAGE>



                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003


2.   Summary of Significant Accounting Policies

Reclassifications

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

Principles of Consolidation

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

Use of Estimates

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

Cash Equivalents

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

Inventories

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

 Joint Venture


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

Molds, Tools, and Equipment

     Molds, tools and equipment are stated at cost less accumulated depreciation
and amortization. The Company owns the molds and tools used in production of the
Company's  products  by  third-party  manufacturers.   For  financial  reporting
purposes,  depreciation and amortization is computed by the straight-line method
generally over a one to three-year period (the estimated selling life of related
products)  for molds and tooling  costs and over a five-year  life for furniture
and fixtures and office equipment.  On an ongoing basis, the Company reviews the
lives and  carrying  value of molds and tools  based on the sales and  operating
results of the related products. If the facts and circumstances suggest a change
in useful lives or an  impairment  in the carrying  value,  the useful lives are
adjusted  and  unamortized  costs are written off  accordingly.  Write-offs,  in
excess  of  normal   amortization,   which  are  included  in  depreciation  and
amortization  for the  years  ended  December  31,  2001,  2002  and  2003  were
approximately $1,295,000, $660,000, and $0 respectively.


                                      F-8
<PAGE>
                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003


Product and Package Design Costs

     Product  and  package  design  costs are  stated  at cost less  accumulated
depreciation and amortization.  The Company capitalizes costs related to product
and  package  design  when  such  products  are  determined  to be  commercially
acceptable.  Product design costs include costs  relating to the  preparation of
precise detailed  mechanical drawings and the production of sculptings and other
handcrafted  models from which  molds and dies are made.  Package  design  costs
include costs relating to art work,  modeling and printing  separations  used in
the production of packaging.  For financial reporting purposes,  amortization of
product and package  design is computed by the  straight-line  method  generally
over  a one  to  three-year  period  (the  estimated  selling  life  of  related
products).  On an ongoing  basis,  the  Company  reviews  the  useful  lives and
carrying  value of  product  and  package  design  costs  based on the sales and
operating  results  of the  related  products.  If the facts  and  circumstances
suggest a change in useful lives or an  impairment  in the carrying  value,  the
useful  lives are adjusted and  unamortized  costs are written off  accordingly.
Write-offs, in excess of normal amortization, which are included in amortization
for the  years  ended  December  31,  2001,  2002  and 2003  were  approximately
$1,540,000 and $799,000 and $0 respectively.

Goodwill and Other Intangibles

     Goodwill  and  other  intangibles  are  stated  at  cost  less  accumulated
amortization.  For the years  ended  December  31, 2000 and 2001,  goodwill  was
amortized  over 20 years.  In January  2002,  the Company  adopted  Statement of
Financial Accounting  Standards No.142,  "Goodwill and Other Intangible Assets",
("SFAS 142"), which requires  companies to stop amortizing  goodwill and certain
intangible  assets  with an  indefinite  useful  life.  SFAS 142  requires  that
goodwill  and  intangible  assets  deemed to have an  indefinite  useful life be
reviewed for impairment upon adoption of SFAS 142 (January 1, 2002) and annually
thereafter  or upon the  occurrence  of an  impairment  indicator.  The  Company
performs an annual  impairment review at December 31 of each year. No impairment
charge was required at December 31, 2002 and 2003.

       Other intangible assets are amortized over 3 to 10 years.

Long-Lived Assets

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

Deferred Financing Costs

     Deferred  financing  costs,  which are  mainly  costs  associated  with the
Company's  Senior Notes and the Company's  HSBC Credit  Facility,  are amortized
over the term of the related agreements using the effective interest method. See
Note 5 to the  Consolidated  Financial  Statements  for  further  details of the
accelerated  amortization of the deferred  financing  costs  associated with the
Company's HSBC Credit Facility during the year ended December 31, 2002.

Comprehensive Income

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


                                      F-9
<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

Research and Development

     Research and development  costs are charged to operations as incurred.  For
the years ended  December 31,  2001,  2002 and 2003,  research  and  development
expenses were approximately $3,875,000, $2,296,000, and $1,514,000 respectively.

Revenue Recognition

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

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

     Revenue from  licensing of characters  owned by the Company are recorded in
accordance with guidance  provided in Securities and Exchange  Commission  Staff
Accounting  Bulletin  No.  104  "Revenue  Recognition"  (an  amendment  of Staff
Accounting  Bulletin  No.  101  "Revenue  Recognition").  Under the  guidelines,
revenue is recognized when the earnings process is complete.  This is considered
to have occurred when persuasive  evidence of an agreement  between the customer
and the Company exists,  when the characters are made available to the licensee,
when the fee is fixed or determinable and when collection is reasonably assured.
Receivables  from licensees due more than one year beyond the balance sheet date
are  discounted to their  present  value.  Revenues  related to the licensing of
animated  television  series are recorded in accordance  with AICPA Statement of
Position 00-2,  "Accounting by Producers or  Distributors  of Films." Under this
Statement of Position,  revenue is recognized when persuasive evidence of a sale
or licensing arrangement with a customer exists, when an episode is delivered in
accordance  with the terms of the  arrangement,  when the license  period of the
arrangement  has begun and the  customer  can  begin  its  exhibition,  when the
arrangement fee is fixed or determinable, and when collection of the arrangement
fee is reasonably assured.

     For licenses involving minimum payment obligations to the Company, when the
Company  has  performed  its  obligations  under  the  agreement,  if  any,  and
collection is reasonably  assured,  Staff  Accounting  Bulletin No. 104 "Revenue
Recognition"  (an  amendment  of Staff  Accounting  Bulletin  No.  101  "Revenue
Recognition") requires that revenue be recognized prior to the collection of all
amounts   ultimately  due.  The  Company's  license   agreements  often  include
nonrefundable  minimum  guaranteed  royalties  which are payable by the licensee
over the life of the  agreement.  GAAP requires  that revenue from  licensing be
recognized when  substantially all Company  obligations,  if any, are performed,
generally  at  the  inception  of  the  license,  and  reasonable  assurance  of
collectibility  is determined.  For contracts not providing  minimum  guaranteed
royalties  (e.g.,  studio  licenses),  the Company  records license revenue when
reported by such licensees (i.e.,  based upon royalties earned from the sales of
the related character-based merchandise).

Advertising Costs

     Advertising  production costs are expensed when the  advertisement is first
run. For the years ended December 31, 2001, 2002, and 2003, advertising expenses
were approximately $6,637,000,  $5,777,000,  and $5,325,000 respectively.  There
were no prepaid  advertising  costs at December 31, 2002.  At December 31, 2003,
the Company had approximately $206,000 of prepaid advertising costs, principally
related to production of advertisement that is scheduled to run in fiscal 2004.

Royalties

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

Income Taxes

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

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


                                      F-10
<PAGE>
                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

Foreign Currency Translation

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

Stock Based Compensation

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

     In accordance  with the  provisions of SFAS 148, the Company has elected to
continue to account for its stock options under APB Opinion No. 25,  "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations. Under APB
25,  because the exercise  price of the Company's  employee stock options equals
the  market  price of the  underlying  stock on date of grant,  no  compensation
expense is recognized.  For the purposes of SFAS 148 pro forma disclosures,  the
estimated  fair value of the options is  amortized  to expense over the options'
vesting periods. The Company's pro forma information follows: (See Note 17)
<TABLE>
<CAPTION>
                                                                                    Years Ended December 31,
                                                                                    2001       2002       2003
                                                                                   ------     ------     ------
                                                                             (in thousands, except per share data)
<S>                                                                               <C>      <C>        <C>
Net income, as reported .......................................................   $ 5,265  $  22,610  $ 151,648
Net (loss) income attributable to common stock, as reported ...................   (10,769)   (45,522)   150,485
Net (loss) income per share attributable to common stock - diluted, as reported     (0.31)     (1.18)      2.01
Stock based employee compensation cost, net of tax, if SFAS 123 was applied ...     5,226      3,935      6,661
Pro forma net income ..........................................................        39     18,675    144,987
Pro forma net (loss) income attributable to common stock ......................   (15,995)   (49,457)   143,824
Pro forma net (loss) income per share attributable to common stock - diluted ..     (0.47)     (1.28)      1.90

(1)  On February 24, 2004,  the Company  approved a 3-for-2 stock split,  in the
     form of a dividend,  to be distributed on March 26, 2004 to stockholders of
     record  on March  12,  2004.  The  stock  split  will  require  retroactive
     restatement  of all  historical  per share data in the quarter ending March
     31,  2004 as well as the  quarterly  and  annual  results  for the last two
     fiscal  years.  Pro forma per share  amounts  effected  for the stock split
     would have been as follows:

Net (loss) income per share attributable to common stock - diluted ............    (0.21)      (.78)        1.34
Pro forma net (loss) income per share attributable to common stock - diluted ..    (0.31)      (.85)        1.27
</TABLE>
     The fair  value for each  option  grant  under the stock  option  plans was
estimated at the date of grant using a  Black-Scholes  option pricing model with
the following  weighted-average  assumptions  for the various  grants made.  The
weighted  average  assumptions for the 2001 grants are: risk free interest rates
ranging from 2.91% to 4.90%;  no dividend yield;  expected  volatility of 0.920;
and expected life of three years. The weighted average  assumptions for the 2002
grants are:  risk free interest  rates ranging from 3.19% to 4.92%;  no dividend
yield;  expected  volatility of 0.83; and expected life of 5 years. The weighted
average  assumptions  for the 2003 grants are: risk free interest  rates ranging
from 2.32% to 3.43%; no dividend yield; expected volatility ranging from 0.59 to
..78; and expected life of 5 years.  The Black Scholes  option  pricing model was
developed for use in estimating  the fair value of traded  options which have no
vesting  restrictions  and are  fully  transferable.  In  addition,  the  option
valuation model requires the input of highly  subjective  assumptions  including
the  expected  stock price  volatility.  Because the  Company's  employee  stock
options have characteristics  significantly different from those traded options,
and because changes in the subjective  input  assumptions can materially  affect
the fair value  estimate in  management's  opinion,  the existing model does not
necessarily  provide a reliable single measure of the fair value of its employee
stock options.

