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, 1999

                                       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) (formerly
                       known as Toy Biz, Inc.)

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

                              387 Park Avenue South
                            New York, New York 10016
                  --------------------------------------------
          (Address of principal executive offices, including zip code)

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


           Securities registered pursuant to Section 12(b) of the Act:
                     Common Stock, par value $.01 per share

           Securities registered pursuant to Section 12(g) of the Act:
8% Cumulative Convertible Exchangeable Preferred Stock, par value $.01 per share
                 Plan Warrants for the purchase of Common Stock
               Class A  Warrants  for  the  purchase  of  Common  Stock
   Class B Warrants for the purchase of 8% Cumulative Convertible Exchangeable
                                 Preferred Stock
               Class C Warrants for the purchase of Common Stock
                           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. [ ]

          The  approximate  aggregate  market value of the voting and non-voting
common equity held by  non-affiliates  of the Registrant as of March 1, 2000 was
{$91,055,439}  based on a price of {$6.0625) 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 1, 2000,  there were 33,637,513  outstanding  shares of the
Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

         None.


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                                TABLE OF CONTENTS
<TABLE>
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<C>         <S>                                                             <C>
PART I
   ITEM 1.  BUSINESS.......................................................... 1
   ITEM 2.  PROPERTIES........................................................10
   ITEM 3.  LEGAL PROCEEDINGS.................................................10
   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............11

PART II
   ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                STOCKHOLDER MATTERS...........................................12
   ITEM 6.  SELECTED FINANCIAL DATA...........................................12
   ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS...........................13
   ITEM 7 A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                ABOUT MARKET RISK.............................................18
   ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................18
   ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                AND FINANCIAL DISCLOSURE......................................18

PART III
   ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................19
   ITEM 11. EXECUTIVE COMPENSATION............................................21
   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....28
   ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................32

PART IV

   ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
                ON FORM 8-K...................................................33

SIGNATURES....................................................................37
                                                                        </TABLE>

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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:

     Potential inability to successfully implement business strategy.

     A decrease in the level of media  exposure or popularity of our  characters
     resulting in declining revenues from products based on those characters. If
     movies or  television  programs  based  upon  Marvel  characters  which are
     scheduled  to be  released  are not  successful,  the ability to obtain new
     licenses  for motion  pictures or  televisions  shows may be  substantially
     diminished.

     The lack of commercial  success of properties owned by major  entertainment
     companies that have granted us toy licenses.

     The lack of consumer acceptance of new product introductions.

     The  imposition  of quotas or  tariffs on toys  manufactured  in China as a
     result of a deterioration in trade relations  between the U.S. and China. A
     large  number of Marvel's toy products  are  manufactured  in China,  which
     subjects  us to risks of  currency  exchange  fluctuations,  transportation
     delays and  interruptions,  and  political  and economic  disruptions.  Our
     ability to obtain products from our Chinese manufacturers is dependent upon
     the United States' trade relationship with China. The "most favored nation"
     status  of  China,   which  is  reviewed  annually  by  the  United  States
     government,  is a  regular  topic  of  political  controversy.  The loss of
     China's "most favored  nation"  status would increase the cost of importing
     products  from China  significantly,  which  could have a material  adverse
     effect on us. The  imposition  of further  trade  sanctions  on China could
     result in significant supply disruptions or higher merchandise costs to us.
     We might not be able to find  alternate  sources of  manufacturing  outside
     China on acceptable terms even if we want or need to. Our inability to find
     those alternate sources could have a material adverse effect on us.

     Changing  consumer  preferences.  Our new and  existing  toy  products  are
     subject to changing consumer  preferences.  Most of our toy products can be
     successfully marketed for only a limited period. In particular,  toys based
     on feature  films are in general  successfully  marketed for only a year or
     two following the film's release.  Existing  product lines might not retain
     their  current  popularity  or new products  developed by us might not meet
     with the same  success as our  current  products.  We 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 is to make toys based on the anticipated
     success of feature film releases and TV show broadcasts.  If these releases
     and  broadcasts are not  successful,  we may not be able to sell these toys
     profitably, if at all.

     Production delays or shortfalls,

     Continued  concentration  of toy  retailers  and pressure by certain of our
     major retail customers to significantly  reduce their toy inventory levels.
     The retail toy business is highly concentrated.  The five largest customers
     for our toy products  accounted in the aggregate for  approximately  70% of
     our total toy sales in 1999. An adverse change in, or  termination  of, our
     relationship  with one or more of our major customers could have a material
     adverse effect on us. Each of our five top toy customers also uses, to some
     extent,  inventory  management  systems which shift a portion of retailers'
     inventory  risk  onto  us.  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,  particularly  during the Christmas  season,
     and may consequently lose sales.

     The impact of competition and changes to the competitive environment on our
     products and services.

     Other factors detailed from time to time in our filings with the Securities
     and Exchange Commission.

     These forward-looking  statements 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.
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                                     PART I

ITEM 1.  BUSINESS

     Unless the context otherwise  requires:  (i) the term the "Company" and the
term "Marvel" each refer to Marvel Enterprises, Inc. (formerly Toy Biz, Inc.), a
Delaware corporation, and its subsidiaries; (ii) the term "MEG" refers to Marvel
Entertainment Group, Inc., a Delaware corporation,  and its subsidiaries,  prior
to the  consummation  of the Merger,  as defined  below,  and its emergence from
bankruptcy;  (iii) the term "Toy Biz,  Inc." refers to the Company  prior to the
consummation  of the  Merger;  (iv) the term  "Marvel  Licensing"  refers to the
Marvel  Licensing  business  division  of the  Company;  (v)  the  term  "Marvel
Publishing"  refers to the Marvel  Publishing  business division of the Company;
and (vi) the term  "Toy  Biz"  refers to the Toy Biz  business  division  of the
Company.  Unless  otherwise  indicated,  the  statement of  operations  data and
statement  of cash flows data  included  in this Report do not include (i) Fleer
Corp.,  Frank H. Fleer Corp. and SkyBox  International Inc. (each a wholly-owned
subsidiary of the Company), substantially all of the assets of which the Company
sold on  February  11, 1999 (the "Fleer  Sale"),  or (ii) Panini  SpA("Panini"),
which the  Company  sold on  October  5, 1999.  Certain  of the  characters  and
properties  referred to in this Report are subject to copyright and/or trademark
protection.

Background

     On October 1, 1998,  the Company  acquired MEG by means of a merger between
MEG and  the  Company's  wholly-owned  subsidiary  MEG  Acquisition  Corp.  (the
"Merger").  Upon  consummation of the Merger,  the Company changed its name from
"Toy Biz, Inc." to "Marvel Enterprises,  Inc." The Merger was part of the Fourth
Amended  Joint Plan of  Reorganization  for MEG that was confirmed by the United
States  District Court for the District of Delaware,  which had  jurisdiction of
MEG's  chapter 11 case.  MEG's  chapter 11 case had begun in December  1996 with
MEG's filing of a voluntary  petition for  bankruptcy  protection.  Prior to the
reorganization,  MEG was a  principal  stockholder  of Toy  Biz,  Inc.  See "The
Reorganization."

     In order to finance a portion of the  consideration  required to consummate
the  Merger  and  certain  other  transactions   contemplated  by  the  plan  of
reorganization,  the Company  borrowed $200 million (the "Bridge Loan") from UBS
AG, Stamford Branch ("UBS").  The Company used a portion of the proceeds from an
offering, completed on February 25, 1999 (the "Notes Offering"), of $250 million
of 12% senior notes due 2009 (the  "Notes") to repay the Bridge Loan.  UBS is an
affiliate of Warburg  Dillon Read LLC, one of the placement  agents in the Notes
Offering.

General

     The  Company  is  one  of  the  world's  most   prominent   character-based
entertainment  companies,  with a proprietary  library of over 4,500 characters.
The Company operates in the licensing,  comic book publishing and toy businesses
in both domestic and international  markets. The Company's library of characters
includes Spider-Man,  X-Men, Captain America,  Fantastic Four and The Incredible
Hulk and is one of the oldest and most recognizable collections of characters in
the entertainment industry.

     The  Company'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. In addition,  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  the  Company  to use some of its more  popular  characters  to
enhance the exposure of its lesser-known characters.

     The Company's  business is divided into three integrated and  complementary
operating divisions: Marvel Licensing, Marvel Publishing and Toy Biz.


Marvel Licensing

     Marvel  Licensing  licenses  the  Company's  characters  for  use in a wide
variety of consumer products, including apparel, costumes, children's sleepwear,

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party  goods,  snack  foods,  video  games,  collectibles,   posters,  footwear,
backpacks  and linens.  Marvel  Licensing  also  receives  fees from the sale of
licenses  to a  variety  of  media,  including  television,  feature  films  and
destination-based entertainment.

     The  following are examples of media  exposure and licensing  opportunities
that Marvel Licensing has generated for the Company's characters:

    Television Programs

     Marvel  Licensing  licenses  the  Company's  characters  for use in popular
television programs,  including  Spider-Man,  which has appeared on the Fox Kids
Television  Network  since 1994,  and X-Men,  which has appeared on the Fox Kids
Television Network since 1992. In addition, The Incredible Hulk, Fantastic Four,
Iron Man and Silver Surfer have aired on syndicated television from time to time
in the past. During 1999, Marvel Licensing  licensed the Avengers and additional
Spider-Man episodes to Fox Kids Television Network.

    Feature Films

     Marvel  Licensing  has licensed the Company's  characters  for use in major
motion  pictures.  For  example,  in March 1999,  the  Company  licensed to Sony
Pictures the right to create motion pictures based on the Spider-Man  character.
The Company received a non-refundable  advance against future royalties due from
Sony Pictures on revenues  generated by the first motion  picture to be produced
under the license.  Sony will be required to make  additional  advances  against
royalties due on revenues  generated if subsequent motion pictures are produced.
The Company also granted Sony Pictures rights to produce television  programming
based on Spider-Man following the release by Sony of the first Spider-Man motion
picture.  The  Company  and Sony  Pictures  have also  agreed to jointly  pursue
merchandise  licensing  opportunities for motion picture and  television-related
merchandise  through  a jointly  owned  limited  partnership.  The  Company  has
retained all other licensing rights with respect to the Spider-Man character.

     The Company  currently has licenses with  Twentieth  Century Fox to produce
motion pictures  featuring  X-Men,  Fantastic Four and Silver Surfer.  The X-Men
film is presently  scheduled to be released  during July 2000. In addition,  the
Company  currently  has  outstanding  licenses  with  various film studios for a
number of its other  characters and additional  discussions  are ongoing.  Under
these licenses,  the Company generally retains control over merchandising rights
and not less than 50% of movie-based merchandising revenues.

    Destination-Based Entertainment

     Marvel Licensing licenses the Company's  characters for use at theme parks,
shopping malls,  special events and restaurants.  For example,  Marvel Licensing
has licensed the  Company's  characters  for use as part of an attraction at the
Universal  Studios Theme Park in Orlando,  Florida.  Universal  Studios unveiled
"Marvel  Super Hero Island"  featuring  Spider-Man,  The  Incredible  Hulk and a
number of the Company's other characters in 1999.

    On-line Media

     Marvel  Licensing  has  developed  an on-line  presence  for the  Company's
characters  through the Company's  "Marvel.com" and related websites,  including
the  introduction  of electronic  comics and access to the Company's top writers
and artists and plans to extend such presence in 2000.

    Non-Toy Merchandise

     Marvel  Licensing  licenses  the  Company's  characters  for  use in a wide
variety of consumer products, including apparel, costumes, children's sleepwear,
party  goods,  snack  foods,  video  games,  collectibles,   posters,  footwear,
backpacks and linens.

Marvel Publishing

     Marvel Publishing is one of the world's leading publishers of comic books.

     Since  1995,  the  domestic  comic  book  publishing  market  has  declined
primarily as a result of reduced  readership,  lower  speculative  purchases and
lower selling prices,  which in turn caused a contraction in the number of comic

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book specialty stores.

   Comic Books

     Marvel  Publishing  has been  publishing  comic  books  since  1939 and has
developed  a roster of more  than  4,500  characters,  including  the  following
popular  characters:   Spider-Man;  X-Men  (including  Wolverine,  Nightcrawler,
Colossus, Storm, Cyclops, Rogue, Bishop and Gambit); Captain America;  Fantastic
Four (including Mr. Fantastic,  Human Torch, Invisible Woman and The Thing); The
Incredible  Hulk; Thor;  Silver Surfer;  Daredevil;  Iron Man; Dr. Strange;  and
Ghost  Rider.  The  Company's  characters  exist  in the  "Marvel  Universe",  a
fictitious   universe  which  provides  a  unifying  historical  and  contextual
background for the storylines. Marvel Publishing's titles feature classic Marvel
super heroes, newly developed Marvel characters, and characters created by other
entities and licensed to Marvel Publishing.

     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 "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.

   Comic Book Editorial Process

     Marvel   Publishing's    full-time   editorial   staff   consists   of   an
editor-in-chief,  creative director,  art director and approximately 18 editors,
associate  editors and assistant editors who oversee the quality and consistency
of the artwork and  editorial  copy and manage the  production  schedule of each
issue.  The production of each issue requires the editors to coordinate,  over a
six- to nine-month  period,  the  activities of a writer,  a pencil  artist,  an
inker, a colorist and a printer. The majority of this work is performed by third
parties outside of Marvel Publishing's premises.

     The artists and writers  include  freelancers  who  generally are paid on a
per-page  basis.  They are eligible to receive  incentives or royalties based on
the number of copies  sold (net of  returns)  of the comic  books in which their
work appears. Marvel Publishing has entered into agreements with certain artists
and writers under which those  persons have agreed to provide their  services to
Marvel Publishing on an exclusive basis,  generally for a period of one to three
years.  Management  believes that the financial  terms of these  agreements  are
competitive  within the  industry and are  consistent  with current and expected
levels of comic book sales.

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

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

   Customers, Marketing and Distribution

     Marvel  Publishing's  primary  target  market for its comic  books has been
teenagers  and  young  adults  in the 13 to 23 year old age  group.  Established

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readership of Marvel  Publishing's  comic books also extends to readers in their
mid-thirties.  There are two primary types of 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  nonreturnable  basis (the
"direct market"),  (ii) to traditional retail outlets on a returnable basis (the
"retail returnable market"), and (iii) on a subscription sales basis.

     For the years ended December 31, 1997,  1998 and 1999,  approximately  68%,
81%, and 80%, respectively,  of Marvel Publishing's net publishing revenues were
derived  from sales to the direct  market.  Marvel  Publishing  distributes  its
publications  through an unaffiliated  entity which, in turn, services specialty
market retailers and direct market comic book shops.

     For the years ended December 31, 1997,  1998 and 1999,  approximately  22%,
10% and 9%,  respectively,  of Marvel  Publishing's net publishing revenues were
derived from sales to the retail returnable market. The retail returnable market
consists of traditional  periodical  retailers  such as newsstands,  convenience
stores,  drug stores,  supermarkets,  mass  merchandise  and national  bookstore
chains. The distributors sell Marvel  Publishing's  publications to wholesalers,
who in turn  sell to the  retail  outlets.  Management  issues  credit  to these
distributors for unsold and returned copies.  Distribution to national bookstore
chains is accomplished through a separate distributor.

     For the years ended December 31, 1997, 1998 and 1999,  approximately 3%, 3%
and 2%,  respectively,  of Marvel  Publishing's  net  publishing  revenues  were
derived from subscription sales.

     For the years ended December 31, 1997, 1998 and 1999,  approximately 7%, 6%
and 9%,  respectively,  of Marvel  Publishing's  net  publishing  revenues  were
derived  from  advertising  sales and other  publishing  activities.  In most of
Marvel Publishing's comic publications,  ten pages (three glossy cover pages and
seven inside  pages) are  allocated  for  advertising.  The products  advertised
include sports and entertainment trading cards, video games, role playing games,
movies, candy,  cereals,  toys, models and other consumer packaged goods. Marvel
Publishing  permits  advertisers  to  advertise  in  a  broad  range  of  Marvel
Publishing's comic book publications which target specific groups of titles that
have a younger or older readership.

Toy Biz

     Toy Biz designs,  develops,  markets and  distributes  both  innovative and
traditional  toys in the boys',  girls',  activities/games  and  electronic  toy
categories based on popular entertainment  properties,  consumer brand names and
proprietary  designs.  Toy Biz's products are distributed to a number of general
and  specialty   merchandisers   and  distributors  in  the  United  States  and
internationally.

     The toy industry is a highly  competitive  environment  in which large mass
market toy  retailers  dominate the  industry  and feature a large  selection of
toys. In recent years,  entertainment  conglomerates,  through films, television
shows and print products,  have emerged as important  content  providers for toy
manufacturers.  In addition,  continued  consolidation  among  discount-oriented
retailers  can be expected to require  toy  companies  to keep prices low and to
implement and maintain  production and inventory control methods permitting them
to  respond  quickly  to  changes in  demand.  In  addition  to the  competitive
pressures placed on manufacturers and distributors,  the toy industry is subject
to changing  consumer  preferences and significant  seasonal  patterns in sales.
Some  products  in the toy  industry  are  perennial  favorites  and  others are
successfully marketed only for a limited period of time.

   Products

     Toy Biz has  historically  marketed a variety of toy products  designed for
children of  different  age groups.  Toy Biz's  current  product  strategy is to
increase sales of  Marvel-based  toys,  which  generate  higher margins than the
Company's  other toy product  lines.  See "Item 7.  Management's  Discussion and
Analysis of Financial  Condition and Results of  Operations-Overview."  In 1999,

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approximately  85% of the Company's net toy sales were  generated  from products
not based on the Marvel  characters.  Toy Biz produces a portion of its products
under  licenses  which it has obtained from third  parties.  In carrying out its
business strategy,  Toy Biz continuously  monitors existing licensed  properties
and pursues new  licenses  where it believes  that the new licenses fit with Toy
Biz's core product lines, or where they may add to Toy Biz's core product mix.

     Some of Toy Biz's  licenses  confer  rights to  exploit  original  concepts
developed  by toy  inventors  and  designers.  Other  licenses,  referred  to as
trademark  or brand name  licenses,  permit Toy Biz to produce  toys bearing the
recognized consumer trademark or brand name owned by the licensor. In return for
these rights Toy Biz pays royalties to its licensors.  Royalties paid by Toy Biz
to licensors and  inventors  are  typically  based on a percentage of net sales.
Most  licenses  have terms of one to three years and some are  renewable  at the
option of Toy Biz upon payment of minimum guaranteed  payments or the attainment
of certain sales levels during the term of the license.  In the future,  royalty
rates and minimum guaranteed royalty payments may increase or decrease depending
upon various competitive forces in the toy industry.

     Boys'  Products.  Toy Biz is a  leading  marketer  of  youth  entertainment
products for domestic and  international  markets.  These  products are based on
fictional action adventure  characters owned or licensed by the Company.  Action
figures and accessories developed under license from World Championship Wresting
(WCW) were the most  successfully  developed  of Toy Biz's  action  figures  and
accessory  line  during  1999.  Toy Biz  also  produces  and  markets  a line of
Spider-Man and X-Men toys.

     Girls' Products. Toy Biz's girls' business continues to be well received by
consumers  with new  introductions  and product  line  extensions.  Kindergarden
Babies  and Miss  Party  Surprise  lines were the  Company's  top-selling  girls
products in 1999.

     Activity  Toys.  The  Company  believes  that the  Spectra  Star brand name
accounts for a substantial share of the United States mass market kite business.
Toy Biz also utilizes  license-driven  products to expand the consumer appeal of
its kite  products.  Toy Biz's kite  licenses  have been  granted by  well-known
licensors such as Disney,  Sony  Pictures,  Nickelodeon,  Universal  Studios and
Warner  Bros.  Toy Biz's  activity  toy products  also  include  model  rocketry
products and Toy Biz's proprietary multi-activity game tables.

     Games.  Toy Biz entered the game market with the introduction of Electronic
Talking  Rotten  Egg in  1998  and in 1999  introduced  the  popular  Electronic
Interactive Whac-a-Mole Game, based on the popular arcade game.

   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 twenty-four months, depending on product complexity.

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

     Toy Biz's  Spectra Star products are  manufactured  mainly in Mexico by the
Company's Mexican subsidiary.

     Toy Biz  maintains a Hong Kong office from which it regularly  monitors the
progress and performance of its manufacturers and  subcontractors.  Toy Biz also
uses Acts Testing Labs (H.K.)  Ltd.,  a leading  independent  quality-inspection
firm, to maintain close contact with its  manufacturers  and  subcontractors  in
China and to  monitor  quality  control of Toy Biz's  products.  Toy Biz uses an
affiliate  of Acts Testing  Labs (H.K.) Ltd. to provide  testing  services for a
limited amount of product currently produced in the United States.

   Customers, Marketing and Distribution

     Toy Biz  markets and  distributes  its  products  in the United  States and

                                       5
<PAGE>


internationally,  with sales to customers in the United  States  accounting  for
approximately  78%, 84% and 85% of the Company's net toy sales in 1997, 1998 and
1999, respectively.

     Outlets for Toy Biz's products in the United States  include  specialty toy
retailers, mass merchandisers,  mail order companies and variety stores, as well
as independent distributors who purchase products directly from Toy Biz and ship
them to retail outlets.  Toy Biz's five largest  customers  include Toys 'R' Us,
Inc., Wal-Mart Stores, Inc., Kmart Corporation,  Target Stores, Inc., a division
of Target Corp.,  and Kay-Bee  Toys, a division of  Consolidated  Stores,  Inc.,
which customers accounted in the aggregate for approximately 60%, 66% and 70% of
the Company's total toy sales in 1997, 1998 and 1999, respectively. Our customer
base for toys is concentrated.

     Toy  Biz  maintains  a  sales  and  marketing  staff  and  retains  various
independent  manufacturers'  sales  representative  organizations  in the United
States.  Toy Biz's  management  coordinates  and  supervises  the efforts of its
salesmen and its other sales  representatives.  Toy Biz also directly introduces
and markets to customers  new products and  extensions  to  previously  marketed
product lines by  participating  in the major toy trade shows in New York,  Hong
Kong and Europe and through a showroom maintained by Toy Biz in New York.

     Toy Biz's products are sold outside the United States  through  independent
distributors  by the Company's Hong Kong  subsidiary,  under  supervision of Toy
Biz's  management.  Toy Biz's  international  product  line  generally  includes
products currently or previously offered in the United States,  packaged to meet
local regulatory and marketing requirements.

     Toy Biz utilizes an independent public warehouse in the Seattle, Washington
area, for storage of its products. Management believes that adequate alternative
storage  facilities are  available.  Disruptions in shipments from China or from
this facility could have a material adverse effect on Toy Biz.

Intellectual Property

     The Company believes that its library of proprietary  characters as well as
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 foreign  countries.  The  Company's  principal
trademarks have been  registered in the United States,  certain of the countries
in Western Europe and South America,  Japan, Israel and South Africa.  While the
Company has registered its intellectual property in these countries, and expects
that its rights will be protected in these countries, certain other 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
believes that  television  programs  underlying  the Company's toy product lines
increase exposure and awareness.

     The Company currently engages Tangible Media, Inc.  ("Tangible  Media"), an
affiliate  of Isaac  Perlmutter,  to purchase  certain of its  advertising.  Mr.
Perlmutter is a director and a principal stockholder of the Company. The Company
retains  the  services  of a media  consulting  agency  for advice on matters of
advertising creativity.

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 D.C. Comics (which is
owned   by  Time   Warner,   Inc.),   The  Walt   Disney   Company   and   other
entertainment-related entities. Many of these competitors have greater financial

                                       6


<PAGE>

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 D.C.  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 it  benefits  from the low price of comic  books in relation to those other
products.

     Toy  Biz  competes  with  many  larger  toy  companies  in the  design  and
development  of new toys, the  procurement  of licenses and for adequate  retail
shelf space for its products.  The larger toy companies  include  Hasbro,  Inc.,
Mattel Inc.,  Playmates,  Inc. and Bandai, Co., Ltd., and Toy Biz considers Just
Toys,  Inc.,  Empire  of  Carolina,  Inc.  and  Ohio  Art Co.  to be  among  its
competitors as well. 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.  Management  believes  that strong  character and product  licenses,  the
industry  reputation  and ability of its senior  management,  the quality of its
products  and its  overhead  and  operational  controls  have enabled Toy Biz to
compete successfully.

Employees

     As of December 31, 1999,  the Company  employed  approximately  800 persons
(including  operations in Hong Kong and Mexico).  The Company also contracts for
creative  work on an as-needed  basis with  approximately  530 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.

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 Reorganization

     On December 27, 1996, MEG and certain of its  subsidiaries  filed voluntary
petitions for relief under chapter 11 of the United  States  Bankruptcy  Code in
the United States  Bankruptcy Court for the District of Delaware  (collectively,
the "Bankruptcy  Case"). The Fourth Amended Plan of Reorganization  (the "Plan")
proposed by Toy Biz, Inc. and certain secured creditors of MEG in the Bankruptcy
Case was  confirmed  by the United  States  District  Court for the  District of
Delaware  (the  "District  Court"),  which  had  assumed  jurisdiction  over the
Bankruptcy Case, and in connection with that confirmation,  all appeals relating
to  consummation  of the Plan were  withdrawn  by all  parties  involved  in the
Bankruptcy Case.

     The Merger,  the Equity  Securities  Issuances,  the Secured Creditors Cash
Payment,  the  Unsecured  Creditors  Cash  Payment,  the Initial  Administration
Expense Claims Payment,  the Panini Payment,  the Panini  Guaranty,  the Dispute
Settlement  and  Professional  Fees  Payments,  the  Capital  Contribution,  the
Refinancing,  the Bridge Loan,  the  Standstill  Agreements  and the  Litigation
Trusts,  in  each  case as  described  below,  are  referred  to in this  Report
collectively as the "Reorganization."

     Pursuant to the Plan,  the Company used the proceeds  from the Bridge Loan,
together with other funds,  to consummate the following  transactions on October
1, 1998, the date of the Plan's consummation:

                                       7
<PAGE>

    Merger

     Pursuant to an Agreement  and Plan of Merger,  dated as of August 12, 1998,
by  and  among  MEG,  MEG  Acquisition  Corp.,  a  Delaware  corporation  and  a
wholly-owned  subsidiary of Toy Biz, Inc.,  and Toy Biz,  Inc., MEG  Acquisition
Corp. merged with and into MEG, with MEG surviving as a wholly-owned  subsidiary
of Toy Biz, Inc.


    Equity Securities Issuances

     In  connection  with the  consummation  of the  Plan,  the  Company  issued
(collectively, the "Equity Securities Issuances"):

          (1) 16.9  million  shares of 8%  Preferred  Stock as follows:  (a) 7.9
     million  shares  to  certain   secured   creditors  of  MEG  (the  "Secured
     Creditors")  and  (b)  9.0  million  shares  to  certain   purchasers  (the
     "Preferred Stock Investors");

          (2) 13.1 million shares of Common Stock to the Secured Creditors;

          (3) warrants to purchase up to 1.75 million  shares of Common Stock at
     an  exercise  price of $17.25 per share (the  "Plan  Warrants")  to certain
     unsecured creditors of MEG (the "Unsecured Creditors"); and

          (4) the following  warrants to former  stockholders of MEG and holders
     of  certain  class  securities   litigation  claims  concerning  MEG  stock
     (collectively,  the "MEG Equity  Holders"),  the  Unsecured  Creditors  and
     certain  other  creditors  of MEG:  (a)  three-year  warrants to purchase 4
     million  shares of Common  Stock at an  exercise  price of $12.00 per share
     (the "Stockholder Series A Warrants"); (b) six-month warrants to purchase 3
     million shares of 8% Preferred Stock at an exercise price of between $10.65
     and  $11.88,  based  on the  date  of  warrant  issuance,  per  share  (the
     "Stockholder Series B Warrants");  and (c) four-year warrants to purchase 7
     million  shares of Common  Stock at an  exercise  price of $18.50 per share
     (the  "Stockholder  Series C Warrants,"  and together with the  Stockholder
     Series A Warrants and the Stockholder  Series B Warrants,  the "Stockholder
     Warrants";  the Stockholder  Warrants and the Plan Warrants,  collectively,
     the  "Warrants").  The  Stockholder  Series B Warrants were issued in three
     tranches:  on October 14, 1998,  with an exercise price of $10.65 per share
     (these  warrants  expired on April 14, 1999);  on December 23 1998, with an
     exercise  price of $10.86  per share  (these  warrants  expired on June 23,
     1999);  and on October 17, 1999, with an exercise price of $11.88 per share
     (these  warrants  expire  on  April  17,  2000).   The  completion  of  all
     distributions  to  the  Unsecured  Creditors  is  pending  (other  than  of
     Stockholder  Series B Warrants)  until the  District  Court  makes  certain
     determinations  concerning the amount of the Unsecured  Creditors'  allowed
     claims.

    Secured Creditors Cash Payment

     The  Company  paid  $221.8  million in cash (the  "Secured  Creditors  Cash
Payment") to the Secured  Creditors.  An additional $10 million had been paid to
the Secured  Creditors in the second quarter of 1998 in connection with the sale
of MEG's confectionery business.

    Unsecured Creditors Cash Payment

     The Company  deposited money into a trust account that will be used to make
a cash  payment to the  Unsecured  Creditors in an amount equal to the lesser of
(i) $2.0  million  plus  fifteen  percent  (15%) of the amount of their  allowed
claims and (ii) $8.0 million  (the  "Unsecured  Creditors  Cash  Payment").  The
Unsecured Creditors Cash Payment will equal $8.0 million plus accrued interest.

    Initial Administration Expense Claims Payment

     The  Company  agreed  to pay in  cash  all  administration  expense  claims
incurred in connection  with the Bankruptcy  Case (the  "Administration  Expense
Claims").  On the consummation date of the Plan, the Company paid  approximately
$20.2 million of  Administration  Expense  Claims (the  "Initial  Administration
Expense Claims Payment").  In December 1998, the Company paid approximately $4.2
million of additional Administration Expense Claims and during 1999, the Company

                                       8

<PAGE>


paid  and  additional  $10.4  of  Administration  Expense  Claims.  The  Company
estimates  that it may be required to pay between $8.5 million and $10.5 million
of additional  Administrative Expense Claims, although there can be no assurance
as to the amount the Company will be required to pay. If the aggregate amount of
Administration  Expense Claims is in excess of $35 million, Zib Inc. ("Zib"), an
affiliate of Mr.  Perlmutter,  has agreed that Zib or one of its affiliates will
lend the Company the amount of the excess in exchange for a five-year promissory
note from the Company (the "Excess  Administration  Expense  Claims Note") which
would bear interest at 2% above the interest rate on the Notes.

    Panini Payment and Panini Guaranty

     The Company  paid $13  million in cash (the  "Panini  Payment")  to certain
creditors (the "Panini  Creditors") of Panini and issued to the Panini Creditors
a deficiency  guaranty (the "Panini  Guaranty") of up to $27 million of Panini`s
United States bank indebtedness.  On October 5, 1999, the Company sold Panini to
ID4 Holding  S.p.A.  ("ID4"),  a newly created  company owned jointly by Fineldo
S.p.A.,  an  Italian  conglomerate  engaged  in  various  consumer  product  and
financing  businesses  and  controlled  by  Vittorio  Merloni,  and  the  Senior
Management of Panini.  In connection  with ID4's  purchase of the Panini equity,
for which the  Company  received  a nominal  price,  ID4 also  purchased  all of
Panini's outstanding U.S. bank debt and the Company was released from the Panini
Guaranty.  The Company  made a cash  payment of $11.2  million to Panini's  bank
lenders to obtain its release from the Panini Guaranty. As part of the sale, the
Company  also entered into an  agreement  whereby  Panini would  continue as the
Company's international publishing licensee under a five-year license.

    Dispute Settlement and Professional Fees Payments

     The Company paid $3.5 million in cash (the "Dispute Settlement Payment") to
certain claimants in the Bankruptcy Case in settlement of disputes.  The Company
also paid $200,000 (the  "Professional Fees Payment") to Dickstein Partners Inc.
in reimbursement  of professional  fees incurred in connection with the purchase
of shares of 8% Preferred Stock on October 1, 1998.  Dickstein  Partners Inc. is
an affiliate of Mark  Dickstein,  who was a director of the Company from October
1998 until October 1999.

    Capital Contribution

     The Company  received a capital  contribution  totaling  $1.5  million (the
"Capital  Contribution")  from an affiliate of Mr. Perlmutter and from Avi Arad.
Mr. Arad is a director,  executive  officer,  and principal  stockholder  of the
Company.

    Refinancing

     The Company repaid all outstanding  indebtedness (the "Refinancing")  under
Toy Biz, Inc.'s then-existing working capital facility.

    Bridge Loan

     The Company  obtained  the Bridge Loan from UBS. A portion of the  proceeds
from the Notes Offering were used to repay the Bridge Loan.

    Standstill Agreements

     Carl C. Icahn and High River Limited  Partnership  (the "High River Group")
and Vincent  Intrieri and Westgate  International  L.P. (the  "Westgate  Group")
entered  into  standstill  agreements  (the  "Standstill   Agreements")  on  the
consummation date of the Plan. Pursuant to the Standstill  Agreements,  the High
River Group and the Westgate Group have each agreed that they will not, and will
not permit  their  affiliates  or  associates  to, among other  things,  seek to
control the management of the Company.  In addition,  the Standstill  Agreements
require  that the High  River  Group  and  Westgate  Group  vote all  securities
beneficially  owned by them in  connection  with any  action  to be taken by the
Company's securityholders with respect to which an abstention will have the same
effect as a vote  against  the  matter,  in  proportion  to the votes  cast with
respect to that action by all other holders of  securities.  With respect to all
other  matters to be voted upon at a meeting of the  Company's  securityholders,
the High River Group and  Westgate  Group shall  cause  securities  beneficially
owned by them to be present at the  meeting for quorum  purposes  but to abstain
from voting on the matter.  The Standstill  Agreements will terminate on October
1, 2002, subject to earlier termination under certain circumstances.

                                       9

<PAGE>

    Litigation Trusts

     In  accordance  with the Plan,  two  litigation  trusts  were formed on the
consummation  date of the Plan. Each litigation  trust is now the legal owner of
litigation  claims  that  formerly  belonged  to MEG and its  subsidiaries.  The
primary  purpose of one of the trusts (the "Avoidance  Litigation  Trust") is to
pursue bankruptcy  avoidance claims. The primary purpose of the other trust (the
"MAFCO Litigation  Trust") is to pursue certain litigation claims against Ronald
O. Perelman and various related entities and individuals. The Company has agreed
to  lend up to $1.1  million  to the  Avoidance  Litigation  Trust  and up to $1
million to the MAFCO Litigation Trust, in each case on a revolving basis to fund
the trust's  professional fees and expenses.  Each litigation trust is obligated
to reimburse the Company for all sums advanced, with simple interest at the rate
of 10% per year.  Net  litigation  proceeds of each trust will be distributed to
the trust's beneficiaries only after the trust has, among other things, paid all
sums owed to the Company,  released the Company from any further  obligation  to
make loans to the trust,  and  established  reserves to satisfy  indemnification
claims.  The Company is entitled to 65.1% of net  litigation  proceeds  from the
Avoidance  Litigation  Trust.  The Company is not entitled to any net litigation
proceeds from the MAFCO Litigation Trust.

ITEM 2.  PROPERTIES

     The Company has the following principal properties:

<TABLE>
<CAPTION>

Facility                                   Location                          Square Feet        Owned/Leased
--------                                   --------                          -----------        ------------
<S>                                        <C>                               <C>                <C>
Office.....................................New York, New York                    69,000            Leased
Office.....................................New York, New York                    37,000            Leased
Office.....................................New York, New York                    15,000            Leased
Office/Showroom............................New York, New York                    14,100            Leased
Office/Warehouse...........................Yuma, Arizona                         80,000            Owned
Warehouse..................................Fife,Washington                      210,000            Leased
Manufacturing..............................San Luis, Mexico                     190,000            Owned
Office.....................................Santa Monica, California               2,800            Leased

</TABLE>

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  outstanding  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.

     Spider-Man  Litigation.  The Company's  subsidiaries  Marvel  Entertainment
Group, Inc. and Marvel  Characters,  Inc.  (collectively,  the "Marvel Parties")
have been parties to a consolidated  case,  concerning  rights to produce and/or
distribute a live action motion  picture based on the  Spider-Man  character and
pending in the Superior  Court of the State of California  for the County of Los
Angeles,  to which  Metro-Goldwyn  Mayer Studios Inc. and two of its  affiliates
("MGM"),  Columbia  Tristar  Home Video and related  entities  ("Sony"),  Viacom



                                    10

<PAGE>

International  Inc.  ("Viacom") and others were also parties.  In February 1999,
the Superior Court granted summary  judgment to the Marvel Parties and dismissed
MGM's  claims.  In March  1999,  MGM,  Sony and the Marvel  Parties  settled all
remaining claims among themselves. The litigation among Sony, the Marvel Parties
and Viacom  over  claims by Viacom to the rights to  distribute  on pay and free
television a feature  length live action motion  picture based on the Spider-Man
character were not resolved.  After a trial in February 1999, the Superior Court
held that  Viacom  has no  rights  with  respect  to any  Spider-Man  film to be
produced  by Sony,  the  Marvel  Parties or any  future  licensee  of the Marvel
Parties. Viacom has filed a Notice of Appeal but no date for the appeal has been
scheduled.  It is the Company's  position that the Superior Court's decision was
correct  and that  Viacom  has no  rights  with  respect  to  distribution  of a
Spider-Man film. Although there can be no assurances,  the Company believes that
the Superior Court decision will be upheld on appeal.

     Woldfman  Litigation.  On January 24, 1997,  Marvin A. Wolfman  ("Wolfman")
filed a proof of claim in the  bankruptcy  cases of MEG and  Marvel  Characters,
Inc.  asserting  ownership  rights to a number of  characters  that  appeared in
stories  written by Wolfman and published by Marvel Comics during the 1970s.  In
November  1999 a hearing was held in the United  States  District  Court for the
District of Delaware to determine the ownership rights to the characters covered
by Wolfman's claim and the matter is sub judice.

     On August  20,  1998,  Wolfman  commenced  an action in the  United  States
District  Court for the Central  District of California  against New Line Cinema
Corporation  ("New Line"),  Time Warner  Companies,  Inc., the Company,  MEG and
Marvel  Characters,  Inc. The  complaint in that action  alleges that the motion
picture Blade  (featuring Blade and Deacon Frost which were among the characters
included  within  Wolfman's  January  24,  1997  proof of claim),  produced  and
distributed  by New Line  pursuant  to an  agreement  with  MEG,  as well as the
Company's sale of action figure toys, infringes Wolfman's claimed copyrights and
trademarks as the author of the original stories  featuring the Blade and Deacon
Frost  characters  (collectively,  the "Work") and that Wolfman created the Work
and granted  MEG's  predecessor  in  interest  only the  non-exclusive  right to
publish  the Work in print  for  Marvel  Comics'  Tomb of  Dracula  series.  The
complaint also charges the defendants in the action with unfair  competition and
other  tortious  conduct based upon Wolfman's  asserted  rights in the Work. The
relief sought by the complaint  includes a declaration  that the defendants have
infringed Wolfman's copyrights, compensatory and punitive damages, an injunction
and  various  other forms of  equitable  relief.  In late  August  1998  Wolfman
dismissed the complaint against MEG and Marvel  Characters,  Inc. The action has
been  stayed  against  the other  named  defendants  pending  the outcome of the
November 1999 hearing in Delaware with respect to Wolfman's proof of claim.