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

                                      F-11
<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

Fair Value of Financial Instruments

     The estimated fair value of certain of the Company's financial instruments,
including cash and cash equivalents,  certificates of deposit, commercial paper,
current portion of accounts  receivable,  accounts  payable and accrued expenses
approximate  their  carrying  amounts  due to their short term  maturities.  The
non-current  portion of accounts  receivable  have been  discounted to their net
present value, which approximates fair value.

     The estimated fair values of the Company's  Senior Notes and outstanding 8%
Cumulative  Convertible  Exchangeable  Preferred Stock, par value $.01 per share
("8% Preferred Stock") are based on market prices, where available. The carrying
amounts  and  estimated  fair  values  of these  financial  instruments  were as
follows:
<TABLE>
<CAPTION>
                                                                December 31, 2002         December 31, 2003
                                                               ------------------        -----------------
                                                              Carrying   Estimated      Carrying   Estimated
                                                               Amount   Fair Value      Amount    Fair Value
                                                               ------   ----------      ------    ----------
                                                                                (in thousands)
                        <S>                                 <C>          <C>            <C>        <C>
                  Senior Notes.................              $ 150,962  $ 150,962      $ 150,962  $ 165,761
                  8% preferred stock...........              $  32,780  $  32,541      $       -  $       -
</TABLE>

Concentration of Risk

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

     The Company  generally  requires all toy customers  which purchase under an
FOB East Asia basis to secure their orders with an irrevocable  letter of credit
or advance funds. The Company's publishing and licensing activities generally do
not require  collateral  or other  security  with  regard to  balances  due from
customers.  The Company  extends credit to its customers in the normal course of
business and performs periodic credit evaluations of its customers,  maintaining
allowances for potential credit losses. The Company considers  concentrations of
credit risk in establishing the allowance for doubtful accounts and believes the
recorded amount is adequate.

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

Income (Loss) Per Share

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

Recent Accounting Pronouncements

     In January 2003,  the Financial  Accounting  Standards  Board (FASB) issued
Interpretation  No.  46,   "Consolidation  of  Variable  Interest  Entities,  an
Interpretation of Accounting Research Bulletin (ARB) No. 51." The interpretation
introduces a new  consolidation  model, the variable  interests model,  based on
potential  variability  in gains and losses of the entity  being  evaluated  for
consolidation.  It provides  guidance  for  determining  whether an entity lacks
sufficient  equity or the entity's equity holders lack adequate  decision-making
ability.  These entities,  variable interest entities (VIEs),  are evaluated for
consolidation  based  on  their  variable  interests.   Variable  interests  are
contractual, ownership or other interests in an entity that expose their holders


                                      F-12
<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

to the  risks and  rewards  of the VIE.  Application  of the  interpretation  is
required in financial  statements  that have  interests in  structures  that are
commonly  referred to as special  purposes  entities  for periods  ending  after
December  15,  2003.  For all other  types of  variable  interest  entities  the
interpretation  is required for periods ending after March 15, 2004.  Management
does not  believe  that  this  will  have a  material  impact  on the  Company's
financial statements.

3.   Goodwill and Cumulative Effect of Change in Accounting Principle

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

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

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



                                      F-13
<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

     Had the Company  adopted SFAS 142 on January 1, 2001, the  historical  loss
attributable  to common  stockholders  and basic and diluted net loss per common
share would have changed to the adjusted  amounts  indicated below (in thousands
except per share amounts):

<TABLE>
<CAPTION>

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

<S>                                                               <C>
Loss before extraordinary gain, as reported.................      $(27,473)
Net loss attributable to common stock, as reported.......          (10,769)
Loss per share before extraordinary gain attributable
   to common stock, as reported...............................       (1.27)
Net loss per share attributable to common stock, as
reported......................................................       (0.31)
Goodwill amortization........................................       23,465
Pro forma loss before extraordinary gain....................        (4,008)
Pro forma net income attributable to common stock...........        12,696
Pro forma loss per share before extraordinary gain
  attributable to common stock.................................      (0.58)
Pro forma net income per share attributable to common
  stock......................................................      $  0.37

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

     On February 24, 2004,  the Company  approved a 3-for-2 stock split,  in the
form of a  dividend,  to be  distributed  on March 26, 2004 to  stockholders  of
record on March 12, 2004. The above per share amounts have not been adjusted for
this stock split.


</TABLE>



                                      F-14

<PAGE>
                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

4.   Details of Certain Balance Sheet Accounts
<TABLE>
<CAPTION>
                                                                          December 31,
                                                                       2002        2003
                                                                        (in thousands)
Accounts receivable, net, consists of the following:
   Toys:
<S>                                                                   <C>         <C>
     Accounts receivable ..........................................   $ 14,937    $ 13,149
     Less allowances for:
        Doubtful accounts .........................................       (428)       (651)
        Advertising, markdowns, volume discounts and other ........     (6,023)     (3,921)
                                                                      --------    --------
          Total toys ..............................................      8,486       8,577
                                                                      --------    --------
   Publishing:
     Accounts receivable ..........................................     13,614      17,457
     Less allowances for:
        Doubtful accounts .........................................       (221)       (221)
        Allowance for returns .....................................     (5,933)     (7,924)
                                                                      --------    --------
          Total publishing ........................................      7,460       9,312
                                                                      --------    --------
   Licensing:
     Accounts receivable ..........................................     34,284      38,132
     Less allowances for doubtful accounts ........................     (6,810)     (4,201)
                                                                      --------    --------
          Total licensing .........................................     27,474      33,931
                                                                      --------    --------
          Total ...................................................   $ 43,420    $ 51,820
                                                                      ========    ========
Inventories, net, consists of the following:
   Toys:
     Finished goods ...............................................   $  7,566    $  6,560
     Component parts, raw materials and work-in-process ...........        706          79
                                                                      --------    --------
          Total toys ..............................................      8,272       6,639
                                                                      --------    --------
   Publishing:
     Finished goods ...............................................      1,786       2,053
     Editorial and raw materials ..................................      5,978       4,283
                                                                      --------    --------
          Total publishing ........................................      7,764       6,336
                                                                      --------    --------
          Total ...................................................   $ 16,036    $ 12,975
                                                                      ========    ========
Accounts receivable, non - current portion are due as follows:
    2004 ..........................................................   $  6,538    $   --
    2005 ..........................................................      6,293      15,033
    2006 ..........................................................      6,981       8,900
    2007 and thereafter ...........................................       --         5,375
    Discounting ...................................................     (2,528)     (2,871)
                                                                      --------    --------
          Total ...................................................   $ 17,284    $ 26,437
                                                                      ========    ========

Accrued royalties consists of the following:
   Toys ...........................................................   $  7,669    $  1,574
   Publishing .....................................................      1,104       2,360
   Licensing ......................................................      4,027      29,002
                                                                      --------    --------
          Total ...................................................   $ 12,800    $ 32,936
                                                                      ========    ========
Accrued expenses and other current liabilities consists of the
following:
   Accrued advertising costs ......................................   $  3,009    $    608
   Inventory purchases ............................................      4,130       7,290
   Income taxes payable ...........................................      2,218       4,705
   Bonuses ........................................................      4,302       4,074
   MEG acquisition accruals .......................................      1,184         989
   Accrued expenses - Fleer sale including pension benefits .......      4,982       5,234
   Pre-acquisition litigation charge ..............................      3,000        --
   Litigation and legal accruals ..................................      4,564       2,719
   Donation .......................................................       --         2,000
   Interest expense ...............................................        926       1,079
   Other accrued expenses .........................................      7,256       6,661
                                                                      --------    --------
          Total ...................................................   $ 35,571    $ 35,359
                                                                      ========    ========
</TABLE>


                                      F-15
<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

5.   Debt Financing

     On February 25, 1999, the Company  completed a $250.0  million  offering of
senior  notes  in  a  private  placement  exempt  from  registration  under  the
Securities  Act of 1933 (the  "Securities  Act") pursuant to Rule 144A under the
Securities  Act. On August 20, 1999,  the Company  completed  an exchange  offer
under which it exchanged  virtually all of those senior notes,  which  contained
restrictions  on  transfer,   for  an  equal  principal  amount  of  registered,
transferable  senior notes (the "Senior  Notes").  The Senior Notes are due June
15, 2009 and bear interest at 12% per annum payable  semi-annually  on June 15th
and December 15th. The Senior Notes may be redeemed  beginning June 15, 2004 for
a redemption price of 106% of the principal amount,  plus accrued interest.  The
redemption  price  decreases  2% each  year  after  2004 and will be 100% of the
principal amount, plus accrued interest,  beginning June 15, 2007. Principal and
interest  on the Senior  Notes are  guaranteed  on a senior  basis  jointly  and
severally by each of the Company's domestic subsidiaries.