     Marvel v.  Simon.  In  December  1999,  Joseph H.  Simon  filed in the U.S.
Copyright Office written notices under the Copyright Act purporting to terminate
effective  December 7, 2001  alleged  transfers of copyright in 1940 and 1941 by
Simon of the Captain America character to the Company's predecessor. On February
24, 2000,  the Company  commenced an action  against  Simon in the United States
District Court for the Southern District of New York. The complaint alleges that
the  Captain  America  character  was created by Simon and others as a "work for
hire" within the meaning of the applicable  copyright statute and that Simon had
acknowledged  this fact in  connection  with the  settlement  of previous  suits
against the Company's  predecessors  in 1969. The suit seeks a declaration  that
Marvel  Characters,  Inc.,  not Mr. Simon is the  rightful  owner of the Captain
America  character and that the  termination  notices filed by Simon are invalid
and of no legal effect.  Simon has asserted a counterclaim in the action seeking
a declaration that he is the sole owner of the Captain America character.

     Administration Expense Claims Litigation. Unresolved Administration Expense
Claims are pending which seek amounts totaling  approximately  $16.8 million and
additional  unresolved  Administration  Expense  Claims are pending which do not
seek specified  dollar amounts.  The Company is contesting all of the unresolved
Administration Expense Claims.  Although there can be no assurance,  the Company
expects  that it will be  required  to pay  substantially  less than the amounts
sought by the holders of the  Administration Expense Claims.

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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of 1999.

                                       11
<PAGE>

                                     PART II

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

     The following table sets forth, for each fiscal quarter indicated, the high
and low prices for the Company's  Common Stock as reported in the New York Stock
Exchange Composite Transaction Tape.

         Fiscal Year                    High                       Low
         -------------                  ---------                  ---------
         1998

         First Quarter                  $ 10 7/16                  $ 6 15/16
         Second Quarter                 $ 11 5/16                  $ 8 15/16
         Third Quarter                  $ 10 7/16                  $ 6 3/8
         Fourth Quarter                 $   6 7/8                  $ 4 5/16

         1999

         First Quarter                  $ 7                        $ 5 3/8
         Second Quarter                 $ 9 3/4                    $ 6 5/8
         Third Quarter                  $ 7 1/2                    $ 5 1/8
         Fourth Quarter                 $ 7 7/8                    $ 4 11/16



     As of March 1,  2000,  there were 387  holders  of record of the  Company's
Common Stock.

     The Company has not declared any dividends on the Common Stock. The working
capital facility  restricts the Company's ability to pay dividends on the Common
Stock. See "Item 7. Management's  Discussion and Analysis of Financial Condition
and Results of Operations-Liquidity and Capital Resources."

ITEM 6.  SELECTED FINANCIAL DATA

     The following table presents  selected  combined or consolidated  financial
data, derived from the Company's audited financial statements, for the five-year
period ended December 31, 1999.  The selected  financial data of the Company for
the years ended  December 31, 1998 and 1999 are not  comparable to prior periods
due to the Company's  acquisition of MEG on October 1, 1998. The Company has not
paid dividends on its capital stock during any of the periods presented below.

<TABLE>
<CAPTION>

                                                          Year Ended

                                   -------------------------------------------------------------

                                   Dec. 31,     Dec. 31,     Dec.31,      Dec.31,      Dec.31,
                                     1995         1996         1997        1998          1999
                                   ---------    --------     --------     -------      ---------
                                             (in thousands, except per share amounts)
Statement of Operations
      Data:

<S>                                 <C>          <C>         <C>          <C>           <C>

Net sales....................       $196,395     $221,624    $150,812     $232,076      $319,645
Operating income (loss)......         47,014       27,215     (49,288)     (19,460)          256
Net income (loss) ...........         28,402       16,687     (29,465)     (32,610)      (33,791)
Basic and diluted net income
    (loss) per common share .           1.05         0.61       (1.06)       (1.23)        (1.43)
Preferred dividend requirement          --            105          71        3,380        14,220

At December 31:
Balance Sheet Data:
Working capital (deficit)             85,174      102,192      74,047     (133,392)       91,919
Total assets.................        152,218      171,732     150,906      689,904       654,637
Borrowings...................           --           --        12,000      200,000          --
Other non-current debt.......           --           --          --         27,000       250,000
Redeemable preferred stock...          3,016        1,681        --        172,380       186,790
Stockholders' equity.........        111,332      137,455     107,981      183,624       135,763

</TABLE>

                                       12
<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, 1999.
Because of the significant effect of the Reorganization on the Company's results
of   operations,   the   Company's   historical   results  of   operations   and
period-to-period comparisons will not be indicative of future results.

Overview

    Net Sales

     The  Company's  net sales  are  generated  from (i)  licensing  the  Marvel
characters  for  use  in  merchandise,  promotions,  feature  films,  television
programs,  theme parks and various  other areas;  (ii)  publishing  comic books,
including  related  advertising  revenues;  and (iii) marketing and distributing
toys,  including toys based on the Marvel  characters,  proprietary toy products
and toys  based on  properties  licensed  to the  Company  from  third  parties.
Licensing,   publishing   and  toys  have   accounted  for  10%,  13%  and  77%,
respectively,  of the Company's net sales for the year ended  December 31, 1999.
The  Company's  strategy  is to  increase  the  media  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.  In particular,  the Company plans to focus its
future toy  business  on  marketing  and  distributing  toys based on the Marvel
characters,  which  provide the Company with higher  margins  because no license
fees are required to be paid to third  parties and,  because of media  exposure,
require less  promotion and  advertising  support than the  Company's  other toy
categories. The Company intends to use comic book publishing to support consumer
awareness of the Marvel characters and to develop new characters and storylines.

     The Company records as revenue the present value of licensing fees from its
licensing  activities at the time the Company's  characters are available to the
licensee and the collection of licensing fees is reasonably  assured.  Licensing
fees  booked as  revenue  but not yet  received  are  recorded  as  receivables.
Licensing  receivables  due more than one year beyond the balance sheet date are
discounted to their net present value.

   Operating Expenses: Cost of Sales

     There generally is no material cost of sales  associated with the licensing
of the Company's characters.

     Cost of sales for comic  book  publishing  consists  of art and  editorial,
printing and  distribution  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  out-sources the printing of its comic books to an unaffiliated
company.   The  Company's  cost  of  printing  is  subject  to  fluctuations  in
commodity-based products such as paper.

     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, which utilizes
multiple  manufacturers,  solicits  multiple  bids for each  project in order to
control its  manufacturing  costs.  A  substantial  portion of 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.



                                       13


<PAGE>

   Operating Expenses: Selling, General and Administrative

     Selling, general and administrative costs consist primarily of advertising,
royalties, general and administrative,  warehousing and store merchandising. The
most  significant  portion  of  selling,  general  and  administrative  costs is
advertising and royalties.

     Advertising expense varies with the Company's product mix.

     Royalties  are  payable on toys  based on  characters  licensed  from third
parties,  such as  World  Championship  Wrestling,  Universal  Studios  and Sony
Pictures,  as well as toys developed by outside inventors.  There are no royalty
payments for Marvel-character-based toy products.

     General  and  administrative   costs  consist  of  salaries  and  corporate
overhead.

     The Company  expects  warehousing and store  merchandising  costs to change
over time in line with the Company's toy sales.

   Operating Expenses: Depreciation and Amortization

     Depreciation and amortization  expense consists of amortization of goodwill
and other intangibles, tooling, product design and development, packaging design
and depreciation  expense.  Amortization  expense  increased  significantly as a
result of the goodwill  created pursuant to the combination of Toy Biz, Inc. and
MEG, which is amortized over an assumed 20-year life.

     Tooling and product design and  development  and packaging  design expense,
which are  attributable to the toy business,  are amortized over the life of the
respective product.

Results of Operations of the Company

   Year ended December 31, 1999 compared with year ended December 31, 1998

     The  Company's  net sales  increased  to $319.6  million for the year ended
December 31, 1999 from $232.1  million in the 1998  period.  The increase in net
sales was  partially  due to the  inclusion of twelve  months of  licensing  and
publishing revenues in 1999, while only three months of activity was included in
1998,   accounting   for  an  increase  of   approximately   $25.9  million  and
approximately $28.3 million in licensing and publishing revenues , respectively.
Toy Biz  sales  increased  by  approximately  $33.3  million  from  1998 to 1999
primarily due to sales of WCW action figures, a product line that was introduced
in 1999 and  increased  sales of large and small  dolls,  partially  offset by a
decline in the sales of Marvel-related product.

     Gross profit increased $64.7 million to $168.8 million for 1999 from $104.1
million in 1998.  The inclusion of the licensing  and  publishing  divisions for
twelve months in 1999,  while included for only three months in 1998,  accounted
for approximately $25.7 million and approximately  $11.9 million,  respectively,
of the  increase  while  gross  profit  from  the  Toy  Biz  division  increased
approximately $27.1 million. Gross Profit as a percentage of net sales increased
to approximately  53% in 1999 from  approximately 45% in 1998. The licensing and
publishing  divisions produced gross margins of 98% and 44%,  respectively.  The
gross profit  margin for the Toy Biz division  increased to 49% in 1999 from 44%
in 1998 due  primarily to a higher  percentage  of  promotional  products,  that
generally  have  higher  gross  profit  margins,  sold  during  1999 and various
one-time sales adjustments relating to the Company's acquisition of MEG recorded
in 1998.

     Selling,  general and  administrative  expense  increased  $27.5 million to
$124.6  million  in 1999  from  $97.1  million  in 1998.  Selling,  general  and
administrative  expense as a percentage of net sales decreased to  approximately
39%  in  1999  from  approximately  42%  in  1998.  The  selling,   general  and
administrative  expenses for the licensing , publishing and corporate  divisions
increased approximately $29.5 million from $5.6 million in 1998 to approximately
$35.1 million in 1999 due to the inclusion of the full-year's  activity in 1999.

                                       14

<PAGE>

The Toy Biz division produced a net decrease of approximately  $2.0 million from
$91.5  million  in 1998 to $89.5  million  in  1999;  however,  the 1998  period
included  $11.7  million of  expenses  relating  to the  termination  of license
agreements  resulting from the Company's  integration of MEG's  operations which
did not recur in 1999.  Discounting the one-time  charges from 1998, the Toy Biz
division  accounted for an increase of approximately  $9.7 million primarily due
to  increased  advertising  and royalty  expenses  related to increase  sales of
promotional items in 1999.

     Depreciation  and  amortization  expense  decreased  $1.2  million to $18.1
million  in  1999  from  $19.3  million  in  1998  primarily  due to  additional
amortization   expense   recorded  in  1998  related  to  early   write-offs  of
discontinued  toy  products  based  on  Marvel  characters  as a  result  of the
Bankruptcy Case.

     Amortization of goodwill and other  intangibles  increased $18.8 million to
$25.9  million in 1999 from $7.1  million in 1998.  The  increase was due to the
amortization of goodwill  created  pursuant to the MEG acquisition  completed on
October 1, 1998.

     Interest expense increased $22.7 million to $32.1 million in 1999 from $9.4
million in 1998,  primarily due to $25.4 million in interest on the Senior Notes
in 1999,  offset by a reduction in interest  expense  related to the Bridge Loan
from 1998 to 1999.

     As a result of the above,  the Company reported a net loss of $33.8 million
in 1999 compared to a net loss of $32.6 million in 1998. The Company  reported a
loss per share after preferred dividends of $1.43 in 1999 compared to a loss per
share after preferred dividends of $1.23 in 1998.

   Year ended December 31, 1998 compared with year ended December 31, 1997

     The  Company's  net sales  increased  to $232.1  million for the year ended
December 31, 1998 from $150.8  million in the 1997  period.  The increase in net
sales was partially  due to the  inclusion of $19.6  million in  publishing  and
licensing  revenues in the fourth quarter of 1998 as a result of the acquisition
of MEG on October 1, 1998. Net sales in the toy division increased $61.6 million
to  $212.4  million  in 1998.  Net sales in the  domestic  boys'  toys  category
increased  $20.1  million  to  $63.2  million  in  1998  due  primarily  to  the
introduction of the WCW/NWO Bashin'  Brawlers in the second half of 1998,  which
accounted for $17.2 million in net sales.  Net sales in the domestic girls' toys
category  increased  $3.3 million in 1998 to $42.0  million due primarily to the
increased  product line of new promotional  dolls in 1998. Net sales of domestic
activity toys and other products increased $3.7 million to $31.7 million in 1998
due  primarily  to shipments  of products  related to the Godzilla  feature film
released  in  1998.  The  Company  believes  that  its net  sales in each of its
domestic  toy  categories  was  adversely  affected by Toys 'R' Us'  decision to
eliminate  excess  inventory  through a one-time  reduction  in  inventory  that
resulted in significant  declines in its purchases from toy  manufacturers.  Net
sales of toy products sold through the import  division  increased $16.7 million
to $47.2  million in 1998,  due  primarily to shipments of Godzilla  products in
1998.  International  net toy sales  increased  $.7 million to $28.1  million in
1998. The Company  recorded sales  allowances of $2.9 million in 1998 which were
attributable  to the impact of the  Merger on the  Company's  relationship  with
certain of its  international  distributors,  compared to $18.0 million of sales
allowances  in 1997 that the Company  believes were related to the impact of the
Bankruptcy  Case  on  Toy  Biz,  Inc.'s  relationships  with  its  international
distributors.

     Gross profit  increased $60.2 million to $104.1 million for 1998 from $43.9
million in 1997 in part as a result of lower sales  allowances in 1998 described
above.  Gross profit as a percentage of net sales increased to approximately 45%
in 1998 from  approximately  29% in 1997. The inclusion of MEG's  publishing and
licensing  operations in the fourth quarter of 1998 resulted in $11.4 million of
additional  gross  profit.  The gross  profit of the  publishing  and  licensing
operations  as  a  percentage   of  publishing   and  licensing  net  sales  was
approximately 58% in the fourth quarter of 1998.

                                       15

<PAGE>


     Selling,  general and  administrative  expense  increased  $25.0 million to
$97.1  million  in 1998  from  $72.1  million  in  1997.  Selling,  general  and
administrative  expense as a percentage of net sales decreased to  approximately
42% in 1998 from approximately 48% in 1997. The increase in selling, general and
administrative  expense was  partially  due to the  inclusion of $5.7 million of
publishing and licensing  selling,  general and  administrative  expense for the
fourth quarter of 1998.  The increase  during 1998 was also due to $11.7 million
of expenses relating to the termination of license agreements resulting from the
Company's integration of MEG's operations, as well as a $9.8 million increase in
royalty and advertising  expense in 1998 primarily related to the success of the
WCW/NWO Bashin' Brawlers.

     Depreciation  and  amortization  expense  decreased  $1.2  million to $19.3
million  in  1998  from  $20.5  million  in  1997  primarily  due to  additional
amortization   expense   recorded  in  1997  related  to  early   write-offs  of
discontinued  toy  products  based  on  Marvel  characters  as a  result  of the
Bankruptcy Case.

     Amortization  of goodwill and other  intangibles  increased $6.6 million to
$7.1  million in 1998 from $0.5  million in 1997.  The  increase  was due to the
amortization of goodwill  created  pursuant to the MEG acquisition  completed on
October 1, 1998.

     Interest  expense  increased $8.6 million to $9.4 million in 1998 from $0.8
million in 1997, primarily due to $8.6 million in interest expense on the Bridge
Loan for the fourth quarter of 1998.

     As a result of the above,  the Company reported a net loss of $32.6 million
in 1998 compared to a net loss of $29.5 million in 1997. The Company  reported a
loss per share after preferred dividends of $1.23 in 1998 compared to a loss per
share after preferred dividends of $1.06 in 1997.

Liquidity and Capital Resources

     The Company's primary sources of liquidity are cash on hand, cash flow from
operations and cash available from the $60.0 million  Citibank  working  capital
facility.  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 fiscal 1997, 1998 and
1999 was $12.8 million, $42.0 million and $0.8 million, respectively.

     At December 31, 1999, the Company had working capital of $91.9 million.

     On October 1, 1998,  the Company  obtained  the Bridge  Loan from UBS.  The
Company  used a portion of the  proceeds  from the Notes  Offering  to repay the
Bridge Loan on February 25, 1999.

     On October 1, 1998,  the Company and UBS entered into a $50 million  credit
facility.  There were no  borrowings  under  that  credit  facility,  and it was
terminated on February 25, 1999.

     On February 25, 1999, the Company  completed a $250.0  million  offering of
senior  notes  (the  "Senior  Notes")  in  a  private   placement   exempt  from
registration  under the Securities Act of 1933 ("the Act") pursuant to Rule 144A
under the Act. Net proceeds of approximately $239.8 million were used to pay all
outstanding  balances  under the Bridge  Facility and for working  capital.  The
Senior  Notes are due June 15,  2009 and bear  interest  at 12% per  annum.  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 on June 15, 2007.  In addition,  35% of the Senior
Notes may, under certain circumstances, be redeemed before June 15, 2002 at 112%
of the principal amount,  plus accrued  interest.  Principal and interest on the

                                       16

<PAGE>



Senior Notes are  guaranteed  on a senior basis jointly and severally by each of
the Company's domestic  subsidiaries.  On August 20, 1999, the Company completed
an exchange  offer under which it exchanged  virtually  all of the Senior Notes,
which  contained  restrictions  on transfer,  for an equal  principal  amount of
registered,  transferable  notes whose terms are identical in all other material
respects to the terms of the Senior Notes.

         In  February  1999,  in  connection  with the  repayment  of the Bridge
Facility and the termination of the UBS Credit Facility, the Company recorded an
extraordinary  charge of approximately $1.5 million,  net of tax benefit for the
write-off of deferred financing costs associated with these two facilities.

     On April 1, 1999, the Company and Citibank,  N.A.  ("Citibank")  entered an
agreement  for a $60.0  million  Revolving  Credit  Facility  ("Citibank  Credit
Facility").  The Citibank  Credit  Facility  bears interest at either the bank's
base rate  (defined as the higher of the prime rate or the sum of 1/2 of 1% plus
the Federal Funds Rate) plus a margin  ranging from 0.75% to 1.25%  depending on
the Company's  financial  performance  or at the  Eurodollar  rate plus a margin
ranging from 2.25% to 2.75%  depending on the Company's  financial  performance.
The Citibank  Credit  Facility  requires the Company to pay a commitment  fee of
0.625% per annum on the average  daily  unused  portion of the  facility  unless
there is at least $20.0 million outstanding borrowings in which case the rate is
0.50% per annum for the amount outstanding above $20.0 million.  The Company has
not borrowed under the Citibank Credit Facility. The amount available under this
facility  is reduced by the  amount of letters of credit  outstanding,  which is
approximately  $385,000 as of March 15, 2000.  The Citibank  Credit  Facility is
secured by a lien on all of the Company's inventory and receivables.

     On October 1, 1998,  the Company  sold 9.0 million  shares of 8%  Preferred
Stock at $10 per share for an aggregate of $90.0 million. The 8% Preferred Stock
pays  quarterly  dividends  on a cumulative  basis on the first  business day of
January,  April,  July and  October  in each year,  commencing  January 4, 1999.
Dividends are payable, at the option of the Board, in cash, in additional shares
of 8% Preferred Stock or in any combination  thereof.  The Company is restricted
under the Indenture and under the Citibank  Credit Facility from making dividend
payments on the 8% Preferred  Stock except in additional  shares of 8% Preferred
Stock.  Each share of 8% Preferred Stock may be converted,  at the option of its
holder,  into  1.039  shares  of Common  Stock.  The  Company  must  redeem  all
outstanding shares of 8% Preferred Stock on October 1, 2011.