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

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

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

     In consideration for the HSBC Credit Facility,  the Company issued warrants
to HSBC to purchase up to 750,000  shares of the Company's  common stock.  These
warrants had an exercise price of $3.62 and a life of five years. The fair value
for the warrants was estimated at the date of issuance  using the  Black-Scholes


                                      F-16
<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003


option pricing model with the following assumptions:  risk free interest rate of
4.16%; no dividend  yield;  expected  volatility of 0.924;  and expected life of
five years.  The  aggregate  value of  approximately  $2.0 million was initially
included in deferred  financing  costs.  Due to the prepayment of the term loan,
the related unamortized deferred financing costs which were being amortized over
the initial  three year term of the HSBC  Credit  Facility  using the  effective
interest  method were  subsequently  written off on an  accelerated  basis as of
December  31,  2002.  In December  2002,  HSBC  exercised  500,000  warrants and
received  295,110  shares  of  common  stock  under a  Cashless  Exercise  Ratio
provision of the warrants. In February 2003, HSBC exercised all of its remaining
warrants.

     In  connection  with  the HSBC  Credit  Facility,  the  Company  and  Isaac
Perlmutter   entered  into  a  Guaranty  and   Security   Agreement   ("Security
Agreement").  Under the terms of the Guaranty, Mr. Perlmutter has guaranteed the
payment of the Company's obligations under the HSBC Credit Facility in an amount
equal to 25% of all principal  obligations  relating to the HSBC Credit Facility
plus an amount, not to exceed $10.0 million, equal to the difference between the
amount required to be in the cash reserve account  maintained by the Company and
the actual  amount on deposit  in such cash  reserve  account at the end of each
fiscal quarter;  provided that the aggregate amount guaranteed by Mr. Perlmutter
will not exceed $30.0 million.  Under the terms of the Security  Agreement,  Mr.
Perlmutter  has provided the  creditors  under the HSBC Credit  Facility  with a
security interest in the following types of property, whether currently owned or
subsequently  acquired by him: all promissory  notes,  certificates  of deposit,
deposit  accounts,  checks and other  instruments  and all  insurance or similar
payments or any  indemnity  payable by reason of loss or damage to or  otherwise
with respect to any such property. This guaranty continues with the current HSBC
revolving and letter of credit facilities.

     In  consideration  for the  Security  Agreement,  the  Company  issued  Mr.
Perlmutter  immediately  exercisable  warrants on November  30, 2001 to purchase
3,867,708 shares of the Company's common stock.  These warrants have an exercise
price of $3.11 and a life of five years.  The aggregate value of the exercisable
warrants was  approximately  $10.5  million and is included in the  Consolidated
Balance Sheet at December 31, 2001 as deferred financing costs.  During February
2002,  Mr.  Perlmutter  guaranteed  approximately  $4.4 million  relating to the
Company's  corporate office lease agreement as well as certain letters of credit
totaling  approximately  $0.2  million,  which are  included  within his maximum
guarantee  of $30.0  million,  for which the  Company  granted  him  warrants to
purchase 735,601 shares of common stock at an exercise price of $3.11 and a life
of five years.  Based on the cumulative  amounts  guaranteed by Mr.  Perlmutter,
4,603,309  warrants were  exercisable as of December 31, 2002. The fair value of
the  warrants  was  estimated  at the date of issuance  using the  Black-Scholes
option pricing model with the following assumptions:  risk free interest rate of
4.16%; no dividend yield; expected volatility of 0.92; and expected life of five
years. The aggregate value of the exercisable  warrants of  approximately  $13.0
million was included in the Consolidated Balance Sheet starting in November 2001
as deferred  financing  costs. Due to the prepayment of the Company's term loan,
all related  deferred  financing  costs,  have initially been amortized over the
initial three year term of the HSBC Credit Facility using the effective interest
method and were subsequently  written off on an accelerated basis as of December
31, 2002. During 2003, all of such warrants were exercised.

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

     Each share of the 8% Preferred Stock was originally  convertible into 1.039
fully paid and non-assessable shares of common stock of the Company. On November
18, 2002,  the Company  completed an Exchange  Offer whereby 17.6 million shares
(85%) of its 8%  Preferred  Stock were  tendered  in exchange  for 24.5  million
shares of its common stock utilizing a 1.39 exchange rate - or a premium of .351
shares.  In connection with the Exchange Offer,  the Company recorded a non-cash
charge  of  approximately  $55.3  million  (representing  the fair  value of the
additional  common  shares  (the  premium)  issued in the  Exchange  Offer) as a
preferred  dividend in the fourth  quarter of 2002, in accordance  with SFAS No.
84, "Induced Conversion of Convertible Debt." On March 31, June 30, September 30
and December 31, 2002, the Company issued 413,067,  400,538,  407,971 and 64,239
shares, respectively, of 8% Preferred Stock in payment of dividends declared and
payable to  stockholders  of record on those  dates.  Conversions  of  preferred
shares into common  shares  totaled  1,024,282 and  18,805,122  during the years
ended December 31, 2001 and 2002, respectively.


                                      F-17
<PAGE>
                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

     On March 30, 2003, the Company converted all remaining  outstanding  shares
of its 8% cumulative convertible exchangeable preferred stock (the "8% Preferred
Stock")  (approximately  3.3 million  shares) at the stated  conversion  rate of
1.039 shares of the Company's common stock per each share of 8% Preferred Stock.
The shares of common  stock  were  issued  pursuant  to the  exemption  from the
registration requirements of the Securities Act of 1933 under Section 3(a)(9) of
that act.

     Under the terms of the 8%  Preferred  Stock,  the Company was able to force
the conversion of all  outstanding  shares of 8% Preferred  Stock  following the
completion  of 10  consecutive  trading  days on which the closing  price of the
Company's common stock exceeded $11.55 per share; March 18, 2003 marked the 10th
consecutive  trading day on which the Company's common stock's closing price met
this criterion.  During the three month period ended March 30, 2003, the Company
issued approximately 3.5 million shares of common stock in the conversion,.  The
conversion  increased the trading  float and  liquidity of the Company's  common
stock and extinguished  the Company's  obligation to redeem any remaining shares
of 8% Preferred Stock for $10.00 per share in cash in 2011.

As of December  31, 2003,  the Company had  reserved  shares of common stock for
issuance  as  follows:
<TABLE>
<CAPTION>
<S>                                                                                                       <C>
Issuance  of  restricted  stock  ................................................................         203,085
Exercise of common  stock options................................................................      12,470,959
                                                                                                       ----------
Total............................................................................................      12,674,044
                                                                                                       ----------
</TABLE>

7.   Stock Option Plans

     Under the terms of the  Company's  1998  Stock  Incentive  Plan (the  "1998
Plan"), incentive stock options, non-qualified stock options, stock appreciation
rights,  restricted  stock,  performance  units and  performance  shares  may be
granted to officers, employees, consultants and directors of the Company and its
subsidiaries.  Under the Stock Incentive  Plan,  16.0 million shares,  including
options  described  below,  may be the subject of awards,  and up to 4.0 million
shares  may be the  subject  of awards  granted  to any  individual  during  any
calendar year.

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

<TABLE>
<CAPTION>

                                                   Weighted
                                                   Average
                                                   Exercise
                                       Shares       Price
                                     ---------    ---------
<S>                                      <C>          <C>
Outstanding at December 31, 2000     5,259,750    $    6.21
Canceled .......................    (1,035,209)   $    5.63
Exercised ......................            --           --
Granted ........................     5,703,000    $    3.37
                                     ---------
Outstanding at December 31, 2001     9,927,541    $    4.61
Canceled .......................      (284,208)   $    6.25
Exercised ......................      (363,832)   $    4.69
Granted ........................     1,709,001    $    7.35
                                     ---------
Outstanding at December 31, 2002    10,988,502    $    5.00
                                     ---------
Canceled .......................       (69,477)   $    9.54
Exercised ......................    (2,712,374)   $    4.50
Granted ........................     1,543,625    $   20.53
                                     ---------
Outstanding at December 31, 2003     9,750,276    $    7.56
                                     =========
</TABLE>
                                      F-18
<PAGE>

     For the years ended December 31, 2001, 2002 and 2003, there were 8,205,040,
8,807,666 and 7,520,037  exercisable  options with a weighted  average  exercise
price of $4.67, $4.68 and $5.73, respectively.