     On the  consummation  date  of the  Plan,  the  Company  made  the  Initial
Administration  Expense Claims  Payment of $20.2 million.  In December 1998, the
Company paid  approximately  $4.2 million of additional  Administration  Expense
Claims  and  during  1999  the  Company  paid an  additional  $10.4  million  of
Administration  Expense Claims. The Company estimates that it may be required to
pay between $8.5 million and $10.5 million of additional  Administration Expense
Claims,  although there can be no assurance as to the amount the Company will be
required to pay.

     The Company will be required to make the Unsecured  Creditors  Cash Payment
at such time as the amount  thereof is  determined.  The  Company  deposited  $8
million into a trust account to satisfy the maximum amount of such payment.  The
balance in the trust  account as of  December  31,  1999 is  approximately  $8.5
million.

     Capital expenditures (excluding  acquisitions) by the Company during fiscal
1997, 1998 and 1999 were  approximately  $17.7 million,  $17.3 million and $21.0
million, respectively.

     The  Company  believes  that  cash on  hand,  cash  flow  from  operations,
borrowings  available  under the  Citibank  working  capital  facility 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.



                                     17


<PAGE>

Seasonality

     The Company's annual operating  performance  depends, in large part, on its
sales of toys during the relatively brief Christmas selling season. During 1997,
1998 and 1999, 67%, 60% and 62%, respectively, of the Company's domestic net toy
sales were realized during the second half of the year.  Management expects that
the Company's  toy business  will continue to experience a significant  seasonal
pattern for the foreseeable future.  This seasonal pattern requires  significant
use of working capital mainly to build inventory  during the year,  prior to the
Christmas selling season,  and requires  accurate  forecasting of demand for the
Company's products during the Christmas selling season.

ITEM 7A   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The  financial  statements  required  by  this  item,  the  report  of  the
independent  auditors  thereon  and the  related  financial  statement  schedule
required  by Item  14(a)(2)  appear on pages F-2 to F-30.  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 11 to the December 31, 1999 Consolidated Financial Statements.

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

     Not applicable.


                                       18

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Executive Officers and Directors

     The  following  table  sets  forth the name,  age (as of March 1, 2000) and
position  of each person who serves as an  executive  officer or director of the
Company:

Name                            Age  Position

Morton E. Handel..............   64  Chairman of the Board of Directors
Avi Arad......................   52  Director and Chief Creative Officer;
                                       President and Chief Executive Officer of
                                     Marvel Studios

F. Peter Cuneo................   56  President, Chief Executive Officer
                                       and Director
Sid Ganis.....................   60  Director
Shelley F.Greenhaus...........   46  Director
James F. Halpin...............   49  Director
Michael M. Lynton.............   40  Director
Lawrence Mittman..............   49  Director
Isaac Perlmutter..............   57  Director
Rod Perth.....................   56  Director
Michael J. Petrick............   38  Director
Alan Fine.....................   49  President and Chief Executive Officer
                                       of Toy Biz
David J. Fremed...............   39  Senior Vice President and Acting Chief
                                       Financial Officer
William Jemas.................   42  President of Publishing and New Media
Allen S. Lipson...............   57  Executive Vice President, Business and
                                       Legal Affairs and Secretary
Richard Ungar.................   49  President of Marvel Characters Group

Directors

     The  name,  principal   occupation  for  the  last  five  years,   selected
biographical  information  and period of service as a director of the Company of
each director are set forth below.

     Morton E.  Handel has been the  Chairman of the Board of  Directors  of the
Company  since  October  1998 and was first  appointed as a director of Toy Biz,
Inc. in June 1997.  Mr. Handel is also the President of S&H  Consulting  Ltd., a
financial  consulting  group.  Mr. Handel has held that position since 1990. Mr.
Handel  has  also  held  the  position  of  Director  and  President  of  Ranger
Industries,  Inc.  since July 1997.  Mr.  Handel  also  serves as a director  of
Concurrent Computer Corp., and was previously Chairman of the Board of Directors
and Chief Executive Officer of Coleco Industries, Inc.

     Avi Arad has  been  the  Chief  Creative  Officer  of the  Company  and the
President and Chief Executive  Officer of the Company's  Marvel Studios Division
(which  is  responsible   for  motion  picture  and  television   licensing  and
development)  since  October  1998.  Mr. Arad has been a Director of the Company
since April 1993.  From April 1993 through  September 1998, Mr. Arad served as a
consultant  to Toy Biz,  Inc.  Mr. Arad was the  President  and Chief  Executive
Officer of New World Animation,  a media production company under common control
with MEG, from April 1993 until  February 1997 and held the same position at the
Marvel  Studios  division of MEG from February 1997 until  November 1997. At New
World  Animation  and MEG's  Marvel  Studios  division,  Mr.  Arad served as the
Executive Producer of the X-Men and the Spider-Man  animated TV series. Mr. Arad
has been a toy  inventor  and  designer  for more  than 20 years  for  major toy
companies  including  Mattel Inc.,  Hasbro,  Inc. and Tyco Toys, Inc. During his
career, Mr. Arad has designed or codesigned more than 160 toys. Mr. Arad is also
the owner of Avi Arad & Associates  ("Arad  Associates"),  a firm engaged in the
design and development of toys and the production and distribution of television
programs.

                                       19

<PAGE>


     F. Peter Cuneo has served as the Company's  President  and Chief  Executive
Officer since July 1999.  From  September 1998 to July 1999, Mr. Cuneo served as
Managing  Director of Cortec Group Inc., a private  equity fund.  From  February
1997 to September 1998, Mr. Cuneo was Chairman of Cuneo & Co., L.L.C., a private
investment firm. From May 1996 to February 1997, Mr. Cuneo was President,  Chief
Executive  Officer and a Director  of  Remington  Products  Company,  L.L.C.,  a
manufacturer  and  marketer of personal  care  appliances;  from May 1993 to May
1996, he was President and Chief Operating Officer at Remington.

     Sid Ganis has been a Director of the Company since October 1999.  Mr. Ganis
is  President  of Out of  Blue...Entertainment,  a provider of motion  pictures,
television and musical entertainment for Sony Pictures  Entertainment and others
which he founded,  since September 1996. From January 1991 until September 1996,
Mr Ganis held various  executive  positions with Sony  Picutres,  including Vice
Chairman  of  Columbia  Pictures  and  President  of  Worldwide   Marketing  for
Columbia/TriStar Motion Picture Companies.

     Shelley F. Greenhaus has been a Director of the Company since October 1998.
Mr.  Greenhaus  has been the  President  and Managing  Director of  Whippoorwill
Associates, Inc. ("Whippoorwill"), an investment advisor which he founded, since
1990.  Whippoorwill  manages  investment  accounts  for  a  prominent  group  of
institutional and individual investors from around the world.

     James F. Halpin has been a Director of the  Company  since March 1995.  Mr.
Halpin retired in March 2000 as President, Chief Executive and Operating Officer
and a director  of CompUSA  Inc.,  a retailer of  computer  hardware,  software,
accessories  and related  products,  which he had been with since May 1993.  Mr.
Halpin is also a director of both  Interphase  Corporation,  a  manufacturer  of
high-performance networking equipment for computers, and Lowe's Companies, Inc.,
a chain of home improvement stores.

     Michael M. Lynton has been a Director of the Company  since  October  1998.
Mr. Lynton has been President of AOL  International  since February 2000 and was
Chairman  and Chief  Executive  Officer  of The  Penguin  Group  from 1996 until
assuming his current  position  with AOL.  From 1987 to 1996, at The Walt Disney
Company,  Mr. Lynton was President of Hollywood Pictures and President of Disney
Publishing--Magazines and Books.

     Lawrence Mittman has been a Director of the Company since October 1998. Mr.
Mittman  has been a partner  in the law firm of Battle  Fowler LLP for more than
the past five years.

     Isaac  Perlmutter  has served as a Director of the Company since April 1993
and he  served as  Chairman  of the  Board  until  March  1995.  Mr.  Perlmutter
purchased Toy Biz, Inc.'s predecessor  company from Charan  Industries,  Inc. in
January  1990.  Mr.  Perlmutter  is actively  involved in the  management of the
affairs of Toy Biz, Inc. and has been an independent financial investor for more
than  the  past  five  years.  Mr.  Perlmutter  is  also a  director  of  Ranger
Industries,  Inc. As an independent  investor,  Mr. Perlmutter currently has, or
has had within the past five years,  controlling  ownership  interests in Ranger
Industries,  Inc.,  Remington  Products Company,  Westwood  Industries,  Inc., a
manufacturer and distributor of table and floor lamps, Job Lot Incorporated (and
its predecessor Job Lot Associates  L.P.), a discount oriented retail chain, and
Tangible Media, Inc., a media buying and advertising agency.

     Rod Perth has been a Director of the Company since  October 1998.  Mr.Perth
has been President,  Jim Henson  Television Group Worldwide since May 1999. From
October  1994 until July  1998,  Mr.  Perth was the  President  of USA  Networks
Entertainment at USA Network. At USA Network,  Mr. Perth was responsible for the
development and production of programming,  including programming for the Sci-Fi
Channel.  Prior to  joining  USA  Network,  Mr.  Perth  served  as  Senior  Vice
President, Late Night and Non-Network Programming at CBS Entertainment, where he
was instrumental in the resurgence of the CBS Late Night Franchise and was a key
member of the team that brought the "Late Show with David Letterman" to CBS. Mr.
Perth  joined the CBS  Entertainment  division in 1989 as Vice  President,  Late
Night Programs.

     Michael J. Petrick has been a Director of the Company  since  October 1998.
Mr. Petrick is a Managing Director of Morgan Stanley & Co. Incorporated, and has
been with Morgan  Stanley since 1989.  Mr.  Petrick also serves as a Director of
CHI Energy, Inc. and Premium Standard Farms, Inc.


                                     20

<PAGE>

     All of the Company's  Directors were selected pursuant to the Stockholders'
Agreement  (as  defined,  along  with  other  capitalized  terms  used  in  this
paragraph,  in "Certain  Relationships  and  Related  Transactions-Stockholders'
Agreement").  Messrs.  Handel, Arad, Cuneo, Halpin,  Mittman and Perlmutter were
designated by the Investor Group and Messrs. Ganis, Greenhaus, Lynton, Perth and
Petrick were designated by the Lender Group.

Executive Officers

     The following  sets forth the positions  held with the Company and selected
biographical  information for the executive  officers of the Company who are not
Directors.

     Alan Fine served as a Director of the Company from June 1997 until  October
1998.  Mr. Fine has been the  President and Chief  Executive  Officer of Toy Biz
since October 1998. Previously,  he served as the Chief Operating Officer of the
Company,  a position to which he was appointed in September 1996. From June 1996
to September 1996, Mr. Fine was the President and Chief Operating Officer of Toy
Biz International Ltd. From May 1995 to May 1996, Mr. Fine was the President and
Chief  Operating  Officer of Kay-Bee  Toys,  a national toy  retailer,  and from
December 1989 to May 1995, he was the Senior Vice President General  Merchandise
Manager of Kay-Bee Toys.

     David J.  Fremed  has served as Senior  Vice  President  and  Acting  Chief
Financial  Officer of the Company since February 2000.  From February 1999 until
February 2000, he was Senior Vice President and Chief  Financial  Officer of Toy
Biz.  From October 1996 to February  1999,  Mr.  Fremed  served as the Company's
Chief  Financial  Officer and  Treasurer.  From 1990 to October 1996, Mr. Fremed
served as the Vice President/Controller of the Company.

     William Jemas has been  President  Publishing  and New Media since February
2000.  Previously he was Executive Vice President,  Madison Square Garden Sports
from December 1998 until February  2000.  From July 1996 until December 1998, he
was founder and  President  of Blackbox,  L.L.C.  and worked and  consulted  for
several media companies,  including Lancet Media,  G-Vox  Interactive and Hearst
Entertainment.  From July 1993 until June 1996, Mr Jemas held various  executive
positions  with  The  Marvel  Entertainment  Group,   including  Executive  Vice
President and President of Fleer Corporation.

     Allen S. Lipson has been the Executive  Vice  President  Business and Legal
Affairs and Secretary of the Company since  November  1999.  From May 1996 until
November 1999, Mr. Lipson was Vice  President,  Administration,  General Counsel
and Secretary of Remington  Products  Company L.L.C. and from October 1988 until
May 1996 he was Vice Presidient and General Counsel of Remington.

     Richard Ungar has served as the President of Marvel  Character  Group since
October 1999.  From May 1999 until October 1999, he was a consultant  for Marvel
and from  October 1998 until May 1999,  Mr.  Ungar was Chairman of BKM,  Inc., a
children's  television network.  From January 1997 until October 1998, Mr. Ungar
was an independent consultant/producer and from January 1992 until January 1997,
he held various postions with New World  Entertainment,  including  President of
Prgramming and President and C.E.O. of New World Animation.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities  Exchange Act of 1934 (the "Exchange  Act")
requires the Company's officers and directors, and persons who own more than ten
percent  of a  registered  class of the  Company's  equity  securities,  to file
reports of ownership and changes in ownership  with the  Securities and Exchange
Commission and the New York Stock Exchange.  Officers, directors and ten-percent
stockholders   are  required  by  regulation  of  the  Securities  and  Exchange
Commission  to furnish the Company  with copies of all Section  16(a) forms they
file.

     Based solely on its review of Forms 3, 4 and 5 available to the Company and
written representations from certain of the directors,  officers and ten-percent
stockholders  that no form is required to be filed, the Company believes that no
director,  officer or  beneficial  owner of more than ten  percent of the Common
Stock  failed to file on a timely  basis  reports  required  pursuant to Section
16(a) of the Exchange Act with respect to 1999,  with the  exception of a Form 3
for Sid Ganis (to report his status as a director) which was filed late.


ITEM 11. EXECUTIVE COMPENSATION

     The  following  table  sets  forth  information  for  the  years  indicated
concerning the compensation awarded to, earned by or paid to the Chief Executive
Officers  of the  Company  during  1999  and  the  Company's  four  most  highly

                                       21

<PAGE>


compensated  executive  officers,  other  than  the  Company's  Chief  Executive
Officers,  who were serving as executive officers of the Company on December 31,
1999 (the "Named Executive  Officers"),  for services rendered in all capacities
to the Company and its subsidiaries during such periods.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                                          Long-Term

                                                             Annual Compensation(1)                        Compensation
                                                   ----------------------------------------------------       ------------
                                                                                          Other Annual      Securities Underlying
Name and Principal Position                           Year     Salary($)     Bonus(2)     Compensation       Options (#)
---------------------------                        ---------   --------     ---------     -------------    --------------------
<S>                                                <C>         <C>          <C>           <C>              <C>

F. Peter Cuneo (4)                                    1999     $295,000     $  490,000                        750,000
     President and Chief Executive
     Officer

Eric Ellenbogen (5)                                   1999      444,231      2,500,000(6)
     President and Chief Executive                    1998       57,692         ----                          720,000
     Officer

Alan Fine (7)                                         1999      500,000        225,000         $5,673(3)      200,000
        President and Chief Executive Officer         1998      425,000        307,001                        300,000
        of the Company's Toy Biz Division             1997      400,000        302,816

Avi Arad (8)                                          1999      375,000        201,563        109,774(9)
     Chief Creative Officer of the                    1998      375,000         ----                        1,000,000
     Company and President and Chief Executive        1997      375,000         ----
     Officer of the Company's Marvel Studios
     Division

Robert S. Hull (10)                                   1999      272,403       225,000           3,854(3)      200,000
     Executive Vice President and Chief
     Financial Officer

William H. Hardie, III (11)                           1999      260,000       248,958           4,168(3)
     Executive Vice President,                        1998      260,000        25,000                         100,000
     Business Affairs                                 1997       83,539        10,000

</TABLE>

(1)  Does not include value of perquisites  and other personal  benefits for any
     Named Executive Officer (other than Mr. Arad) since the aggregate amount of
     such  compensation  is the  lesser of $50,000 or 10% of the total of annual
     salary and bonus reported for the named executive.

(2)  Bonus  amounts  shown are those accrued for and paid in or after the end of
     the year.

(3)  Amounts  shown are the  Company  matching  contributions  to the  Company's
     401(k) Plan

(4)  Mr. Cuneo's employment with the Company commenced in July 1999.

(5)  Mr. Ellenbogen's employment with the Company commenced in December 1998 and
     terminated in July 1999.

(6)  Payment in connection with termination of Mr. Ellenbogen's employment.

(7)  Mr.  Fine  commenced  employment  with the  Company  in May  1996,  and was
     appointed as the President and Chief Executive Officer of the Company's Toy
     Biz division in the fourth quarter of 1998.

(8)  Mr. Arad's employment with the Company  commenced in October 1998.  Amounts
     shown for  periods  prior to  October  1, 1998  represent  consulting  fees
     received by Mr. Arad.


                                       22

<PAGE>


(9)  Amounts shown for company provided automobile and  driver.

(10) Mr.  Hull's  employment  with the Company  commenced  in February  1999 and
     terminated in February 2000.

(11) Mr. Hardie's  employment  with the Company  commenced in September 1997 and
     terminated in December 1999.


Option Grants Table

     The  following  table shows the  Company's  grants of stock  options to the
Named  Executive  Officers in 1999.  Each stock  option grant was made under the
Stock  Incentive  Plan,  which became  unconditionally  effective on January 20,
1999. No SARs (stock appreciation rights) were granted by the Company in 1999.

<TABLE>
<CAPTION>

                                  Number of      Percent of

                                  Shares of        Total                               Potential Realizable
                                 Common Stock     Options                               Value at Assumed Annual
                                  Underlying     Granted to   Exercise                   Rates of Stock Price
                                Options Granted   Employees    Price      Expiration        Appreciation
        Name                       in 1999         in 1999    per share     Date          for Option Terms
 ------------------------       ---------------  ----------   --------    ---------     ----------------------
                                                                                           5%          10%
                                                                                        ----------   ----------
<S>                             <C>              <C>           <C>        <C>           <C>          <C>

F. Peter Cuneo (1).............     750,000         35.4%        7.250     7/21/09      $3,419,644   $8,665,744
Alan Fine (2)..................     200,000          9.4%        6.375      3/5/09         801,848    2,031,968
Robert S. Hull (3) ............     200,000          9.4%        6.500      2/5/09         817,750    2,071,810

</TABLE>

(1)  Mr. Cuneo's options become exercisable in four equal installments:  options
     to buy  187,500  shares of Common  Stock are  exercisable  immediately  and
     options  to buy  an  additional  187,500  shares  of  Common  Stock  become
     exercisable on each of July 19, 2000, July 19, 2001 and July 19, 2002.

(2)  Mr. Fine's options become exercisable in three equal installments:  options
     to buy 66,667  shares of Common Stock are  exercisable  on each of March 5,
     2000, March 5, 2001 and March 5, 2002.

(3)  Mr.  Hull's  options were  scheduled to become  exercisable  in three equal
     installments:   options  to  buy  66,667  shares  of  Common  Stock  became
     exercisable  on February 5, 2000 and options for an additional  66,667 were
     to become exerciseable on February 5, 2001 and February 5, 2002. Mr. Hull's
     employment  with the Company  terminated in February 2000 and  accordingly,
     all options exercisable in 2001 and 2002 were terminated.

Year-End 1999 Option Value Table

     The  following  table  shows  the  number  and  value  of  exercisable  and
unexercisable stock options held by the Named Executive Officers at December 31,
1999.  Mr.  Hardie  exercised  25,000  options in December  1999. No other Named
Executive Officers exercised stock options during 1999.

<TABLE>
<CAPTION>

                                                    Number of Shares of                     Value of
                                                  Common Stock Underlying                 Unexercised
                                                  Unexercised Options at            In-the-Money Options at
Name                                                   Year-End (1)                         Year-End
----------------------                          -----------------------------    ------------------------------
                                                Exercisable     Unexercisable    Exercisable      Unexercisable
                                                -----------     -------------    -----------      -------------
<S>                                             <C>             <C>              <C>              <C>

Eric Ellenbogen..............................     240,000          480,000        ------          --------
F. Peter Cuneo...............................     187,500          562,500       ------           --------
Avi Arad.....................................     500,000          500,000       ------           --------
Alan Fine....................................     150,000          350,000       ------           --------
Robert S. Hull...............................   ---------          200,000       ------           --------
William H. Hardie, III.......................   ---------      -----------       ------           --------

</TABLE>

(1)  Represents  shares of Common Stock  underlying  stock options.  None of the
     Named Executive Officers holds SARs (stock appreciation rights).

                                       23
<PAGE>



Compensation of Directors

     Non-employee  directors currently receive an annual retainer of $25,000 and
an annual  grant of 10,000  shares of  Common  Stock to be  immediately  vested.
Non-employee  directors  also receive a one-time  grant of five-year  options to
purchase  20,000  shares of Common Stock at an exercise  price equal to the fair
market value of the Common Stock on the date of the grant.  Those options expire
within 90 days  following  the date a director  ceases to serve on the Board and
vest  one-third  on the  date  of the  grant  and  one-third  on each of the two
succeeding  anniversaries  of  the  grant.  In  addition,  the  chairmen  of the
Compensation and Nominating  Committee and the Audit Committee receive an annual
retainer of $5,000,  and the  non-executive  Chairman  of the Board  receives an
annual  payment of $100,000 and a one-time  grant of options to purchase  30,000
shares of Common Stock on the same terms as those applicable to the options made
available to the other non-employee members of the Board.

     Members of the Board who are officers or employees of the Company or any of
its  subsidiaries do not receive  compensation  for serving in their capacity as
directors.

Employment Agreements

     The  Company  has  entered  into  employment  agreements  with  each of the
following executive officers: Avi Arad, the Company's Chief Creative Officer and
the  President  and Chief  Executive  Officer of the  Company's  Marvel  Studios
Division;  F. Peter Cuneo,  the  President  and Chief  Executive  Officer of the
Company;  Alan Fine, the President and Chief Executive  Officer of the Company's
Toy Biz Division;  David J. Fremed,  the Acting Chief  Financial  Officer of the
Company; Bill Jemas, President of Publishing and New Media; Allen S. Lipson, the
Executive Vice President,  Business and Legal Affairs of the Company and Richard
Ungar,  President of Marvel  Characters  Group. In July 1999 the Company entered
into a separation agreement with Mr. Ellenbogen.

     Employment and License Agreements with Mr. Arad. Pursuant to his employment
agreement, Mr. Arad has agreed to render his exclusive and full-time services to
the Company for a term of  employment  expiring on December 31, 2000.  Under his
employment agreement,  Mr. Arad receives a base salary, subject to discretionary
increases,  of  $375,000.  Mr.  Arad is entitled  to  discretionary  bonuses and
participation in the Company's stock option plan as determined by the Board. Mr.
Arad also is entitled to the use of an automobile with driver and is entitled to
participate  in employee  benefit  plans  generally  available to the  Company's
employees.  Mr.  Arad's  employment  agreement  provides  that,  in the event of
termination  other than for cause,  Mr. Arad is  entitled  to his salary  earned
through  the date of  termination  and  thereafter  for a period of up to twelve
months. Mr. Arad's employment  agreement replaces his consulting  agreement with
the Company, under which Mr. Arad also earned $375,000 per year.

     In addition, the Company and Arad Associates, of which Mr. Arad is the sole
proprietor,  are  parties  to a  license  agreement  which  provides  that  Arad
Associates   is   entitled  to  receive   royalty   payments  on  net  sales  of
Marvel-character-based toys and on net sales of non-Marvel-character-based  toys
of which Mr. Arad is the inventor of record. In no event, however, may the total
royalties  payable to Arad  Associates  during any  calendar  year  exceed  $7.5
million.  The  Company  accrued  royalties  to Mr.  Arad for toys he invented or
designed of approximately  $3.6 million,  $4.3 million and $3.0 during the years
ended December 31, 1997,  1998 and 1999,  respectively.  In September  1998, the
license with Arad  Associates was amended to provide that Arad  Associates  will
receive  an  annual  royalty  of  $650,000  for  products  based  on the  Marvel
characters  (the former  royalty rate was 4%).  The  amendment  leaves  intact a
provision that Arad Associates is to receive a negotiated  royalty not to exceed
5% of net sales of products not based on the Marvel characters.

     Employment Agreement with Mr. Cuneo.  Pursuant to his employment agreement,
Mr.  Cuneo has agreed to render his  exclusive  and  full-time  services  to the
Company for a term of employment expiring on July 21, 2002. Under his employment
agreement, Mr. Cuneo receives a base salary, subject to discretionary increases,
of  $650,000.  Starting  in 2000,  Mr.  Cuneo will be eligible to earn an annual
bonus based on the attainment of certain  performance  goals.  The target annual
bonus is equal to 60% of Mr.  Cuneo's  base salary.  Mr.  Cuneo also  receives a
$1,500 monthly  automobile  allowance and is entitled to participate in employee

                                       24


<PAGE>


benefit  plans  available to similarly  situated  employees of the Company.  The
Company has agreed to provide Mr.  Cuneo with a suitable  apartment in Manhattan
for up to one year,  and the  Company  will pay Mr.  Cuneo a $25,000  relocation
allowance  if  he  relocates  his  primary   residence  to  the  New  York  City
metropolitan area during the term of his employment.

         Pursuant  to his  employment  agreement,  Mr.  Cuneo  has been  granted
options to purchase  750,000  shares of Common  Stock.  The options  vest over a
three-year  period.  The  options  become  exercisable  in full upon a change in
control of the Company.

     Employment  Agreement with Mr. Fine. Pursuant to his employment  agreement,
Mr.  Fine has agreed to render  his  exclusive  and  full-time  services  to the
Company for a term of employment  expiring on March 1, 2001 Under his employment
agreement,  Mr. Fine receives a base salary, subject to discretionary increases,
of  $500,000.  Mr.  Fine is  eligible  to  earn an  annual  bonus  based  on the
attainment  of certain  performance  goals.  The  employment  agreement  further
provides for  participation  in the Company's stock option plan as determined by
the Board and  provides  that Mr.  Fine shall be  entitled to receive a grant of
options to purchase  200,000  shares of Common Stock (in addition to the options
previously  granted to Mr. Fine to purchase 300,000 shares of Common Stock). Mr.
Fine also  receives a $1,000  monthly  automobile  allowance  and is entitled to
participate  in employee  benefit  plans  generally  available to the  Company's
employees.

     Employment Agreement with Mr. Fremed. Pursuant to his employment agreement,
Mr.  Fremed has agreed to render his  exclusive  and  full-time  services to the
Company  for a term of  employment  expiring  on December  31,  2000.  Under his
employment   agreement,   Mr.  Fremed   receives  a  base  salary,   subject  to
discretionary  increases,  of  $215,000.  Mr.  Fremed is  entitled to a bonus of
$30,000 per year plus  discretionary  bonuses and participation in the Company's
stock option plan as  determined  by the Board.  Mr. Fremed also receives a $750
monthly automobile  allowance and is entitled to participate in employee benefit
plans generally available to the Company's employees.

     Mr.  Fremed's   employment   agreement  provides  that,  in  the  event  of
termination  other than for cause,  Mr. Fremed is entitled to his salary and car
allowance  earned through the date of termination and thereafter for a period up
to nine months.

     Employment Agreement with Mr. Jemas.  Pursuant to his employment agreement,
Mr.  Jemas has agreed to render his  exclusive  and  full-time  services  to the
Company  for a term of  employment  expiring  on February  15,  2001.  Under his
employment agreement, Mr. Jemas receives a base salary, subject to discretionary
increases, of $275,000. The employment agreement provides for a sign-on bonus of
$100,000  payable in two installments of $50,000 each and a bonus for 2000 equal
to at least 50% of his base  salary  for the year.  Mr.  Jemas  also  receives a
$1,100 monthly  automobile  allowance and is entitled to participate in employee
benefit plans  generally  available to the Company's  employees.  The employment
agreement  further provides for participation in the Company's stock option plan
as  determined  by the Board and  provides  that Mr.  Jemas shall be entitled to
receive a grant of options to purchase 125,000 shares of Common Stock

     Employment Agreement with Mr. Lipson. Pursuant to his employment agreement,
Mr.  Lipson has  agreed to render  his  services  to the  Company  for a term of
employment  expiring on November 15, 2002. Under his employment  agreement,  Mr.
Lipson receives a base salary, subject to discretionary  increases, of $325,000.
Mr.  Lipson is  entitled  to a bonus for 1999 of  $180,000  and  thereafter,  is
eligible to earn an annual bonus based on the attainment of certain  performance
goals.  Mr. Lipson also receives a $1,200  monthly  automobile  allowance and is
entitled to  participate  in  employee  benefit  plans  available  to  similarly
situated employees of the Company.  The Company has agreed to provide Mr. Lipson
with a suitable  apartment  in  Manhattan  for up to one year.  Pursuant  to his
employment  agreement,  Mr. Lipson has been granted options to purchase  150,000
shares of Common Stock. The options will vest over a three-year period.


                                       25


<PAGE>



     Employment  and  Agreement  with  Mr.Ungar.   Pursuant  to  his  employment
agreement, Mr. Unger has agreed to render his services to the Company for a term
of employment expiring on October 25, 2002. Under his employment agreement,  Mr.
Unger receives a base salary, subject to discretionary  increases,  of $325,000.
Mr.  Unger is  entitled  to a bonus  for 1999 of  $140,000  and  thereafter,  is
eligible to earn an annual bonus based on the attainment of certain  performance
goals.  Mr. Ungar also  receives a $1,300  monthly  automobile  allowance and is
entitled to  participate  in  employee  benefit  plans  available  to  similarly
situated  employees of the Company.  Pursuant to his employment  agreement,  Mr.
Unger has been granted options to purchase  200,000 shares of Common Stock.  The
options will vest over a three-year period.

     In  addition,   the  Company  and  Brentwood   Television   Funnies,   Inc.
("Brentwood"), of which Mr. Unger is the sole shareholder, are parties to a Loan
Out Agreement under which Brentwood  agrees to provide the services of Mr. Unger
as Executive Producer on all television programs involving Marvel characters for
a term expiring on October 25, 2002. Under the agreement,  Brentwood  receives a
producer fee of $175,000 per year, subject to discretionary increases.

     Separation  Agreements  with  Mr.  Ellenbogen.  Pursuant  to  a  separation
agreement  with  the  Company  entered  into  in  July  1999,  Mr.  Ellenbogen's
employment with the Company as President and Chief Executive Officer  terminated
in that month. Under his separation agreement, Mr. Ellenbogen received a payment
of  $2,500,000.  The separation  agreement  also provides that Mr.  Ellenbogen's
options to buy an additional  480,000 shares of Common Stock become  exercisable
in the event of certain  changes in control of the  Company  before  January 15,
2001, but otherwise will not become  exercisable.  Mr.  Ellenbogen's other stock
options have been terminated.

     Termination  Provisions.  The employment  agreements of Messrs Cuneo, Fine,
Jemas, Lipson and Unger and the Loan Out Agreement with Brentwood, provide that,
in the event of termination,  the executive is entitled to certain  payments and
benefits  depending on the  circumstances of the  termination.  Upon a change in
control of the Company,  the executive is entitled to a severance  payment equal
to two times the sum of his then-current  base salary and the average of the two
most recent annual  bonuses  paid.  If any payments to the  executive  under his
employment agreement  ("Parachute  Payments") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code, then the executive will be
entitled  to  receive  an  additional  payment  from the  Company  (a  "Gross-Up
Payment") in an amount such that the executive retains, after the payment of all
taxes, an amount of the Gross-Up  Payment equal to the excise tax imposed on the
Parachute Payments.

     Confidential  Information  and Related  Provisions.  Each of the employment
agreements with Messrs.  Arad,  Cuneo,  Fine,  Fremed,  Jemas,  Lipson and Unger
prohibits disclosure of proprietary and confidential  information  regarding the
Company  and its  business  to  anyone  outside  the  Company  both  during  and
subsequent to employment and otherwise  provides that all inventions made by the
employees  during their  employment  belong to the Company.  In addition,  those
employees agree during their  employment,  and for one year  thereafter,  not to
engage in any competitive business activity.

Compensation Committee Interlocks and Insider Participation

     Messrs.  Handel,  Halpin,  Lynton,  Perlmutter  and Petrick  serve now, and
served during 1999, on the Company's Compensation and Nominating Committee. None
of the individuals mentioned above was an officer or employee of the Company, or
any of its  subsidiaries,  during  1999 or  formerly.  Mr.  Handel  is,  and Mr.
Perlmutter once was, the Company's non-executive Chairman of the Board.

    Stockholders' Agreement

     The Company and the following  stockholders  are parties to a Stockholders'
Agreement (the "Stockholders' Agreement") dated as of October 1, 1998:

     (1)  (i) Avi Arad, (ii) Isaac Perlmutter, (iii) Isaac Perlmutter T.A., (iv)
          The Laura and Isaac  Perlmutter  Foundation  Inc.,  (v) Object Trading
          Corp., and (vi) Zib Inc. (the "Perlmutter/Arad Group");

     (2)  (i) Mark Dickstein,  (ii) Dickstein & Company,  L.P.,  (iii) Dickstein
          Focus Fund L.P.,  (iv)  Dickstein  International  Limited,  (v) Elyssa
          Dickstein,  Jeffrey  Schwarz  and  Alan  Cooper  as  Trustees  U/T/A/D
          12/27/88,  Mark  Dickstein,  Grantor,  (vi) Mark  Dickstein and Elyssa
          Dickstein,  as Trustees of the Mark and Elyssa  Dickstein  Foundation,
          and (vii) Elyssa  Dickstein (the  "Dickstein  Entities" and,  together
          with the Perlmutter/Arad Group, the "Investor Group"); and

                                       26

<PAGE>


     (3) (i) The Chase Manhattan  Bank,  (ii) Morgan Stanley & Co.  Incorporated
         ("Morgan  Stanley"),  and (iii) Whippoorwill as agent of and/or general
         partner for certain accounts and funds (the "Lender Group").

     The Stockholders' Agreement provides that its parties will take such action
as may  reasonably  be in their power to cause the Board to include,  subject to
certain  conditions,  six directors  designated  by the Investor  Group and five
directors  designated  by the Lender  Group.  The number of  directors  that the
Investor Group and the Lender Group may designate will be reduced following June
30, 2000 in the event of decreases in  beneficial  ownership of capital stock of
the  Company  below  certain   pre-determined   levels,  as  set  forth  in  the
Stockholders'  Agreement.  The Stockholders' Agreement provides for the creation
of  various  committees  of the  Board  as  well  as the  composition  of  those
committees.

     The parties to the  Stockholders'  Agreement have the power to vote, in the
aggregate,  approximately  55.8% in  combined  voting  power of the  outstanding
shares of Common Stock and 8% Preferred Stock. The 55.8% figure does not include
shares beneficially owned by the Dickstein Entities. Those shares are covered by
the Stockholders'  Agreement,  but the Company does not know the number of those
shares. The Dickstein Entities beneficially own less than 5% of the Common Stock
and no longer file ownership reports on Schedules 13D or 13G with the Securities
and Exchange Commission.

    Registration Rights Agreements

     Mr.  Dickstein and certain of his  affiliates,  Object  Trading  Corp.  (an
affiliate of Mr.  Perlmutter),  Whippoorwill as agent for and/or general partner
for certain  institutions  and funds,  the Company and certain other parties are
parties  to a  Registration  Rights  Agreement  dated as of October 1, 1998 (the
"October  Registration  Rights  Agreement").  Mr. Arad, Mr. Perlmutter,  certain
affiliates of Mr.  Perlmutter  (other than Object Trading Corp.) and the Company
are parties to a Registration Rights Agreement dated as of December 8, 1998 (the
"December Registration Rights Agreement").

     The terms of the December  Registration  Rights Agreement are substantially
identical to those of the October Registration Rights Agreement. Under the terms
of each of the Registration Rights Agreements,  the Company has agreed to file a
shelf registration  statement under the Securities Act registering the resale of
all shares of Common  Stock and 8%  Preferred  Stock  issued to the  stockholder
parties  thereto  pursuant to the Plan, all shares of Common Stock issuable upon
conversion  of those  shares of 8% Preferred  Stock,  certain  convertible  debt
securities  that the Company may  exchange  for the 8%  Preferred  Stock and the
Common Stock  issuable  upon  conversion  thereof and all shares of Common Stock
otherwise owned by the stockholder parties to the respective Registration Rights
Agreement as of the date thereof.  The Registration  Rights Agreements also give
the stockholder  parties thereto piggyback  registration  rights with respect to
underwritten public offerings by the Company of its equity securities.

    Agreements Relating to the Purchase of Preferred Shares

     Zib (an entity owned entirely by Mr.  Perlmutter),  Dickstein Partners Inc.
(an  affiliate of Mr.  Dickstein)  and Toy Biz,  Inc.  entered into a Commitment
Letter,  dated  November  19, 1997,  in which Zib and  Dickstein  Partners  Inc.
committed  to purchase $60 million and $30 million in amount,  respectively,  of
the 8%  Preferred  Stock of the  Company  to be  issued  pursuant  to the  Plan.
Pursuant to the Plan and a Stock Purchase Agreement dated as of October 1, 1998,
(i) certain  secured  creditors of MEG  purchased,  pursuant to an option in the
Plan, $20,071,480 in amount of 8% Preferred Stock that would otherwise have been
purchased by Zib;  (ii)  Whippoorwill,  as agent of and/or  general  partner for
certain institutions and funds,  purchased,  pursuant to an assignment from Zib,
$5  million in amount of 8%  Preferred  Stock  that  would  otherwise  have been
purchased  by Zib;  (iii) Zib  purchased  $34,928,520  in amount of 8% Preferred
Stock; and (iv) Dickstein Partners Inc. and its assignees  purchased $30 million
in amount of 8% Preferred Stock.

    Tangible Media Advertising Services

     Tangible Media, a corporation which is wholly owned by Mr. Perlmutter, acts
as  the  Company's  media   consultant  in  placing  certain  of  the  Company's
advertising and, in connection therewith,  receives certain fees and commissions
based on the cost of the placement of such advertising.  Tangible Media received
payments  of fees  and  commissions  from  the  Company  totaling  approximately
$1,274,000,  $1,147,000 and $1,170,000 in 1997, 1998 and 1999, respectively. The
Company  retains the services of a  non-affiliated  media  consulting  agency on
matters of advertising creativity.