     Additionally,  during 2003, the Company issued 203,085 shares of restricted
stock under the 1998 Plan to certain  employees  and the  Chairman of the Board.
The employee  grants vest between the second and the third  anniversary  date of
the grant provided that the recipient is still employed by the Company,  and the
Chairman's  grant vests over a five-year  period - with one-half of such vesting
upon the first  anniversary  of the grant.  The  aggregate  market  value of the
restricted stock at the dates of issuance of approximately $5.3 million has been
recorded as deferred compensation, a separate component of stockholders' equity,
and is being amortized over the vesting period.

     Stock options outstanding at December 31, 2003 are summarized as follows:

                                              Weighted Average
<TABLE>
<CAPTION>
                                                                  Weighted                            Weighted
                              Outstanding        Remaining        Average         Exercisable          Average
           Range of           Options at        Contractual       Exercise             at             Exercise
       Exercise Prices     December 31, 2003   Life - (Years)      Price       December 31, 2003        Price
       ---------------     -----------------   --------------      -----       -----------------        -----
<S>     <C>     <C>                 <C>           <C>             <C>                <C>                <C>
        $2.38 - $3.27               351,008       7.47            $ 2.80             323,840            $ 2.82
        $3.62 - $5.88             4,412,671       4.27            $ 3.81           4,139,506            $ 3.70
        $6.13 - $8.30             3,463,972       6.43            $ 7.11           2,763,066            $ 6.81
        $9.92 - $29.75            1,522,625       8.30            $ 20.57            293,625            $27.45

</TABLE>

     Options  granted in 1998 under the 1998 Plan vest  generally  in four equal
installments beginning with the date of the grant. Options granted subsequent to
1998, vest generally in three equal  installments  beginning 12 months after the
date of grant. At December 31, 2003,  2,720,683 shares were available for future
grants of options and  rights.  At  December  31,  2003,  the  weighted  average
remaining contractual life of the options outstanding is 5.78 years.

     On  November  30 2001,  the  Company  entered  into a six  year  employment
agreement with Mr. Perlmutter.  The agreement, among other things provides for a
minimal  salary and six year options to purchase  3,950,000  common  shares at a
price of $3.62 per share.  The  options  may be  exercised  at any time.  Shares
obtained  under the options are  restricted  shares  until they fully vest.  The
vesting  period  for the  shares  is one  third on the  fourth,  fifth and sixth
anniversary of the agreement. At December 31, 2003, all 3,950,000 options remain
unexercised.

8.   Sales to Major Customers and International Operations

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


                                      F-19
<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

     During the year ended  December  31,  2001,  the  Company's  largest  three
customers  accounted for approximately 9%, 9% and 4% of total net sales.  During
the year  ended  December  31,  2002,  the  Company's  largest  three  customers
accounted for approximately  15%, 9% and 4% of total net sales.  During the year
ended December 31, 2003,  the Company's  largest three  customers  accounted for
approximately  15%,  7% and 4% of  total  net  sales.  Additionally,  net  sales
generated via license  royalty  income and toy service fees  (classified  in the
licensing  segment) from Toy Biz Worldwide,  Ltd. (See note 9) during 2001, 2002
and 2003 aggregated $3.2 million, $21.8 million and $64.8 million, respectively.

     The Company's Hong Kong  wholly-owned  subsidiary  supervises,  with agency
support and other duties from TBW, the  manufacturing of the Company's  products
in China and sells such  products  internationally.  All sales by the  Company's
Hong Kong  subsidiary  are made F.O.B.  Hong Kong against  letters of credit and
other cash instruments. During the years ended December 31, 2001, 2002, and 2003
international sales were approximately 23%, 23%, and 24%, respectively, of total
net toy sales. During the years ended December 31, 2001, 2002, and 2003 the Hong
Kong operations  reported  operating  income (loss) of  approximately  $519,000,
($28,000)  and  $2,536,000  and  income  before  income  taxes of  approximately
$888,000, $3,000, and $2,536,000,  respectively.  At December 31, 2002 and 2003,
the Company had assets in Hong Kong of approximately  $5,480,000 and $7,191,000,
respectively  excluding amounts due from the Company. The Hong Kong subsidiary's
retained  earnings were $45,024,000 and $47,116,000,  respectively,  at December
31, 2002 and 2003.  Repatriation  of such  earnings to the US would bear nominal
taxes, if any.

9.   Restructuring of Toy Biz Operations

     During 2001, the Company entered into a license agreement with an unrelated
Hong Kong company, Toy Biz Worldwide, Ltd ("TBW"),  covering the manufacture and
sale of toy action figures and accessories of all Marvel  characters  other than
those based upon movies or television shows featuring Spider-Man and produced by
Sony  Pictures.  TBW opted to use the Toy Biz name for marketing  purposes,  but
Marvel  has  neither  an  ownership  in TBW nor  any  financial  obligations  or
guarantees  related to TBW. The license  agreement has a term of 5 1/2 years and
included  the payment to Marvel of an advanced  royalty of  approximately  $20.0
million.  In addition,  the Company and TBW have  entered into other  agreements
which require Marvel to provide TBW with certain  administrative  and management
support for which TBW  reimburses  Marvel.  For the year ended December 31, 2002
and the year ended December 31, 2003,  the Company was reimbursed  approximately
$8.2 million and $8.1 million,  respectively,  for administrative and management
support.  Additionally,  TBW provided certain administrative oversight functions
on behalf of the Company and received  commissions of approximately  $.6 million
in 2002 and 2003. As of December 31, 2002,  the Company had recognized the total
$20.0  million  advance into  revenue.  The Company  receives  cash payments for
additional  royalties,  as earned, under this agreement.  During the years ended
December  31, 2002 and 2003,  the  Company  earned  royalties  from TBW of $10.5
million and $29.6  million,  respectively,  from the Marvel related toy products
licensed to TBW. Additionally, the Company earned service fee income from TBW of
approximately $35.2 million in 2003 in exchange for design,  marketing and sales
services  performed  by the  Company.  Through  December  2002,  the Company was
reimbursed  on a dollar for dollar  basis for these  services  and  additionally
received a service fee based on TBW's  profits,  which amounted to $11.3 million
in 2002.

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

     During 2001,  the Company  entered into a license  agreement to manufacture
and distribute a line of toys based on the Lord of the Rings'  characters.  This
agreement  requires  minimum royalty  payments to New Line Cinema over the three
year term of $15.0 million,  all of which had been paid as of December 31, 2003.
Through  December  31, 2002 and 2003,  the Company has  cumulatively  recognized
$11.9 million and $14.4 million respectively, classified as selling, general and
administrative  expenses,  associated  with this  license  agreement.  Under the
present  agreement,  the  Company  may  continue  to sell Lord of the Rings toys
through December 31, 2006.

     In  addition  to toys  based  on  movies  and  television  shows  based  on
Spider-Man  and produced by Sony Pictures,  the Company  continues to distribute
toys based on characters  from the Lord of the Rings.  These  operations are not
affected by the license and other arrangements with TBW.

                                      F-20
<PAGE>
                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003
10.  Income Taxes

The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                                               ------------------------
                                                                       2001             2002             2003
                                                                   -------------    -------------    -------------
                                                                                    (in thousands)
       Current:
<S>                                                                         <C>               <C>          <C>
                Federal                                                     0                 0            4,121
                State and Local...............................            384               590            1,886
                Foreign.......................................            263               405            1,095
                                                                   -------------    -------------    -------------
                                                                   $      647       $       995      $     7,102
                                                                   -------------    -------------    -------------
       Deferred:
                Federal.......................................     $        -       $    10,907      $     5,711
                State and Local...............................              -                 -          (14,089)
                                                                   -------------    -------------    -------------
                                                                   $        -       $    10,907      $    (8,378)
                                                                   -------------    -------------    -------------
       Income tax expense (benefit)                                $      647       $    11,902      $    (1,276)
                                                                   =============    =============    =============
</TABLE>
The differences between the statutory Federal income tax rate and the effective
tax rate are attributable to the following:
<TABLE>
<CAPTION>
                                                                                      Years ended December 31,
                                                                                      ------------------------
                                                                                2001             2002         2003
                                                                             ------------     ---------    ------------
        <S>                                                                     <C>             <C>             <C>
        Federal income tax provision computed at the statutory rate.....     (35.0)%            35.0%         35.0%
        State and Local taxes, net of Federal income tax effect.........       1.0%              0.6%          1.0%
        Valuation Allowance.............................................        --                --         (38.2)%
        Non-deductible amortization expense.............................      31.5%               --            --
        Foreign taxes...................................................       1.0%              1.0%          0.4%
        Purchase accounting.............................................       4.5%            (5.6)%           -
        Other...........................................................      (0.5)%           (0.2)%         1.0%
                                                                           ------------     ---------     ------------
        Total provision for income taxes................................       2.5%            30.8%         (0.8)%
                                                                           ============     =========     ============
</TABLE>
For  financial  statement  purposes,  the Company  records  income taxes using a
liability  approach which results in the recognition and measurement of deferred
tax assets  based on the  likelihood  of  realization  of tax benefits in future
years.  Deferred taxes result from temporary  differences in the  recognition of
income  and  expenses  for  financial  and  income tax  reporting  purposes  and
differences  between the fair value of assets acquired in business  combinations
accounted for as purchases and their tax bases.  The  significant  components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                                ------------------------
                                                                                 2002              2003
                                                                             -------------     -------------
                                                                                     (in thousands)
        <S>                                                                       <C>               <C>
Deferred tax assets:
                 Accounts receivable....................................     $    6,208        $      304
                 Inventory..............................................          4,085             2,079
                 Sales reserves.........................................          2,169             2,322
                 Employment reserves....................................          4,100               464
                 Partnership interest...................................          4,902              (750)
                 Legal and other reserves...............................          5,527             3,420
                 Net operating loss carryforwards.......................         78,399            45,018
                 Tax credit carryforwards...............................          1,776             4,561
                 Other..................................................             79               720
                                                                             -------------     -------------
                 Total gross deferred tax assets........................     $  107,245        $   58,138
                 Less valuation allowance...............................        (96,737)           (7,037)
                                                                             -------------     -------------
                 Net deferred tax assets................................     $   10,508        $   51,101
                                                                             -------------     -------------
        Deferred tax liabilities:
                 Depreciation/ amortization.............................     $      830        $   (1,077)
                 Licensing, net.........................................          9,678             5,735
                                                                             -------------     -------------
                 Total gross deferred tax liabilities...................     $   10,508        $    4,658
                                                                             -------------     -------------
        Net deferred tax asset .........................................     $        -        $   46,443
                                                                             =============     =============
</TABLE>

                                      F-21
<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

     During 2002 and 2003, the Company  recorded a valuation  allowance  against
certain of its  deferred tax assets as it was not assured that such assets would
be realized in the future.

     The net change in the valuation  allowance  during the years ended December
31, 2001, 2002 and 2003 was $(13,743), $3,886 and ($89,700), respectively.

     At December 31, 2003, the Company has  approximately $40 million of Federal
net  operating  loss  carryforwards  ("NOLs"),  which are scheduled to expire in
2020.  Additionally,  the Company has  approximately  $360  million of state and
local net operating loss  carryforwards.  The state and local loss carryforwards
will expire in various jurisdictions in years 2004 through 2023.

     The Company had  determined  that prior to the quarter ended  September 30,
2003, it did not have sufficient  positive  evidence to recognize its Federal or
state deferred tax assets.  However, as a result of the income generated through
September  30,  2003,  combined  with the  Company's  near-term  forecasts,  the
valuation  allowance  against Federal deferred tax assets  (principally  Federal
NOLs) was released in the third quarter of 2003. As a result of further analysis
in the fourth quarter,  including  detailed  income  projections and analyses of
temporary  differences,  a majority of the valuation allowance against state and
local deferred tax assets  (principally state and local NOLs) was also released.
In summary,  starting  September 30, 2003, the Company  released an aggregate of
approximately $55 million of valuation  allowance,  which was accounted for as a
reduction in goodwill (see below) of $10 million, a credit to paid-in capital of
$14.2  million -  associated  with stock option  exercises,  and a net credit to
deferred  tax  expense of $31.5  million.  During the nine  month  period  ended
September  30, 2003,  the  Company's  deferred tax  provision  included  charges
aggregating  $15.1  million,  which were also  accounted  for as a reduction  in
goodwill  (related to usage of  pre-acquisition  deferred tax assets,  primarily
NOLs).

     During the fourth quarter,  the Company  recorded a normal tax provision of
39.4%  against  pretax  income  of $22  million.  This  provision  reflects  the
amortization of a portion of previously recorded deferred tax assets.

     Goodwill was reduced by an aggregate  $25.1 million in 2003: $10 million of
goodwill  was  reduced in  connection  with the release of  valuation  allowance
related to  preacquisition  state & local NOLs and $15.1 million of goodwill was
reduced in connection with the utilization of pre-acquisition Federal NOL's.

     The Company is currently under  examination by the Internal Revenue Service
for the 1995 through 1998 years.  The Company has reached a tentative  agreement
with the IRS which will be reviewed in accordance  with  applicable  procedures.
The  effects of these  adjustments,  if  agreed,  would not be  material  to the
Company's financial position, results of operations or cash flows.

                                      F-22
<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

11.  Quarterly  Financial  Data  (Unaudited)

Summarized quarterly financial information for the years ended December 31, 2002
and 2003 is as follows:
<TABLE>
<CAPTION>

                                          ---------------------2002-------------------  ---------------------2003-------------------
Quarter Ended                             March 31*  June 30  September 30 December 31**March 31   June 30  September 30    December
---------------                           ---------- -------  ------------ -----------  ---------  -------  ------------ -----------
                                                                                (in thousands, except per share data)***

<S>                                         <C>         <C>        <C>         <C>         <C>        <C>        <C>        <C>
Net sales ............................... $ 57,222    $ 70,939   $ 84,378    $ 86,507    $ 87,377   $ 89,966   $ 84,536   $ 85,747
Gross profit ............................   28,418      36,680     43,278      48,567      67,093     72,824     64,328     63,915

Income before extraordinary gain and
cumulative effect of change in accounting
principle ...............................      760       8,381     10,636       6,997      42,221     32,753     63,178     13,496
Cumulative effect of change in accounting
principle ...............................    4,561        --         (175)       (222)       --         --         --         --
Net (loss) income .......................   (3,801)      8,381     10,811       7,219      42,221     32,753     63,178     13,496
Preferred dividend
requirement .............................    4,131       4,005      4,080      55,916       1,163       --         --         --
Net (loss) income attributable to common
stock ...................................   (7,932)      4,376      6,731     (48,697)     41,058     32,753     63,178     13,496
Basic net (loss) income per common share
before extraordinary gain and cumulative
effect of change in accounting principle  $ ( 0.23)     $0.12        $0.19     $ (1.03)     $0.67     $0.49        $0.93    $ 0.19

Dilutive net (loss) income per common
share before extraordinary gain and
cumulative effect of change in accounting
principle ............................... $ ( 0.23)   $   0.10   $   0.17    $  (1.03)   $   0.57   $   0.42   $   0.85   $   0.18

</TABLE>

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

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

***Quarterly  financial data for the quarter ended  September 30, 2003 include a
tax  benefit of $31.5  million  associated  with the  release  of the  valuation
allowance for deferred tax assets.

     The  loss per  common  share  computation  for  each  quarter  and year are
separate calculations.  Accordingly,  the sum of the quarterly (loss) income per
common share  amounts may not equal the loss per common share for the year.  Per
share  amounts  have not been  adjusted for the stock split as described in Note
17.

12.  Related Party Transactions

     An affiliate of the Company,  which is  wholly-owned by Mr.  Perlmutter,  a
major  stockholder,  acts as the  Company's  media  consultant  in  placing  the
Company's  advertising and receives  certain fees and  commissions  based on the
cost of the placement of such  advertising.  During the years ended December 31,
2001,  2002,  and 2003,  the Company paid fees and  commissions to the affiliate
totaling approximately $159,000,  $102,000, and $157,000 respectively,  relating
to such advertisements.

     The Company  shares  office  space and certain  general and  administrative
costs with the  aforementioned  affiliate.  Rent allocated to affiliates for the
years ended December 31, 2001, 2002 and 2003 was approximately $80,000, $83,000,
and  $87,000  respectively.  While  certain  costs are not  allocated  among the
entities,  the Company believes that it bears its  proportionate  share of these
costs.

                                      F-23
<PAGE>
                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

     Avi Arad is an officer, member of the Board of Directors,  and stockholder.
The  Company  incurred  royalty  expense due to Mr. Arad for toys he invented or
designed of  approximately  $866,000,  $684,000,  and $867,000  during the years
ended  December  31, 2001,  2002,  and 2003,  respectively.  An affiliate of the
Company,  which is wholly-owned  by Mr. Arad,  provides  production  services in
connection with the Company's animated television series. During the years ended
December  31, 2001,  2002 and 2003,  the Company  paid  production  fees to this
affiliate of approximately  $180,000,  $300,000 and $627,500,  respectively.  At
December  31,  2002 and 2003,  the  Company  had an  obligation  to Mr.  Arad of
approximately $171,000 and $213,000,  respectively, for unpaid royalties as well
as an obligation of approximately $90,000 and $-0-, respectively, for production
fees.