                                       27


<PAGE>

    Employee, Office Space and Overhead Cost Sharing Arrangements

     The Company and Tangible  Media have shared  certain space at the Company's
principal executive offices and related overhead expenses.  Since 1994, Tangible
Media and the  Company  have  been  parties  to an  employee,  office  space and
overhead cost sharing  agreement  governing the Company's  sharing of employees,
office space and overhead  expenses  (the "Cost Sharing  Agreement").  Under the
Cost Sharing  Agreement,  any party  thereto may through its  employees  provide
services to another party, upon request,  whereupon the party receiving services
shall  be  obligated  to  reimburse  the  providing  party  for the cost of such
employees'  salaries and benefits accrued for the time devoted by such employees
to providing  services.  Under the Cost  Sharing  Agreement,  Tangible  Media is
obligated to  reimburse  the Company for 18% of the rent paid under the sublease
for the space,  which  obligations  reflect the approximate  percentage of floor
space  occupied by Tangible  Media.  The Cost Sharing  Agreement  also  requires
Tangible  Media to  reimburse  the  Company for any  related  overhead  expenses
comprised of commercial rent tax, repair and maintenance costs and telephone and
facsimile services, in proportion to its percentage occupancy.  The Cost Sharing
Agreement  is  coterminous  with  the  term of the  Company's  sublease  for its
executive offices.  The Company paid approximately  $38,000 and $147,000 in 1997
and 1998, respectively,  to Tangible Media under this Agreement.  However, under
this  Agreement,  Tangible Media paid  approximately  $155,000 to the Company in
1999.

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding the beneficial
ownership of Common Stock and 8% Preferred  Stock,  as of March 15, 2000, by (i)
each person known by the Company to be the beneficial owner of 5% or more of the
outstanding  Common Stock or 8% Preferred Stock (based,  in part, upon copies of
all Schedules  13D and 13G provided to the  Company),  (ii) each director of the
Company,  (iii) each Named Executive Officer and (iv) all executive officers and
directors of the Company as a group.  Because the voting or dispositive power of
certain shares listed in the table is shared,  the same securities are sometimes
listed  opposite  more than one name in the table and the  sharing  of voting or
dispositive  power is  described  in a footnote.  The total  number of shares of
Common Stock and 8% Preferred  Stock listed below for  directors  and  executive
officers as a group eliminates such duplication.

          Each share of 8%  Preferred  Stock is  convertible  by its holder into
1.039 shares of Common Stock. The table assumes that no unexercised warrants for
the purchase of stock of the Company have been exercised.  As far as the Company
is aware, none of the stockholders  named in the table owns any warrants for the
purchase of stock of the Company.

          Under the rules of the Securities and Exchange Commission,  beneficial
ownership of a share of 8% Preferred Stock constitutes  beneficial  ownership of
1.039 shares of Common  Stock (the amount into which the 8%  Preferred  Stock is
convertible).  Beneficial ownership of Common Stock is shown in the main part of
the table and the portion of that beneficial  ownership  traceable to beneficial
ownership of 8% Preferred Stock is set forth in the footnotes.

                                       28

<PAGE>


          The Schedules 13D and 13G that the Company used in compiling the table
take  differing  positions  as  to  whether  shares  of  stock  covered  by  the
Stockholders'  Agreement are held with "shared voting power." The table does not
attempt to reconcile those differences.

<TABLE>
<CAPTION>

                    Shares of Common Stock Beneficially Owned

                                           Sole Voting       Shared Voting     Sole Dispositive    Shared Dispositive
                                              Power              Power              Power               Power
                                        -----------------   ----------------   -----------------   -------------------
Five Percent Stockholders,
       Directors                        Percent    Percent            Percent             Percent             Percent
    and Executive Officers              Number    of Class  Number    of Class   Number   of Class  Number    of Class
--------------------------------        --------  -------- ---------- -------   --------  -------- --------- ---------
<S>                                     <C>                <C>        <C>       <C>       <C>      <C>       <C>

Avi Arad (1)(2).......................     --         *    30,105,992   65.6%    4,650,000 13.6%       --       *
    1698 Post Road East
    Westport, Connecticut 06880
Isaac Perlmutter(2)(3)................     --         *    30,105,992   65.6%   14,443,029 37.5%       --       *
    P.O. Box 1028
    Lake Worth, Florida 33460
The Chase Manhattan Corporation(2)(4)..    --         *    30,105,992   65.6%    2,180,334  6.3%       --       *
    270 Park Avenue
    New York, New York 10017
Morgan Stanley & Co.
Incorporated(2)(5).....................    --         *    30,105,992   65.6%       --        *     5,163,449  14.1%
    1585 Broadway
    New York, New York 10036
Whippoorwill Associates, Inc.
as agent of and/or general
partner for certain institutions
and funds (6)..........................    --         *     3,745,927   10.4%       --        *     3,745,927  10.4%
    11 Martine Avenue
    White Plains, NY 10606
Value Partners, Ltd.(7)..............  4,360,420     12.4%     --         *      4,360,420   10.4%     --        *
    Suite 808
    4514 Cole Avenue
    Dallas, Texas 75205
Mark H. Rachesky, M.D. (8)...........      --         *     2,115,042   5.9&        --        *     2,115,042  5.9%
Morton E. Handel (9).................     27,667      *        --        *          --        *        --        *
F. Peter Cuneo (10)..................    187,714      *        --        *          --        *        --        *
Sid Ganas(11)........................     16,667      *        --        *          --        *        --        *
Shelley F. Greenhaus (12)............     26,667      *        --        *          --        *        --        *
James F. Halpin (13).................     31,667      *        --        *          --        *        --        *
Michael M. Lynton (13)...............     26,667      *        --        *          --        *        --        *
Lawrence Mittman (13)................     26,667      *        --        *          --        *        --        *
Rod Perth (13).......................     26,667      *        --        *          --        *        --        *
Michael J. Petrick...................       --        *        --        *          --        *        --        *
Alan Fine (14).......................    216,667      *        --        *          --        *        --        *
David J. Fremed (15).................     50,000      *        --        *          --        *        --        *
William Jemas........................       --        *        --        *          --        *        --        *
Allen S. Lipson .....................      1,000      *        --        *          --        *        --        *
Richard Ungar........................       --        *        --        *          --        *        --        *
Eric Ellenbogen(16)..................    240,000      *        --        *          --        *        --        *
William H. Hardie, III (17)..........       --        *        --        *          --        *        --        *
Robert S. Hull(18)...................     66,667      *        --        *          --        *        --        *
All current  executive  officers and
   directors as a group
   (16 persons)(2)(19)..............     445,169    1.3%   30,105,992  65.6%    19,809,413   57.0%     --        *

</TABLE>
-------------------
* Less than 1%.

                                       29

<PAGE>


(1)  Figures  include  500,000  shares of Common Stock  subject to stock options
     granted  to Mr.  Arad  pursuant  to the  Stock  Incentive  Plan  which  are
     immediately  exercisable.   Mr.  Arad  is  a  party  to  the  Stockholders'
     Agreement.  Except for the  4,650,000  shares  over  which Mr.  Arad may be
     deemed to have sole  dispositive  power,  shares over which Mr. Arad may be
     deemed to have shared  voting power (which  include  shares of Common Stock
     underlying  10,562,661 shares of 8% Preferred Stock) are beneficially owned
     by other parties to the Stockholders' Agreement and it is only by reason of
     Mr. Arad's position as a party to the Stockholders' Agreement that Mr. Arad
     may be deemed to possess that shared voting power.

(2)  Figures  in the  table  and in the  footnotes  for  the  number  of  shares
     beneficially owned by parties to the Stockholders' Agreement do not include
     shares  beneficially  owned by Dickstein  Partners  Inc. and certain of its
     affiliates that are signatories to the Stockholders'  Agreement.  Shares of
     Common  Stock  beneficially  owned by  Dickstein  Partners  Inc.  and those
     affiliates are covered by the Stockholders' Agreement, but the Company does
     not know the  number  of those  shares.  Dickstein  Partners  Inc.  and its
     affiliates  beneficially own less than 5% of the Common Stock and no longer
     file  ownership  reports on Schedules  13D or 13G with the  Securities  and
     Exchange Commission.

(3)  Mr. Perlmutter is a party to the Stockholders' Agreement.

     (a) Figures  include 13,334 shares of Common Stock subject to stock options
     granted to Mr.  Perlmutter  pursuant to the Stock  Incentive Plan which are
     immediately  exercisable.  Other  shares over which Mr.  Perlmutter  may be
     deemed to have sole dispositive power are directly held as follows:

<TABLE>


                               Holder                                Shares of Common Stock    Shares of 8% Preferred Stock
     ---------------------------------------------------------       ----------------------    ----------------------------
     <S>                                                             <C>                       <C>
     Zib.........................................................            9,256,000                --
     The Laura and Isaac Perlmutter Foundation Inc...............              250,000                --
     Object Trading Corp.........................................               33,500            3,856,390
     Classic Heroes, Inc.........................................                    0              255,000
     Biobright Corporation.......................................                    0              255,000
     Isaac Perlmutter T.A........................................                    0              320,998
     Isaac Perlmutter............................................               20,000                --
</TABLE>

     The sole  stockholder of Zib, a Delaware  corporation,  is Isaac Perlmutter
     T.A., a Florida trust (the "Perlmutter Trust"). Mr. Perlmutter is a trustee
     and the sole beneficiary of the Perlmutter  Trust, and may revoke it at any
     time. Mr. Perlmutter is a director and the president of the Laura and Isaac
     Perlmutter  Foundation  Inc.,  a Florida  not-for-profit  corporation.  Mr.
     Perlmutter is the sole  stockholder of (i) Object Trading Corp., a Delaware
     corporation,  (ii) Classic Heroes,  Inc., a Delaware  corporation and (iii)
     Biobright Corporation, a Delaware corporation. Mr. Perlmutter may be deemed
     to possess (i) the power to vote and dispose of the shares of Common  Stock
     directly held by Zib, Object Trading Corp., Classic Heroes, Inc., Biobright
     Corporation and the Perlmutter  Trust and (ii) the power to direct the vote
     and  disposition  of the shares of Common Stock  directly held by the Laura
     and Isaac Perlmutter Foundation Inc.

     (b) Except for the  14,443,029  shares  over  which Mr.  Perlmutter  may be
     deemed to have sole dispositive power (which include shares of Common Stock
     underlying  4,687,388 shares of 8% Preferred Stock),  shares over which Mr.
     Perlmutter  may be deemed to have shared voting power (which include shares
     of Common Stock  underlying  10,562,661  shares of 8% Preferred  Stock) are
     beneficially  owned by parties  to the  Stockholders'  Agreement  which are
     unaffiliated  with  Mr.  Perlmutter  and  it  is  only  by  reason  of  Mr.
     Perlmutter's  position as a party to the  Stockholders'  Agreement that Mr.
     Perlmutter may be deemed to possess that shared voting power.

(4)  (a)  Shares  over  which  The  Chase  Manhattan  Corporation,   a  Delaware
     corporation, may be deemed to have sole dispositive power are held directly
     by The Chase Manhattan Bank, a New York corporation that is wholly owned by
     The Chase Manhattan Corporation. The Chase Manhattan Bank is a party to the
     Stockholders' Agreement.

     (b)  Except  for the  2,180,334  shares  over  which  The  Chase  Manhattan
     Corporation  may be deemed to have sole  dispositive  power (which  include
     shares of Common Stock  underlying  858,092 shares of 8% Preferred  Stock),
     shares  over which The Chase  Manhattan  Corporation  may be deemed to have
     shared  voting  power  (which  include  shares of Common  Stock  underlying
     10,562,661 shares of 8% Preferred Stock) are beneficially  owned by parties
     to the  Stockholders'  Agreement  which  are  unaffiliated  with The  Chase
     Manhattan  Corporation  and it is only by  reason  of The  Chase  Manhattan
     Bank's  position as a party to the  Stockholders'  Agreement that The Chase
     Manhattan Corporation may be deemed to possess that shared voting power.

                                       30


<PAGE>


(5)  Morgan Stanley is a party to the  Stockholders'  Agreement.  Morgan Stanley
     shares  dispositive  power over  5,163,449  shares with its parent,  Morgan
     Stanley Dean Witter & Co. Except for those 5,163,449  shares (which include
     shares of Common Stock underlying  2,681,047 shares of 8% Preferred Stock),
     shares over which Morgan  Stanley may be deemed to have shared voting power
     (which include shares of Common Stock  underlying  10,562,661  shares of 8%
     Preferred  Stock) are  beneficially  owned by parties to the  Stockholders'
     Agreement  which are  unaffiliated  with  Morgan  Stanley and it is only by
     reason  of  Morgan  Stanley's  position  as a  party  to the  Stockholders'
     Agreement  that Morgan  Stanley may be deemed to possess that shared voting
     power.

(6)  Whippoorwill  may be  deemed  to be the  beneficial  owner of these  shares
     (which include  shares of Common Stock  underlying  2,278,284  shares of 8%
     Preferred Stock) because it has discretionary authority with respect to the
     investments  of, and acts as agent for,  the direct  holders of the shares.
     Whippoorwill  disclaims  any  beneficial  ownership  of Common  Stock or 8%
     Preferred Stock except to the extent of Whippoorwill's  pecuniary  interest
     in that stock, if any. Whippoorwill, as agent of and/or general partner for
     certain institutions and funds, is a party to the Stockholders'  Agreement.
     Figures  include  76,747  shares of Common Stock (which  include  shares of
     Common Stock  underlying  46,545 shares of 8% Preferred Stock) that are not
     subject to the Stockholders' Agreement.

(7)  Timothy G. Ewing, as managing general partner of Value Partners,  Ltd., may
     direct the vote and disposition of the shares  beneficially  owned by Value
     Partners,  Ltd.  and  may  also  direct  the  vote  and  disposition  of an
     additional 1,990 shares of Common Stock that he beneficially owns.

(8)  Based on a Schedule 13G filed with the Securities  and Exchange  Commission
     on  November  12,  1999 by (i) MHR  Institutional  Partners  LP, a Delaware
     limited partnership  ("Institutional  Partners");  (ii) MHRM Partners LP, a
     Delaware  limited  partnership  ("MHRM");  (iii) MHR Capital Partners LP, a
     Delaware limited partnership ("Capital  Partners");  (iv) MHR Institutional
     Advisors  LLC,  a  Delaware  limited  liability   company   ("Institutional
     Advisors") and the general partner of Institutional  Partners and MHRM; (v)
     MHR Advisors LLC, a Delaware limited liability company ("Advisors") and the
     general partner of Capital Partners;  and (vi) Mark H. Rachesky,  M.D., the
     managing member of Institutional Advisors and Advisors. Each party named in
     this footnote has an office at 40 West 57th Street,  33rd Floor,  New York,
     NY 10019.  Figures  include  shares of Common  Stock  underlying  1,957,663
     shares of 8% Preferred Stock.

(9)  Figures  include  33,334  shares of Common Stock  subject to stock  options
     granted  pursuant  to  the  Stock  Incentive  Plan  which  are  immediately
     exercisable.

(10) Figures  include  187,500  shares of Common Stock  subject to stock options
     granted  pursuant  to  the  Stock  Incentive  Plan  which  are  immediately
     exercisable  and 214 shares of Common Stock,  of which Mr. Cuneo  disclaims
     beneficial ownership, owned by Mr. Cuneo's son.

(11) Figures  include  6,667  shares of Common  Stock  subject to stock  options
     granted  pursuant  to  the  Stock  Incentive  Plan  which  are  immediately
     exercisable.

(12) Figures  include  13,334  shares of Common Stock  subject to stock  options
     granted  pursuant  to  the  Stock  Incentive  Plan  which  are  immediately
     exercisable. Does not include shares held by various institutions and funds
     with respect to whose investments  Whippoorwill has discretionary authority
     and for which  Whippoorwill  acts as agent.  Mr. Greenhaus is the president
     and managing director of Whippoorwill.  Mr. Greenhaus disclaims  beneficial
     ownership  of the shares of Common  Stock and 8%  Preferred  Stock owned by
     discretionary accounts managed by Whippoorwill as set forth above except to
     the extent of his pecuniary interest in that stock, if any.

(13) Figures  include  13,334  shares of Common Stock  subject to stock  options
     granted  pursuant  to  the  Stock  Incentive  Plan  which  are  immediately
     exercisable.

(14) Figures  include  216,667  shares of Common Stock  subject to stock options
     granted  pursuant  to  the  Stock  Incentive  Plan  which  are  immediately
     exercisable.

(15) Figures  include  50,000  shares of Common Stock  subject to stock  options
     granted  pursuant  to  the  Stock  Incentive  Plan  which  are  immediately
     exercisable.

(16) Mr.  Ellenbogen  is no longer  employed  by the  Company.  Figures  include
     240,000 shares of Common Stock subject to stock options granted pursuant to
     the Stock Incentive Plan which are immediately exercisable.


                                       31

<PAGE>


(17) Mr. Hardie is no longer employed by the Company.

(18) Mr.  Hull is no longer  employed by the  Company.  Figures  include  66,667
     shares of Common Stock  subject to stock  options  granted  pursuant to the
     Stock Incentive Plan which are immediately exercisable.

(19) Figures  include  625,836  shares of Common Stock  subject to stock options
     granted  pursuant  to  the  Stock  Incentive  Plan  which  are  immediately
     exercisable.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     For  a  description  of  certain  relationships  and  related  transactions
involving  individuals  who served during 1999 on the Board's  Compensation  and
Nominating   Committee   (or  its   predecessor),   see  "Item   11.   Executive
Compensation-Compensation Committee Interlocks and Insider Participation."

Notes Offering

       Morgan  Stanley,  a  beneficial  owner of more  than 5% of the  Company's
Common  Stock,  acted as a placement  agent in the  previously  described  Notes
Offering,  which the Company  completed  on February  25,  1999.  The Notes were
offered  only (i) to  qualified  institutional  buyers  under  Rule  144A of the
Securities Act and (ii) outside the United States in compliance  with Regulation
S. As a placement agent,  Morgan Stanley purchased the Notes from the Company at
a discount.  The Company and certain of its  subsidiaries,  on the one hand, and
the placement agents  (including  Morgan Stanley),  on the other hand, agreed to
indemnify each other against  certain  liabilities in connection  with the Notes
Offering, including liabilities under the Securities Act.

Other Agreements with Affiliates

     On March 5, 1999, the Company  engaged Morgan Stanley to provide  financial
advice and assistance. In exchange for those services, the Company has agreed to
pay Morgan Stanley a fee of $1,750,000.

                                       32

<PAGE>


                                     PART IV

ITEM 14. 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 appearing on page
                            46.

     (b) Reports on Form 8-K. During the last quarter of 1999, the Company filed
the following Current Reports on Form 8-K:

                    1.   Current  Report on Form 8-K  dated  October  14,  1999,
                         reporting Items 5 and 7.

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

                                       33
<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.)

2.2       Asset  Purchase  Agreement  by and among Fleer  Corp.,  Frank H. Fleer
          Corp. and SkyBox International Inc. and Golden Cycle, LLC, dated as of
          January 29,  1999.  (Incorporated  by  reference to Exhibit 2.2 of the
          Company's  Annual Report on Form 10-K for the year ended  December 31,
          1998.)


3.1       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.)

3.2       Bylaws (as  restated  and  amended).  (Incorporated  by  reference  to
          Exhibit 3.2 of the  Company's  Annual Report on Form 10-K for the year
          ended December 31, 1998.)

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       Article VI of the Restated  Certificate of Incorporation  (see Exhibit
          3.1, above), defining the rights of holders of 8% Preferred Stock.

4.3       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.)

4.4       Plan  Warrant  Agreement,  dated as of October 1,  1998,  between  the
          Registrant and American  Stock  Transfer & Trust  Company,  as warrant
          agent.  (Incorporated  by  reference  to Exhibit 4.2 to 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.)

4.5       Class A Warrant  Agreement,  dated as of October 1, 1998,  between the
          Registrant and American  Stock  Transfer & Trust  Company,  as warrant
          agent.  (Incorporated  by  reference  to Exhibit 4.3 to 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.)

4.6       Class B Warrant  Agreement,  dated as of October 1, 1998,  between the
          Registrant and American  Stock  Transfer & Trust  Company,  as warrant
          agent.  (Incorporated  by  reference  to Exhibit 4.4 to 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.)