     The Company paid  producer  fees in regards to its  television  series to a
Company wholly owned by a former officer and employee of approximately $168,000,
$202,000 and $141,000  during the years ended December 31, 2001,  2002 and 2003,
respectively.  This  arrangement  terminated  in  October,  2003 and no  further
obligations continue.

13.  Commitments and Contingencies

     In June 2000,  the Company  entered into a lease  agreement for a corporate
office facility.  The lease term, which is approximately 5 1/2 years,  commenced
in  April  2001  and  terminates  on  July  31,  2006.  At  December  31,  2002,
approximately  $4.4  million  of lease  payments  are  being  guaranteed  by Mr.
Perlmutter  (See Note 5 to the  Consolidated  Financial  Statements  for further
details.)  Rent expense  amounted to  approximately  $3,439,000,  $3,173,000 and
$3,225,000 for the years ended December 31, 2001, 2002 and 2003, respectively.

The following table sets forth the Company's Contractual Cash Obligations as of
December 31, 2003:

<TABLE>
<CAPTION>

    Contractual Obligations                            Payments Due By Period
------------------------------------------------------------------------------------------------------
                                              Less than                                    After
    (Amounts in thousands)        Total        1 Year       1-3 Years     3-5 Years       5 Years
<S>                               <C>           <C>             <C>             <C>             <C>
------------------------------------------------------------------------------------------------------
Long Term Debt Obligations     $ 150,962      $    --       $     --      $     --     $  150,962
------------------------------------------------------------------------------------------------------
Operating Lease Obligations       10,355        3,404          5,538           848            565
------------------------------------------------------------------------------------------------------
Purchase Obligations                  --           --             --            --             --
------------------------------------------------------------------------------------------------------
Other Long-Term Liabilities
Reflected on the Company's
Balance Sheet under GAAP             636           --            570            66             --
------------------------------------------------------------------------------------------------------
Expected pension benefit
payments                          12,889        1,215          2,395         2,428          6,851
------------------------------------------------------------------------------------------------------
Total                          $ 174,842      $ 4,619      $   8,503       $ 3,342     $  158,378
------------------------------------------------------------------------------------------------------

</TABLE>
                                      F-24
<PAGE>


     The Company is a party to a lease agreement for a public warehouse in Fife,
Washington.  The  lease  payments  associated  with  this  warehouse,  which are
estimated to average between  $120,000 and $150,000 per year, are based on cubic
feet,  measured  monthly,  and are subject to change  depending  on the capacity
devoted to the inventory stored at this location.

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

     The following table sets forth the Company's Other  Commercial  Commitments
as of December 31, 2003:
<TABLE>
<CAPTION>
        Other Commercial                                           Amount of Commitment
          Commitments                  Total                      Expiration Per Period
-------------------------------------------------------------------------------------------------------
<S>     <C>                             <C>             <C>             <C>        <C>          <C>
                                                      Less than                               Over
     (Amounts in thousands)                            1 Year      1-3 Years   4-5 Years    5 Years
-------------------------------------------------------------------------------------------------------
Standby Letters of Credit             $ 194            $  --      $     194      $           $
-------------------------------------------------------------------------------------------------------
</TABLE>

     The Company is obligated to make payments under various royalty  agreements
of approximately $35,000 during the year ending December 31, 2004.

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

Legal Matters

     The  Company  is a party to  certain  legal  actions  described  below.  In
addition,  the Company is involved in various other legal proceedings and claims
incident to the normal  conduct of its  business.  Although it is  impossible to
predict the outcome of any legal proceeding and there can be no assurances,  the
Company  believes  that  its  legal  proceedings  and  claims  (including  those
described  below),  individually and in the aggregate,  are not likely to have a
material  adverse  effect on its financial  condition,  results of operations or
cash flows.

     Brian Hibbs,  d/b/a Comix Experience v. Marvel.  On May 6, 2002,  plaintiff
commenced  an action on behalf of himself and a purported  class  consisting  of
specialty  store  retailers  and  resellers  of Marvel  comic books  against the
Company and Marvel  Entertainment  Group, Inc. (a wholly owned subsidiary of the
Company) (the "Marvel  Defendants")  in New York State Supreme Court,  County of
New York,  alleging that the Marvel Defendants  breached their own Terms of Sale
Agreement in connection with the sale of comic books to members of the purported
class, breached their obligation of good faith and fair dealing(s), fraudulently
induced  plaintiff and other  members of the  purported  class to buy comics and
unjustly  enriched  themselves.  The relief sought in the complaint  consists of
certification  of the purported  class and the  designation  of plaintiff as its
representative,  compensatory  damages of $8 million on each cause of action and
punitive  damages  in an amount to be  determined  at trial.  The  parties  have
reached a proposed settlement in which the retailers and resellers would receive
a credit to their  account with  Marvel's  exclusive  distributor,  depending on
their prior  purchases of certain  comic book issues.  The parties have tendered
that  settlement to the Court for approval.  It is not known when the Court will
act on  this  matter  or how  long  it  will  take  for  final  approval  of the
settlement.  In the event the matter does not settle,  Marvel  intends to defend
vigorously against the claims made in this action on their merits.

     Stan Lee v. Marvel.  On November 12, 2002,  Stan Lee commenced an action in
the United States District Court for the Southern District of New York, alleging
claims for breach of his November 1, 1998 employment  agreement.  Mr. Lee claims
the right to a 10% profit  participation in connection with the Spider-Man movie
and other  film and  television  productions  that  utilize  Marvel  characters.
Pursuant to the terms of the  Employment  Agreement,  the  Company is  currently
paying Mr. Lee a salary of $1.0  million per year and  believes  that Mr.  Lee's
claim is without merit.  Marvel has answered the complaint and denied all of its
material  allegations.  The action is  currently in the  discovery  phase and no
trial date has been set.

                                      F-25
<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

     Marvel  Characters,  Inc.  v. Sony  Pictures  Entertainment  Inc. et al. On
February 25, 2003, Marvel Characters, Inc. ("MCI"), a wholly owned subsidiary of
Marvel  Enterprises,  Inc., filed suit against Sony Pictures  Entertainment Inc.
("SPE") and  related  entities,  in  California  Superior  Court for Los Angeles
County,  alleging,  among other  things,  that the 1999  license  agreement  for
Spider-Man  between MCI and SPE should be  dissolved  based on SPE's  fraudulent
representations to MCI during the negotiation of the license  agreement.  As the
Company has previously announced,  the suit is not an attempt to stop production
of the  Spider-Man  movie sequel or to change or upset any of the  merchandising
deals  that are in place for the  sequel.  On April 21,  2003,  in  response  to
Marvel's  complaint,  SPE filed a  cross-complaint  in which SPE alleges,  among
other things,  that MCI has breached the licensing agreement with respect to the
licensing of Spider-Man merchandise unrelated to Spider-Man:  The Movie to SPE's
financial  detriment.  Marvel  believes  that SPE's claims are without merit and
intends to defend  vigorously  against those claims.  The action is currently in
the discovery phase and no trial date has been set.

     Tribune  Entertainment  Company v. Marvel Enterprises,  Inc. On October 30,
2003, Tribune  Entertainment  Company  ("Tribune") filed a complaint against the
Company in New York State Supreme Court, New York County.  The complaint alleges
three  causes of  action:  fraud,  negligent  misrepresentation,  and  breach of
warranty,  all in  connection  with the  license  from the  Company  under which
Tribune produced the Mutant X television series (the "Tribune  License").  Prior
to release of the  Mutant X  television  series in 2001,  both the  Company  and
Tribune  were  sued by  Twentieth  Century  Fox Film  Corporation  ("Fox"),  the
licensee of the X-Men properties for motion pictures,  among other rights.  That
suit, which alleged breach of the 1993 X-Men movie license,  unfair competition,
copyright infringement and tortuous interference with contract, all arising from
the Tribune  License,  was settled between the Company and Fox in February 2003.
According to the action filed by Tribune on October 30,  2003,  Tribune  settled
with Fox on October 3, 2003.  Tribune's  October 30, 2003 complaint  against the
Company  alleges that the Company  misrepresented  the rights it was granting to
Tribune in the Tribune  License,  and that the Company  breached its warranty in
the Tribune  License that the Mutant X property did not conflict with the rights
of any third party. On December 11, 2003, the Company filed its answer,  denying
all material allegations of Tribune's complaint and asserting two counterclaims.
First,  the  Company  asserted a claim for  breach of  contract,  alleging  that
Tribune  has failed to pay the  Company  any  monies  under a  provision  of the
Tribune License that grants the Company a portion of Tribune's receipts from the
Mutant X series, as defined in the Tribune License.  Second, the Company alleged
that the 2001 Fox  litigation  was due to Tribune's  actions and  therefore  the
Company  is owed  indemnification  for its costs and  expenses  incurred  in its
defense of that litigation.  The current action is in the discovery phase and no
trial date has been set.


                                      F-26
<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

14.  Benefits Plans

     The Company has a 401(k) Plan covering  substantially all of its employees.
In  addition,  in  connection  with the 1999 sale of a  subsidiary,  the Company
retained  certain  liabilities  related to a defined  benefit  pension  plan for
certain of such subsidiaries employees. In prior years, this plan was amended to
freeze the accumulation of benefits and to prohibit new participants. Assuming a
discount rate of 6.75% for the 2003  expense,  6.25% for the  obligation  and an
expected  rate of  return  of  8.00%,  the  accumulated  benefit  obligation  is
approximately  $19.4  million  (approximately  $18.7  million as of December 31,
2002) of which  approximately  $4.9  million  (approximately  $4.5 million as of
December 31, 2002) is unfunded at December 31, 2003.  This amount is recorded as
a component of accumulated other  comprehensive loss and is being amortized over
the estimated  remaining lives of the participants.  Plan expenses for the years
ended December 31, 2001, 2002 and 2003 were not significant.

     The  following  tables  show  disclosure  amounts  for the  2003  financial
statements  as  required  under SFAS No. 87 as amended  by SFAS No.  132.  These
figures are based on the population data and actuarial assumptions as of January
1, 2003 and January 1, 2002 and on a September 30 measurement date.
<TABLE>
<CAPTION>
                                                                                   2002                2003
                                                                             -----------------    -----------------
<S>                                                                           <C>              <C>
Accumulated Benefit Obligation, End of Year ...............................   $ 18,749,102     $ 19,361,711

Change in Projected Benefit Obligation
Projected Benefit Obligation, October 1 ...................................   $ 18,154,136     $ 18,749,102
Service cost ..............................................................           --               --
Interest cost .............................................................      1,236,994        1,199,488
Plan amendments ...........................................................           --               --
Assumption changes ........................................................        492,475        1,022,710
Actuarial (gain)/loss .....................................................        157,420         (352,691)
Benefits paid .............................................................     (1,291,923)      (1,256,898)
                                                                              ------------     ------------
Projected benefit obligation, September 30 ................................   $ 18,749,102     $ 19,361,711

Change in plan assets
Plan assets at fair value, October 1 ......................................   $ 14,868,585     $ 14,198,302
Actual return on plan assets ..............................................        513,696        1,363,631
Company contributions .....................................................        107,944          111,855
Benefits paid .............................................................     (1,291,923)      (1,256,898)
                                                                              ------------     ------------
Plan assets at fair value, September 30 ...................................   $ 14,198,302     $ 14,416,890

Recognition of prepaid (accrued) and total amount recognized as of
December 31
Projected benefit obligation ..............................................   $(18,749,102)    $(19,361,711)
Fair value of assets ......................................................     14,198,302       14,416,890
                                                                              ------------     ------------
Funded status .............................................................   $ (4,550,800)    $ (4,944,821)
Unrecognized net transition (asset) obligation ............................           --               --
Unrecognized prior service cost ...........................................       (647,221)        (593,529)
Unrecognized net (gain) loss ..............................................      4,447,280        4,749,139
Contribution adjustment ...................................................         26,778           27,569
                                                                              ------------     ------------
Prepaid (accrued) pension cost as of December 31 ..........................   $   (723,963)    $   (761,642)

Prepaid benefit cost ......................................................   $       --       $       --
Accrued benefit liability .................................................   $ (4,524,022)    $ (4,917,252)
Intangible asset ..........................................................           --               --
Accumulated other comprehensive income ....................................      3,800,059        4,155,610
                                                                              ------------     ------------
Total recognized as of December 31 ........................................   $   (723,963)    $   (761,642)
                                                                              ============     ============
</TABLE>


                                      F-27
<PAGE>



                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

<TABLE>
<CAPTION>
                                                                                      2002             2003
        Total cost for plan year
<S>                                                                           <C>              <C>
        Service cost ......................................................   $       --       $       --
        Interest cost .....................................................      1,236,994        1,199,488
        Expected return on plan assets ....................................     (1,142,687)      (1,088,715)
        Amortization of:
              Unrecognized net (gain) loss ................................           --               --
              Unrecognized prior service cost .............................        (53,692)         (53,692)
              Unrecognized net asset obligation ...........................         87,921           93,244
                                                                              ------------     ------------
        Net periodic pension cost .........................................   $    128,536     $    150,325

        Other comprehensive income ........................................      1,244,657          355,551

        Measurement date ..................................................      9/30/2002        9/30/2003

        Assumptions used for annual expense
        Discount rate .....................................................           7.00%            6.75%
        Expected return on plan assets ....................................           8.00%            8.00%
        Rate of consumption increase ......................................            N/A              N/A

        Assumptions used for annual expense
        Discount rate .....................................................           6.75%            6.25%
        Rate of consumption increase ......................................            N/A              N/A


        Expected company contribution for 2004 ............................   $    244,493

        Expected benefit payments:
                                        2004        1,215,000
                                        2005        1,203,000
                                        2006        1,192,000
                                        2007        1,200,000
                                        2008        1,228,000
                                   2009-2013        6,851,000
</TABLE>

     The   amortization  of  any  prior  service  cost  is  determined  using  a
straight-line  amortization  of the cost over the expected  lifetime of inactive
participants in the plan, since the plan has mostly active participants.


                                      F-28
<PAGE>
                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003


15.  Segment Information

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

Toy Merchandising and Distribution Segment

     The toy merchandising and distributing segment designs,  develops,  markets
and  distributes  a  limited  line  of toys to the  worldwide  marketplace.  The
Company's  toy products  are based upon movies and  television  shows  featuring
Spider-Man and produced by Sony Pictures, and upon the movie trilogy Lord of the
Rings (New Line Cinema).  The Spectra Star division of Toy Biz (which was closed
mid-2003)  designed,  produced  and sold  kites in both mass  market  stores and
specialty hobby shops.  Spectra Star's sales amounted to $11.6 million and $10.4
million for the years ended December 31, 2002 and 2003, respectively.  Its total
assets at December 31, 2003 of $11.5 million  consist  principally of inventory,
land and buildings.

Publishing Segment

     The  publishing  segment  creates  and  publishes  comic  books  and  trade
paperbacks principally in North America.  Marvel has been publishing comic books
since 1939 and has developed a roster of more than 4,700 Marvel Characters.  The
Company's  titles feature classic Marvel Super Heroes,  Spider-Man,  X-Men,  the
Incredible Hulk,  Daredevil,  newly developed  Marvel  Characters and characters
created by other entities and licensed to the Company.


                                      F-29

<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003

Licensing Segment

     The  licensing  segment  relates  to the  licensing  of or  joint  ventures
involving the Marvel Characters for use in a wide variety of products, including
toys,  electronic  games,  apparel,  accessories,   footwear,  collectibles  and
novelties;  in a variety of media, including feature films, television programs,
and  destination-based  entertainment  (e.g.,  theme parks); and for promotional
use.
<TABLE>
<CAPTION>
                                           Revenue by Geographic Area
                                                 (in thousands)
                                2001                              2002                             2003
                     .........................        ..........................       ...........................
<S>                     <C>             <C>             <C>                <C>          <C>                 <C>
                         U.S.         Foreign*             U.S.         Foreign*          U.S.           Foreign*
Licensing             $ 30,309         $ 9,703         $ 47,565         $31,997         $106,264         $ 82,940
Publishing              40,685           8,819           53,678          10,823           61,363           11,892
Toys                    70,996          20,712          118,873          36,110           64,607           20,560
                      --------         -------         --------         -------         --------         --------
Total                 $141,990         $39,234         $220,116         $78,930         $232,234         $115,392
                      ========         =======         ========         =======         ========         ========

* $3,176,  $21,807 and $64,755 of the foreign licensing  revenues for 2001, 2002
and 2003, respectively,  are attributable to royalties and service fees from toy
sales (mostly to customers located in the United States) generated by TBW, which
is based in Hong Kong.
</TABLE>
<TABLE>
<CAPTION>
                                                     Toys     Publishing  Licensing     Corporate         Total
                                                                                (in thousands)
Year  ended December 31, 2001
<S>                                                 <C>          <C>       <C>                      <C>
Net sales.......................................    $91,708      $49,504   $40,012           --     $181,224
Gross profit....................................     26,932       25,577    40,006           --       92,515
Pre-acquisition litigation charge...............        --           --        --      (3,000)      (3,000)
Operating (loss) income.........................    (5,807)       14,453     5,168     (12,521)        1,293

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

Total identifiable assets.......................    $90,856      $74,213  $352,501         $ --     $517,570