4.7       Class C Warrant  Agreement,  dated as of October 1, 1998,  between the
          Registrant and American  Stock  Transfer & Trust  Company,  as warrant
          agent.  (Incorporated  by  reference  to Exhibit 4.5 to 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.)

10.1      Revolving  Credit Facility between the Company and Citibank N.A. dated
          as of April 1, 1999. (Incorporated by reference to Exhibit 10.1 to the
          Company's  Quarterly  Report on Form 10-Q for the quarter  ended March
          31, 1999.)

10.2      Security Agreement,  dated as of April 1, 1999, among the Company, the
          subsidiary  guarantors  party thereto and Citibank N.A., as collateral
          agent.  (Incorporated  by reference  to Exhibit 10.2 of the  Company's
          Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.)

10.3      Stockholders' Agreement, dated as of October 1, 1998, by and among the
          Registrant, Avi Arad, the Dickstein Entities (as defined therein), the
          Perlmutter  Entities (as defined  therein),  The Chase Manhattan Bank,
          Morgan  Stanley  &  Co.  Incorporated,  and  Whippoorwill  Associates,
          Incorporated, as agent of and/or general partner for certain accounts.
          (Incorporated  by reference to Exhibit 99.4 to the  Company's  Current
          Report on Form 8-K/A dated and filed with the  Securities and Exchange
          Commission on October 16, 1998.)

                                       34

<PAGE>


10.4      Stock  Purchase  Agreement,  dated as of October 1, 1998, by and among
          the Registrant and 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.,
          and Whippoorwill Associates, Incorporated.  (Incorporated by reference
          to Exhibit 99.3 to the  Company's  Current  Report on Form 8-K/A dated
          and filed with the Securities  and Exchange  Commission on October 16,
          1998.)

10.5      Registration  Rights  Agreement,  dated as of October 1, 1998,  by and
          among the  Registrant,  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 Registrant's  Current Report on Form 8-K/A dated and filed with
          the Securities and Exchange Commission on October 16, 1998.)

10.6      Registration  Rights  Agreement,  dated as of December 8, 1998, by and
          among the  Registrant,  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 Registrants  Annual Report on Form 10-K for the year ended
          December 31, 1998.)

10.7      Registration  Rights Agreement,  dated February 25, 1999, by and among
          the Registrant, certain subsidiaries of the Registrant, Morgan Stanley
          & Co.  Incorporated  and  Warburg  Dillon Read LLC.  (Incorporated  by
          reference to Exhibit  10.5 of the  Company's Annual  Report on Form
          10-K for the year ended December 31, 1998.)

10.8      Lease  dated as of July 1, 1986,  between 387 P.A.S.  Enterprises  and
          Cadence Industries Corporation (9th Floor). (Incorporated by reference
          to Exhibit 10.7 to the Registration  Statement of Marvel Entertainment
          Group, Inc. on Form S-1, File No. 33-40574, dated May 14, 1991.)

10.9      Lease  Modification and Extension  Agreement dated as of July 1, 1991,
          between 387 P.A.S.  Enterprises  and the Marvel  Entertainment  Group,
          Inc. (9th, 10th, 11th and 12th Floors).  (Incorporated by reference to
          Exhibit 10.9 to the Annual Report on Form 10-K of Marvel Entertainment
          Group, Inc. for the fiscal year ended December 31, 1991.)

10.10     Lease,  dated  December  3,  1993,  by and  between  200 Fifth  Avenue
          Associates and the Registrant.  (Incorporated  by reference to Exhibit
          10.4 to the  Company's  Registration  Statement on Form S-1,  File No.
          33-87268.)

10.11     Sublease,  dated  December 19, 1996, by and between  Gruner & Jahr USA
          Publishing and the Registrant.  (Incorporated  by reference to Exhibit
          10.5 to the  Company's  Annual  Report on Form 10-K for the year ended
          December 31, 1996.)

10.12     License Agreement,  dated March 1, 1993, by and between the Registrant
          and Gerber  Products  Company as amended by Amendment  thereto,  dated
          April 5, 1995.  (Incorporated  by  reference  to Exhibit  10.13 to the
          Company's  Registration  Statement on Form S-1, File No.  33-87268 and
          Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the
          quarter  ended  June  30,  1995.)  (Confidential  treatment  has  been
          requested for a portion of this exhibit.)

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

10.14     Separation  Agreement  made  on July  16,  1999  by and  between  Eric
          Ellenbogen and the  Company.(Incorporated by reference to Exhibit 10.3
          of the  Company's  Quartely  Report on Form 10-Q for the quarter ended
          June 30, 1999)*

10.15     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.)*

                                       35

<PAGE>


10.16     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.)*


10.17     Employment  Agreement by and between the Company and Alan Fine,  dated
          as of March 1, 1999. (Incorporated by reference to Exhibit 10.2 to the
          Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
          1999.)*

10.18     Employment  Agreement,  dated as of January 1,  1998,  by and  between
          David J. Fremed and the Company. (Incorporated by reference to Exhibit
          10.1 to the  Company's  Quarterly  Report on Form 10-Q for the  period
          ended September 30, 1998.)*

10.19     Employment  Agreement,  dated as of  October  29,  1999,  between  the
          Company and Richard Ungar.*

10.20     Loan Out Agreement,  dated as of October 29, 1999, between the Company
          and Brentwood Television Funnies, Inc..*

10.21     Employment  Agreement,  dated as of  October  29,  1999,  between  the
          Company and Allen S. Lipson.*

10.22     Employment  Agreement,  dated as of  January  26,  2000,  between  the
          Company and Bill Jemas.*

10.23     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.)*

10.24     Amended and Restated Master Agreement,  dated as of November 19, 1997,
          by and among the Registrant,  certain secured  creditors of Marvel and
          certain  secured  creditors  of  Panini  SpA  and  Amendments  1 and 2
          thereto.  (Incorporated by reference to Exhibit 10.26 of the Company's
          Annual Report on Form 10-K for the year ended December 31, 1997.)

10.25     Amended and  Restated  Proxy and Stock Option  Agreement,  dated as of
          November 19, 1997,  between the Company and Avi Arad  (Incorporated by
          reference to Exhibit 10.2 to the Company's  Current Report on Form 8-K
          dated November 24, 1997).

10.26     Amended and  Restated  Proxy of Stock  Option  Agreement,  dated as of
          November  19,  1997  among  the  Company,   Isaac  Perlmutter,   Isaac
          Perlmutter  T.A.  and Zib Inc.  (Incorporated  by reference to Exhibit
          10.1 to the Company's  Current  Report on Form 8-K dated  November 24,
          1997).

10.27     Commitment  Letter,  dated as of November 19, 1997, by and between the
          Registrant,  Dickstein  Partners Inc., and Zib Inc.  (Incorporated  by
          reference to Exhibit 10.3 to the Company's  Current Report on Form 8-K
          dated November 24, 1997).

10.28     Agreement,  dated as of  November  19,  1997,  by and among  Dickstein
          Partners,  Inc.,  Isaac  Perlmutter,  Avi Arad and  Joseph  M.  Ahearn
          (Incorporated  by reference to Exhibit 10.4 to the  Company's  Current
          Report on Form 8-K dated November 24, 1997).

21        Subsidiaries of the Registrant.

23        Consent of Independent Auditors.

23.1      Consent of Independent Auditors.

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

27        Financial Data Schedule.

* Management contract or compensatory plan or arrangement.

                                       36

<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.

                                    /s/ F. Peter Cuneo
                                 By:-----------------------
                                 F. Peter Cuneo

                                   President and Chief Executive Officer

                                   Date:March 29, 2000


                                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.

Signature                               Title                         Date
---------------        ------------------------------            --------------
/s/F. Peter Cuneo      President, Chief Executive Officer        March 29, 2000
-----------------    and Director (principal executive officer)
F. Peter Cuneo

/s/ David J.Fremed        Senior Vice President and Acting Chief  March 29, 2000
------------------  Financial Officer (principal financial and
David J.Fremed                accounting officer)

/s/ Morton E. Handel    Chairman of the Board of Directors        March 27, 2000
--------------------
Morton E. Handel

/s/ Avi Arad                    Director                          March 27, 2000
------------------
Avi Arad

/s/Sid Ganis                    Director                          March 28, 2000
------------------
Sid Ganis

/s/ Shelley F. Greenhaus        Director                          March 27, 2000
------------------------
Shelley F. Greenhaus

                                Director                          March   , 2000
-------------------
James F. Halpin

                                Director                          March   , 2000
--------------------
Michael M. Lynton

/s/ Lawrence Mittman            Director                          March 28, 2000
---------------------
Lawrence Mittman

/s/ Isaac Perlmutter            Director                          March 28, 2000
---------------------
Isaac Perlmutter

/s/ Rod Perth                   Director                          March 24, 2000
---------------------
Rod Perth

/s/Michael J. Petrick           Director                          March 29, 2000
--------------------
Michael J. Petrick

                                       37

<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                        AND FINANCIAL STATEMENTS SCHEDULE
<TABLE>
<CAPTION>

 Marvel Enterprises, Inc. (f/k/a Toy Biz, Inc.)                                                             Page
----------------------------------------------                                                              -----
<S>                                                                                             `           <C>

Report of Independent Auditors..........................................................................     F-2
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1999...............................     F-3
Consolidated Statements of Operations for the years ended December 31, 1997, 1998, and 1999.............     F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1998, and
   1999.................................................................................................     F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998, and 1999.............     F-6
Notes to Consolidated Financial Statements..............................................................     F-7


Financial Statement Schedule

-----------------------------
Schedule II-Valuation and Qualifying Accounts...........................................................    F-33

</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.  (formerly Toy Biz, Inc.) and subsidiaries as of December 31,
1999  and  1998,  and  the  related   consolidated   statements  of  operations,
stockholders'  equity,  and cash flows for each of the three years in the period
ended  December  31, 1999.  Our audits also  included  the  Financial  Statement
Schedule  listed in the Index at Item  14(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.  and  subsidiaries  at December  31,  1999 and 1998,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles  generally accepted in the United States.  Also, in our opinion,  the
related financial statement  schedule,  when considered in relation to the basic
financial  statements taken as a whole,  present fairly in all material respects
the information set forth therein

                                                        /S/ ERNST & YOUNG LLP

New York, New York
February 8, 2000

                                       F-2

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>


                                                                                     December 31,    December 31,
                                                                                        1998           1999
                                                                                     ------------    ----------
                                                                                       (in thousands, except
                                                                                          share data)
<S>                                                                                  <C>             <C>
ASSETS
Current assets:

  Cash and cash equivalents......................................................      $   43,691      $64,814
  Accounts receivable, net.......................................................          50,312       55,841
  Inventories, net ..............................................................          32,598       39,385
  Assets held for resale ........................................................          26,000         --
  Income tax receivable .........................................................           7,396         --
  Deferred income taxes, net ....................................................             538        7,042
  Deferred financing costs.......................................................           8,281        1,384
  Prepaid expenses and other.....................................................           3,768        4,443
                                                                                     ------------     --------
        Total current assets....................................................          172,584      172,909
 .
Molds, tools and equipment, net..................................................          15,548       17,226
Product and package design costs, net ...........................................           5,909        6,949
Goodwill and other intangibles, net .............................................         487,731      440,361
Income tax receivable ...........................................................            --          1,327
Deferred charges and other assets................................................           5,053        6,512
Deferred financing costs.........................................................            --          9,353
Deferred income taxes, net ......................................................           3,079         --
                                                                                     -------------    --------

        Total assets.............................................................       $ 689,904     $654,637
                                                                                     ============     ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable...............................................................       $   7,294     $  9,613
  Accrued expenses and other ....................................................          70,672       53,380
  Borrowings.....................................................................         200,000         --
  Administrative claims payable..................................................          19,914        9,507
  Unsecured creditors payable ...................................................           8,096        8,490
                                                                                      -----------     --------
        Total current liabilities................................................         305,976       80,990
Senior notes.....................................................................            --        250,000
Panini liability ................................................................          27,000         --
Deferred income taxes  ..........................................................            924         1,094
                                                                                      -----------     --------
        Total liabilities........................................................         333,900      332,084
                                                                                      -----------     --------
8%  cumulative  convertible  exchangeble  redeemable  preferred stock,  $.01 par
    value,  75,000,000 shares  authorized,  17,238,000 issued and outstanding in
    1998 and  18,677,460  issued and 186,790  outstanding  in 1999,  liquidation
    preference $10 per share.....................................................         172,380      186,790
                                                                                      -----------     --------

Stockholders' equity

Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued.......              --         --
Common stock, $.01 par value, 250,000,000 shares authorized, 40,846,127 issued
    and 33,452,127 outstanding in 1998 and 40,951,241 issued and 33,557,241
    outstanding in 1999..........................................................             408          409
Additional paid-in capital.......................................................         215,035      215,184
Retained earnings(deficit).......................................................           1,136      (46,875)
                                                                                     ------------     --------
        Total stockholders' equity before treasury stock.........................         216,579      168,718
Treasury stock, 7,394,000 shares.................................................         (32,955)     (32,955)
                                                                                     -------------    ---------
        Total stockholders' equity ..............................................         183,624      135,763
                                                                                     ------------     --------

        Total liabilities, redeemable convertible preferred stock and
            stockholders' equity.................................................       $ 689,904    $ 654,637
                                                                                       =========    =========
</TABLE>
                 See Notes to Consolidated Financial Statements.

                                       F-3

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)


                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>


                                                                          Years Ended December 31,
                                                                       ------------------------------

                                                                       1997          1998         1999
                                                                      -----------  ---------     ----------
                                                                      (in thousands, except per share data)
<S>                                                                   <C>          <C>           <C>
Net sales.........................................................    $ 150,812    $ 232,076     $319,645
Cost of sales.....................................................      106,951      127,978      150,858
                                                                        ---------  ----------     -------
Gross profit......................................................       43,861      104,098      168,787
Operating expenses:                                                     ---------  ----------    --------
     Selling, general and administrative..........................       72,081       97,135      124,596
     Depreciation and amortization................................       20,548       19,332       18,078
     Amortization of goodwill and other intangibles...............          520        7,091       25,857
                                                                        ---------  ----------    --------
          Total expenses..........................................       93,149      123,558      168,531
                                                                        ---------  ----------    --------
Operating (loss) income...........................................       (49,288)    (19,460)         256
Interest expense..................................................          (776)     (9,440)     (32,077)
Other income, net.................................................           414         676        4,043
                                                                        ---------  ----------    ---------
     Loss before income taxes.....................................       (49,650)    (28,224)     (27,778)
     Income tax (benefit) expense ................................       (20,185)      4,386        4,482
                                                                        ---------  ----------    ---------
          Net loss before extraordinary item......................      $(29,465)  $ (32,610)    $(32,260)
Extraordinary item, net of tax benefit of $1,021..................          --           --         1,531
                                                                        ---------  ----------    ----------
        Net loss..................................................      $(29,465)  $ (32,610)    $ (33,791)
                                                                        ---------  ----------    ----------
Less: preferred dividend requirement..............................            71       3,380        14,220
                                                                        ---------  ----------    ----------
     Net loss attributable to Common Stock........................      $(29,536)  $ (35,990)    $ (48,011)
                                                                        =========  ==========    ==========
Basic and diluted net loss per common share:

   Net loss before extraordinary item.............................       $ (1.06)    $ (1.23)    $   (1.39)
   Extraordinary item.............................................           --           --     $   (0.04)
                                                                        ---------  ----------    ----------
   Net loss.......................................................       $ (1.06)    $ (1.23)    $   (1.43)
                                                                         ========  ==========    ==========
   Weighted average number of common shares outstanding...........        27,746      29,173        33,533

</TABLE>

                 See Notes to Consolidated Financial Statements.












                                       F-4

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)


                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>


                                               Common     Common  Additional   Retained
                                               Stock      Stock    Paid-In     Earnings   Treasury
                                               Shares     Amount   Capital    (Deficit)    Stock     Total
                                              --------    ------  --------   ----------   --------  ---------
                                                                (in thousands)
<S>                                           <C>         <C>     <C>        <C>          <C>       <C>
Balance at December 31, 1996................    27,743     $277    $70,587    $66,591         --     $137,455
Exercise of stock options...................         3       --         62        --          --           62
Accretion of redeemable preferred stock.....       --        --        (71)       --          --          (71)
Net loss....................................       --        --         --    (29,465)        --      (29,465)
                                              --------    ------  ---------  ----------   --------   ---------

Balance at December 31, 1997................    27,746      277     70,578     37,126         --      107,981
Capital contribution........................       --        --      1,500        --          --        1,500
Capital transactions in connection with
   acquisition
     Issuance of common stock...............    13,100      131    125,957        --          --      126,088
     Valuation of warrants..................       --        --     17,000        --          --       17,000
     Acquisition of treasury stock..........    (7,394)      --        --         --      (32,955)    (32,955)
Preferred dividend declared.................       --        --        --      (3,380)        --       (3,380)
Net loss....................................       --        --        --     (32,610)        --      (32,610)
                                              --------    ------- ----------  ---------  ----------   --------
Balance at December 31, 1998................    33,452     $408   $215,035     $1,136    $(32,955)    $183,624
Issuance of common stock....................        80        1        --         --          --             1
Exercise of stock purchase warrants.........        25       --        147        --          --           147
Stock warrants exercised by stockholders.....       --       --          2        --          --             2
Preferred dividend declared.................        --       --         --     (14,220)       --       (14,220)
Net loss....................................        --       --         --     (33,791)       --       (33,791)
                                              --------    ------- ----------  ---------  ------------  -------

Balance at December 31, 1999................     33,557   $ 409   $215,184    $(46,875)   $(32,955)   $135,763
                                              =========   ======  =========   =========   =========   ========

</TABLE>


                 See Notes to Consolidated Financial Statements.


                                       F-5

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

<TABLE>
<CAPTION>


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                           Years Ended December 31,
                                                                       -------------------------------

                                                                          1997        1998       1999
                                                                       ---------  ---------  ----------
                                                                                (in thousands)
<S>                                                                    <C>        <C>        <C>

Net loss............................................................   $(29,465)  $(32,610)  $ (33,791)
Adjustments to reconcile net loss to net cash provided
   by operating activities:
     Depreciation and amortization...................................    21,068     26,423      43,935
     Provision for doubtful accounts.................................      --          409       1,721
     Deferred financing charges......................................      --        2,596       2,888
     Deferred income taxes...........................................    (1,321)     7,494       2,922
     Extraordinary item, net.........................................      --         --         1,531
     Changes in operating assets and liabilities:
          Accounts receivable........................................    45,076     12,774      (7,544)
          Inventories................................................    (2,452)    (7,317)     (6,798)
          Income tax receivable......................................   (17,542)    10,146       6,069
          Prepaid expenses and other.................................      (581)     2,953        (774)
          Deferred charges and other assets..........................       --      (4,918)     (2,315)
          Accounts payable, accrued expenses and other ..............    (2,032)    24,034      (7,029)
                                                                       ---------  ----------   ---------
Net cash provided by operating activities............................    12,751     41,984         815
                                                                       ---------  ---------    ---------

Cash flow used in investing activities:

     Acquisition of Marvel Entertainment Group, net of cash received.      --      (257,865)        --
     Payment of administrative claims, net...........................      --       (12,985)    (10,013)
     Net proceeds from sale of Fleer and settlement of Panini........      --         --         11,980
     Purchases of molds, tools and equipment.........................   (12,448)    (10,702)    (13,660)
     Expenditures for product and package design costs...............    (5,169)     (4,955)     (7,136)
     Patents.........................................................      (127)     (1,668)       (181)
     (Purchase) sale of Colorforms assets............................    (4,556)      2,786         --
                                                                       ---------  ----------   ----------
     Net cash used in investing activities...........................   (22,300)   (285,389)     (19,010)
                                                                       ---------  ----------   ----------

Cash flow from financing activities:

     Proceeds from (payment of) bridge facility......................      --       200,000     (200,000)
     Proceeds from Senior Notes offering, net of offering costs
        of $11,022...................................................      --         --         238,978
     Exercise of stock options.......................................        62       --             147
     Issuance of Common Stock........................................      --         --               1
     Net borrowings (repayments) under credit agreement..............    12,000    (12,000)          --
     Redemption of Preferred Stock...................................      (939)      --             --
     Proceeds from capital contribution..............................       --       1,500           --
     Proceeds from Preferred Stock offering..........................       --      90,000           --
     Proceeds from exercise of Stock Warrants........................       --        --             192
                                                                      ----------  ----------   ---------
     Net cash provided by financing activities.......................    11,123    279,500        39,318
                                                                      ----------  ----------   ---------
     Net increase in cash and cash equivalents.......................     1,574     36,095        21,123
     Cash and cash equivalents at beginning of year..................     6,022      7,596        43,691
                                                                      ----------  ----------   ---------
     Cash and cash equivalents at end of year........................ $   7,596    $43,691       $64,814
                                                                      ==========  ==========   ==========

Supplemental disclosure of cash flow information:

     Interest paid during the period.................................     $ 820    $ 5,302       $29,768
     Net income taxes recovered during the year......................      (476)   (12,594)       (4,172)
Other non-cash transactions:
     Preferred stock dividends.......................................        71      3,380        14,220

     Issuance of securities in connection with the acquisition of
        Marvel Entertainment Group, Inc., and treasury stock.........        --    189,133          --

</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       F-6

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1999

1.       Description of Business and Basis of Presentation

     The Company  designs,  markets and distributes  boys',  girls',  preschool,
activity  and  electronic  toys based on popular  entertainment  properties  and
consumer brand names. The Company also designs,  markets and distributes its own
line  of  proprietary  toys.  The  Company's  toy  business  is  conducted  both
domestically and internationally. Through its acquisition of MEG in 1998, one of
the  world's  most  prominent  character-based  entertainment  companies  with a
proprietary  library of over 4,500  characters,  the  Company  has  entered  the
licensing and comic book publishing businesses domestically and internationally.