                                                      Toys     Publishing  Licensing     Corporate         Total
                                                                                (in thousands)
Year  ended December 31, 2002
Net sales.......................................   $154,983      $64,501   $79,562           --     $299,046
Gross profit....................................     48,788       33,060    75,095           --      156,943
Operating income (loss).........................      8,857       19,587    69,383     (17,303)       80,524

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

Total identifiable assets.......................    $44,147      $75,637  $397,735         $ --     $517,519


                                                      Toys     Publishing  Licensing   Corporate      Total
                                                                                (in thousands)
Year  ended December 31, 2003
Net sales.......................................    $85,167      $73,255  $189,204           --     $347,626
Gross profit....................................     40,003       38,953   189,204           --      268,160
Operating income (loss).........................     21,723       25,442   139,409     (19,352)      167,222

Total capital expenditures......................      3,542           --        --           --        3,542

Total identifiable assets.......................   $300,135      $69,910  $371,812         $ --     $741,857

</TABLE>

                                      F-30
<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 2003


16.  Supplemental Financial Information (in thousands)

     The  following   represents  the   supplemental   consolidating   financial
statements of Marvel Enterprises, Inc., which is the issuer of the Senior Notes,
and its  wholly-owned  subsidiaries  that  guarantee  the  Senior  Notes and the
non-guarantor  subsidiaries as of December 31, 2002 and 2003 and for each of the
three years in the period ended  December 31, 2003.

<TABLE>
<CAPTION>
                                                   Issuer
                                                    And         Non
                                                 Guarantors  Guarantors    Total
For The Year Ended December 31, 2001
<S>                                               <C>        <C>         <C>
Net sales...................................      $157,893   $23,331     $181,224
Gross profit................................        85,339     7,176       92,515
Operating income............................           242     1,051        1,293
Net income..................................         3,592     1,673        5,265

For The Year Ended December 31, 2002
Net sales...................................      $261,154   $37,892     $299,046
Gross profit................................       148,778     8,165      156,943
Operating income............................        80,505        19       80,524
Net income (loss)...........................        22,688      (78)       22,610

For The Year Ended December 31, 2003
Net sales...................................      $326,599   $21,027     $347,626
Gross profit................................       260,325     7,835      268,160
Operating income............................       164,507     2,715      167,222
Net income (loss)...........................       149,465     2,183      151,648

</TABLE>
<TABLE>
<CAPTION>
                           Issuer
                           And            Non-       Inter-
                           Guarantors  Guarantors   Company     Total

December 31, 2002
<S>                       <C>         <C>          <C>          <C>
Current assets ........   $ 116,169   $   6,446    $    --      $ 122,615
Non-current assets ....     392,857      38,945      (36,898)     394,904
                          ---------   ---------    ---------    ---------
Total assets ..........   $ 509,026   $  45,391    $ (36,898)   $ 517,519
                          =========   =========    =========    =========
Current liabilities ...   $ 120,551   $   6,358    $ (36,898)   $  90,011
Non-current liabilities     151,859        --           --        151,859
8% Preferred Stock ....      32,780        --           --         32,780
Stockholders' equity ..     203,836      39,033         --        242,869
                          ---------   ---------    ---------    ---------
                          $ 509,026   $  45,391    $ (36,898)   $ 517,519
                          =========   =========    =========    =========
December 31, 2003
Current assets ........   $ 327,223   $   7,784    $    --      $ 335,007
Non-current assets ....     404,181      38,183      (35,514)     406,850
                          ---------   ---------    ---------    ---------
Total assets ..........   $ 731,404   $  45,967    $ (35,514)   $ 741,857
                          =========   =========    =========    =========
Current liabilities ...     151,572       4,751      (35,514)   $ 120,809
Non-current liabilities     151,598        --           --        151,598
8% Preferred Stock ....        --          --           --           --
Stockholders' equity ..     428,234      41,216         --        469,450
                          ---------   ---------    ---------    ---------

                          $ 731,404   $  45,967    $ (35,514)   $ 741,857
                          =========   =========    =========    =========
</TABLE>

                                      F-31


<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                December 31, 200354

<TABLE>
<CAPTION>
                                                                      Issuer
                                                                       and           Non-
                                                                    Guarantors    Guarantors    Total
Year Ended December 31, 2001
Cash flows from operating activities:
<S>                                                                    <C>        <C>          <C>
Net income .......................................................     $3,872     $   1,393    $   5,265
                                                                     =========    =========    =========
     Net cash provided by operating activities ...................       9,262          632        9,894
     Net cash used in investing activities .......................      (9,977)         (15)      (9,992)
     Net cash used in financing activities .......................      (1,114)        --         (1,114)
                                                                     ---------    ---------    ---------
Net (decrease) increase in cash ..................................      (1,829)         617       (1,212)
Cash, at beginning of year .......................................      22,291          512       22,803
                                                                     ---------    ---------    ---------
Cash, at end of year .............................................   $  20,462    $   1,129    $  21,591
                                                                     =========    =========    =========
Year Ended December 31, 2002
Cash flows from operating activities:
Net income (loss) ................................................   $  22,688    $     (78)   $  22,610
                                                                     =========    =========    =========
     Net cash provided by operating activities ...................      71,924        3,062       74,986
     Net cash used in investing activities .......................      (7,398)        --         (7,398)
     Net cash used in financing activities .......................     (35,489)        --        (35,489)
                                                                     ---------    ---------    ---------
Net increase in cash .............................................      29,037        3,062       32,099
Cash, at beginning of year .......................................      20,462        1,129       21,591
                                                                     ---------    ---------    ---------
Cash, at end of year .............................................   $  49,499    $   4,191    $  53,690
                                                                     =========    =========    =========
Year Ended December 31, 2003
Cash flows from operating activities:
Net income .......................................................   $ 149,465    $   2,183    $ 151,648
                                                                     =========    =========    =========
     Net cash provided by operating activities ...................     168,901        2,050      170,951
     Net cash used in investing activities .......................    (219,502)        --       (219,502)
     Net cash (used in) provided by financing activities .........      27,423         --         27,423
                                                                     ---------    ---------    ---------
Net increase (decrease) in cash ..................................     (23,178)       2,050      (21,128)
Cash, at beginning of year .......................................      49,499        4,191       53,690
                                                                     ---------    ---------    ---------
Cash, at end of year .............................................   $  26,321    $   6,241    $  32,562
                                                                     =========    =========    =========
</TABLE>

17.  Subsequent Event (unaudited)

     On February  24,  2004,  the  Company  approved a 3 for 2 stock split to be
     distributed on March 26, 2004 to  stockholders of record on March 12, 2004.
     The stock split will require retroactive  restatement of all historical per
     share data in the quarter  ending  March 31, 2004 as well as the  quarterly
     results for the last two fiscal years.  Restated amounts are as follows:

<TABLE>
<CAPTION>

                                                              2001              2002             2003

     Diluted net (loss) income per share:
<S>                                                           <C>               <C>              <C>
         As reported                                          $(.31)            $(1.18)          $2.01
         Pro forma .....................                      $(.21)            $  (.79)         $1.33

</TABLE>

                                      F-32
<PAGE>

                            MARVEL ENTERPRISES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                               December 31, 2003

<TABLE>
<CAPTION>

Quarterly unaudited pro forma diluted earnings per share:

                                            2002                           2003
Quarter:                        As Reported     Pro Forma       As  Reported    Pro Forma

<S>                                         <C>                       <C>         <C>
First                            $ (.23)        $(.15)            $.57        $.38
Second                           $  .10         $ .07             $.42        $.28
Third                            $  .17         $ .11             $.85        $.57
Fourth                           $(1.03)        $(.69)            $.18        $.12

</TABLE>



                                      F-33
<PAGE>


                            MARVEL ENTERPRISES, INC.


                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

                                                           Balance       Charged to Sales    Charged to                     Balance
                                                         At Beginning    or Costs and           Other                       at End
                                                          of Period       Expenses           Accounts        Deductions   of Period
            Description                                                                                         (4)
                                                                                            (in thousands)
Year Ended December 31, 2001
Allowances included in Accounts
   Receivable. Net:
<S>                                                         <C>            <C>                  <C>            <C>            <C>
Doubtful accounts--current .........................        $ 4,542        $ 3,470 (3)            --          $ 2,737        $ 5,275
Doubtful accounts--non-current .....................           --                  --             --             --             --
Advertising, markdowns,
   volume discounts, and other .....................        $19,393        $ 15,037 (1)           --          $22,592        $11,838

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

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

Year Ended December 31, 2003
Allowances included in Accounts
   Receivable. Net:

Doubtful accounts--current .........................        $ 7,459        $1,124 (2)             --          $ 3,510        $ 5,073
Doubtful accounts--non-current .....................           --                  --             --             --             --
Advertising, markdowns,
   volume discounts and other ......................        $11,956        $12,859 (1)         $   138        $13,108        $11,845

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

</TABLE>

                                      F-34
<PAGE>