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

     Toy Biz,  Inc.  was formed on April 30, 1993  pursuant  to a Formation  and
Contribution  Agreement ( "Formation Agreement "), entered into by a predecessor
company to Toy Biz, Inc. (the "Predecessor Company "), Mr. Isaac Perlmutter (the
sole stockholder of the Predecessor  Company),  MEG and Avi Arad ( "Mr. Arad ").
The  Predecessor  Company had been MEG's largest toy licensee.  The  Predecessor
Company was incorporated in 1990,  pursuant to an asset purchase  agreement with
Charan Industries, Inc.

     In  accordance  with  the  Formation  Agreement,  the  Predecessor  Company
contributed  all of its and an  affiliate's  assets  ($23,335,000)  and  certain
specified liabilities  ($21,949,000) to Toy Biz, Inc. for 44% of Toy Biz, Inc.'s
capital stock. Such specified liabilities included approximately $15,363,000 due
to Mr. Perlmutter and other affiliated  companies of the Predecessor  Company. A
portion  of the  assumed  liabilities  due to Mr.  Perlmutter  was  paid in cash
($8,752,000) and the remainder of the assumed  liabilities due to Mr. Perlmutter
was  converted  into  a  promissory  note  ($6,611,000).   MEG  made  a  capital
contribution of $500,000 for 46% of Toy Biz, Inc.'s capital stock and a loan, in
the form of a note,  of  $8,507,000.  In addition,  MEG granted Toy Biz, Inc. an
exclusive,  perpetual and paid up license to design and distribute toys based on
MEG  characters.  Pursuant  to the  Formation  Agreement,  in  exchange  for the
contribution  to Toy Biz,  Inc. of his interests in certain  license  agreements
with Toy Biz, Inc. and cash,  Mr. Arad received 10% of Toy Biz,  Inc.'s  capital
stock.  In addition,  Toy Biz, Inc.  granted Mr. Arad the Arad Stock Option (the
"Option") to acquire an additional 10% of Toy Biz,  Inc.'s  capital  stock.  Mr.
Arad also  agreed to enter  into the Arad  Consulting  Agreement  and the Master
License Agreement.

     On  October  1,  1998,  pursuant  to  the  Fourth  Amended  Joint  Plan  of
Reorganization  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  results  of the  acquired  business  have been  included  in the  Company's
consolidated  results of operations from October 1, 1998. 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.
                            (formerly Toy Biz, Inc.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

     In accordance  with the Plan,  the Toy Biz, Inc.  stockholders,  other than
MEG, immediately after the Reorganization  continued to own approximately 40% of
the outstanding  common stock of the Company  (assuming the conversion of all of
the shares of 8% Cumulative  Convertible  Exchangeable Preferred Securities (the
8% Preferred Stock") issued by the Company pursuant to the Plan but not assuming
the exercise of any warrants issued pursuant to the Plan) and the senior secured
lenders of MEG received (i) approximately $231.8 million in cash and (ii) common
and 8% Preferred  Stock issued by the Company which  (assuming the conversion of
all 8% Preferred Stock) represent  approximately  42% of the common stock of the
Company.  Investors  purchased  9.0 million  shares of 8% Preferred  Stock that,
represent  approximately  18% of the common stock of the Company  (assuming  the
conversion  of all 8%  Preferred  Stock).  Under the Plan,  holders  of  allowed
unsecured  claims of MEG  ("Unsecured  Creditors")  will  receive (i) up to $8.0
million in cash and (ii) between 1.0 million and 1.75 million  warrants having a
term of four years and  entitling  the holders to purchase  common  stock of the
Company  at $17.25  per  share.  The exact  amount  of cash and  warrants  to be
distributed  to the Unsecured  Creditors  will be determined by reference to the
aggregate amount of allowed unsecured claims. In addition,  Unsecured  Creditors
will receive (i)  distributions  from any future recovery on certain  litigation
and (ii) a portion of the Stockholder Warrants as described below.  Finally, the
Plan provides that three other series of warrants (the  "Stockholder  Warrants")
will be distributed to the Unsecured  Creditors,  to former holders of shares of
MEG common  stock,  to holders of certain  class  securities  litigation  claims
arising in  connection  with the  purchase  and sale of MEG common  stock and to
LaSalle  National  Bank.  The  Stockholder  Warrants  consist of (a)  three-year
warrants to purchase 4.0 million shares of common stock of the Company at $12.00
per share, (b) six-month warrants to purchase 3.0 million shares of 8% Preferred
Stock for $10.65 per share  subject to increase  based upon the date of issuance
of the  six-month  warrants and (c)  four-year  warrants to purchase 7.0 million
shares of common stock of the Company at $18.50 per share. The recipients of the
Stockholder  Warrants  will also be entitled to receive  distributions  from any
future recovery on certain  litigation.  Certain other cash  distributions  were
also  provided  for by the  Plan in  connection  with  settling  certain  of the
disputes arising out of MEG's bankruptcy.

     In  accordance  with the Plan,  two  litigation  trusts  were formed on the
consummation  date of the Plan. Each litigation  trust is now the legal owner of
litigation  claims  that  formerly  belonged  to MEG and its  subsidiaries.  The
primary  purpose of one of the trusts (the "Avoidance  Litigation  Trust") is to
pursue bankruptcy  avoidance claims. The primary purpose of the other trust (the
"MAFCO Litigation  Trust") is to pursue certain litigation claims against Ronald
O. Perelman and various related entities and individuals. The Company has agreed
to lend up to $1.1  million  to the  Avoidance  Litigation  Trust and up to $1.0
million to the MAFCO Litigation Trust, in each case on a revolving basis to fund
the trust's  professional fees and expenses.  Each litigation trust is obligated
to reimburse the Company for all sums advanced, with simple interest at the rate
of 10% per year.  Net  litigation  proceeds of each trust will be distributed to
the trust's beneficiaries only after the trust has, among other things, paid all
sums owed to the Company,  released the Company from any further  obligation  to
make loans to the trust,  and  established  reserves to satisfy  indemnification
claims.  The Company is entitled to 65.1% of net  litigation  proceeds  from the
Avoidance  Litigation  Trust.  The Company is not entitled to any net litigation
proceeds from the MAFCO Litigation Trust.

                                       F-8

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

     The  preliminary  purchase  price of MEG,  including  related fees,  net of
liabilities   assumed,   was   approximately   $446.9   million  which  included
approximately  $257.9  million in cash and the  remainder in  securities  of the
Company  as  outlined  above,  net of  shares  of the  Company  owned by MEG and
reacquired  in  these  transactions.  Goodwill  from  the  acquisition  will  be
amortized over 20 years.

     During 1999,  the Company  finalized  certain  preliminary  portions of the
purchase  price  allocation  relating to its  acquisition of MEG. The final fair
value of the assets and liabilities acquired is summarized below.

<TABLE>
<CAPTION>


                                              (in  thousands)
        <S>                                    <C>

        Current assets...................      $ 42,851
        Noncurrent assets................         4,971
        Goodwill and other intangible
              assets.........................   462,180
        Current liabilities..............       (55,952)
        Non-current liabilities..........       (11,180)
                                               ---------
                                               $ 442,870
                                               =========
</TABLE>

     In the  preliminary  allocation  of the  purchase  price as of December 31,
1998, Fleer/SkyBox  ("Fleer"),  MEG's subsidiaries engaged in the sale of sports
and entertainment trading cards, was presented as an asset held for sale and the
Company's maximum liability relating to Panini  S.p.A.("Panini"),  MEG's Italian
subsidiary  engaged  in the  children's  activity  sticker  and  adhesive  paper
business,  was presented as a long-term  liability on the  consolidated  balance
sheet as of December 31, 1998. In February 1999, the Company sold  substantially
all of the  assets of Fleer for  approximately  $23.2  million,  in cash,  after
adjustments   and  assumption  of  certain   liabilities.   Proceeds  from  this
transaction  were partially used to repay the bridge facility with the remainder
used for working  capital  purposes.  On October 8, 1999,  the Company  received
nominal  consideration for its equity interest in Panini. In connection with the
sale,  the Company made a payment to Panini's  secured  lenders of $11.2 million
and obtained a release from the maximum liability,  a $27.0 million guarantee of
Panini's debt in favor of such secured lenders.

     The completion of the purchase price allocation  resulted in a net decrease
in goodwill of $21,694.  The  Company's  results of  operations  for the periods
presented do not include the results of operations of Fleer and Panini.

     Presented  below are the unaudited pro forma results of the Company  giving
effect to the acquisition of MEG as if it has occurred as of January 1, 1997:

                                       F-9

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

<TABLE>
<CAPTION>

                                                    For the Year Ended
                                                      December 31,
                                                   --------------------
                                                        1997     1998
                                                     ---------  -------
                                                     (in millions, except
                                                          per share)
            <S>                                      <C>        <C>

            Net sales..........................        $220.3   $274.5
            Operating loss.....................         (79.4)   (33.9)
            Net loss...........................         (96.1)   (81.0)
            Basic and diluted loss per share...         (3.28)   (2.82)
</TABLE>


2.   Summary of Significant Accounting Policies

Principles of Consolidation

     The consolidated  financial  statements include the accounts of the Company
and its  subsidiaries,  except for Panini  and Fleer . Upon  consolidation,  all
significant intercompany accounts and transactions are eliminated.

Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  The principal  areas of judgement  relate to provisions  for
returns,  other sales  allowances and doubtful  accounts,  the  realizability of
inventories,  goodwill and other intangible  assets,  and the impairment reserve
for minimum royalty guarantees and minimum advances, molds, tools and equipment,
and product and package  design  costs.  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.

                                      F-10

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

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.  At December 31, 1999, certain
of these costs  related to products  that were not yet in production or were not
yet being sold by the Company.  For financial reporting  purposes,  depreciation
and  amortization  is  computed by the  straight-line  method  generally  over a
three-year period (the estimated selling life of related products) for molds and
tooling  costs and over the useful 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, 1997, 1998 and 1999 were approximately  $2,174,000,  $1,418,000 and $146,000
respectively.

Product and Package Design Costs

     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.
At December 31, 1999,  certain of these costs  related to products that were not
yet in  production  or were not yet being  sold by the  Company.  For  financial
reporting  purposes,  amortization  of product and package design is computed by
the  straight-line  method  generally  over a 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,  1997,  1998  and  1999  was
approximately $1,230,000, $1,425,000 and $486,000 respectively.

Goodwill and Other Intangibles

     Goodwill  and  other  intangibles  are  stated  at  cost  less  accumulated
amortization.  Goodwill  is  principally  amortized  over  20  years  and  other
intangibles  are amortized over 3 to 10 years.  For the years ended December 31,
1997,  1998 and  1999,  amortization  of  goodwill  and  other  intangibles  was
approximately $520,000, $7,091,000 and $25,857,000 respectively.

                                      F-11

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999



Long-Lived Assets

     In accordance with Financial  Accounting Standards Board ("FASB") Statement
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", 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, are amortized over the term of the related agreements.

Research and Development

     Research  and  development  ("R&D")  costs are  charged  to  operations  as
incurred.  For the years ended  December 31, 1997,  1998 and 1999,  R&D expenses
were $4,599,000, $4,498,000 and $6,366,000 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.  In  certain  cases,  sales  made  on  a
returnable  basis are recorded net of provisions  for estimated  returns.  These
estimates  are revised as  necessary  to reflect  actual  experience  and market
conditions.

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

     Income from  distribution  fees,  licensing and sub-licensing of characters
owned by the Company are recorded in accordance with the distribution  agreement
and at the time  characters  are  available to the licensee  and  collection  is
reasonably assured. Receivables from licensees due more than one year beyond the
balance sheet date are  discounted to their present  value.  For the years ended
December  31,  1997,  1998 and 1999,  toy  distribution  fees and  sub-licensing
revenues were $3,265,000, $1,250,000 and $337,000 respectively.

                                      F-12

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999


Advertising Costs

     Advertising  production costs are expensed when the  advertisement is first
run. Media  advertising costs are expensed on the projected unit of sales method
during interim  periods.  For the years ended December 31, 1997,  1998 and 1999,
advertising   expenses   were   $27,910,000,    $31,762,000   and   $39,267,000,
respectively.  At December 31, 1998 and 1999 the Company had  incurred  $469,000
and $1,307,000  respectively,  of prepaid advertising costs, principally related
to production of  advertisement  that will be first run in fiscal 1999 and 2000,
respectively

Royalty Expense

     Minimum  guaranteed  royalties,  as well as  royalties in excess of minimum
guarantees,  are expensed based on sales of related products.  The realizability
of advanced  minimum  guarantees  paid is evaluated by the Company  based on the
projected sales of the related products.

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.

Foreign Currency Translation

     The financial position and results of operations of the Company's Hong Kong
and Mexican  subsidiaries  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,
which were not material,  arising from the use of differing  exchange  rates are
included in the results of operations.

Fair Value of Financial Instruments

     The fair value of all  financial  instruments  approximate  their  carrying
value based on their stated interest rate compared to prevailing rates available
to the Company at December 31, 1999.

                                      F-13

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

Concentration of Risk

     A large number 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 "most
favored nation" status of China, which is reviewed annually by the United States
government,  is a regular topic of political dialogue. The loss of China's "most
favored  nation"  would  increase  the cost of  importing  products  from  China
significantly, which could have a material adverse effect on the Company.

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

Loss Per Share

     In accordance with SFAS No. 128 "Earnings Per Share",  basic loss per share
is  computed  by  dividing  net loss  available  to common  stockholders  by the
weighted average number of shares of common stock  outstanding  during the year.
The  computation of diluted  earnings per share is similar to the computation of
basic loss per share,  except the  number of shares is  increased  assuming  the
exercise of dilutive  stock options and warrants and other  dilutive  securities
using the treasury stock method, unless the effect is anti-dilutive.

Comprehensive Income

     In June 1997, the Financial Accounting Standards Board issued Statement No.
130 ("SFAS 130"), Reporting Comprehensive Income. The Company's adoption of SFAS
130 had no effect on the Company as the Company does not have any  comprehensive
income items.

Recent Accounting Pronouncements

     SFAS No. 133, ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND HEDGING ACTIVITIES
- In June  1998,  the  Financial  Standards  Board  issued  Statement  No.  133,
Accounting for Derivative Instruments and Hedging Activities,  which is required
to be adopted  beginning in fiscal 2000.  The statement will require the Company
to recognize all  derivatives  on the balance  sheet at fair value.  Derivatives
that are not hedges  must be  adjusted  to fair  value  through  income.  If the
derivative  is a hedge,  depending  on the nature of the hedge,  changes in fair
value of  derivatives  will either be offset against the change in fair value of
the  hedged  assets,  liabilities,  or  firm  commitments  through  earnings  or
recognized in other comprehensive  income until the hedged item is recognized in
earnings.  Management does not anticipate that the adoption of the new Statement
will have a  significant  effect on  earnings or the  financial  position of the
Company.

                                      F-14

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999


     SOP 98-1,  ACCOUNTING FOR COSTS OF COMPUTER SOFTWARE  DEVELOPED OR OBTAINED
FOR INTERNAL USE is required to be adopted by the Company as of January 1, 2000.
The Company's  current  policy falls within  guidelines of SOP 98-1.  Also,  SOP
98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES is required to be adopted by
the Company as of January 1, 1999.  Management believes that the adoption of SOP
98-5 will not have a material impact on the Company's financial statements.

Reclassifications

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

3.   Assets Held for Resale

     Shortly after the acquisition of MEG, the Company  concluded that Fleer did
not fit the Company's  long-term  strategy and the Company decided to dispose of
this  operation.  On February 11, 1999,  the Company sold  substantially  all of
Fleer's assets for  approximately  $23.2 million in cash, after  adjustments and
assumptions of certain liabilities.  $15.0 million of the proceeds were utilized
to repay the Bridge Facility. The Company remains liable under certain contracts
of the Fleer business and has been  indemnified  against such liabilities by the
purchaser of such business.  In its preliminary  purchase price allocation,  the
Company estimated the fair value of Fleer's net assets to be $26.0 million.  The
difference  between this amount and the actual  proceeds was accounted for as an
adjustment to goodwill.

                                      F-15

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

4.   Details of Certain Balance Sheet Accounts
<TABLE>
<CAPTION>

                                                                               December 31,
                                                                        ------------------------
                                                                           1998           1999
                                                                        -----------    ---------
                                                                              (in thousands)
<S>                                                                     <C>            <C>

Accounts receivable, net, consists of the following:

   Accounts receivable................................................  $ 75,235        $84,353
   Less allowances for:
     Doubtful accounts................................................    (3,608)        (3,951)
     Advertising, markdowns, returns, volume discounts and other......   (21,315)       (24,561)
                                                                        -----------    ----------

          Total.......................................................  $ 50,312        $55,841
                                                                        ===========    ==========

Inventories, net, consist of the following:
   Toys:
     Finished goods...................................................   $24,685        $31,397
     Component parts, raw materials and work-in-process...............     3,977          4,787
                                                                        ----------      ---------
          Total Toys..................................................    28,662         36,184
   Publishing:
     Finished goods...................................................       754            --
     Editorial and raw materials......................................     3,182          3,201
                                                                        ----------      ---------
          Total publishing............................................     3,936          3,201
                                                                        ----------      ---------

          Total.......................................................   $32,598        $39,385
                                                                        ==========      =========

Molds, tools and equipment, net, consists of the following:

   Molds, tools and equipment.........................................   $21,465        $23,047
   Office equipment and other.........................................     9,121         10,189
   Less accumulated depreciation and amortization.....................   (15,038)       (16,010)
                                                                        ----------      ---------

          Total.......................................................   $15,548        $17,226
                                                                        ==========      =========

Product and package design costs, net, consists of the following:

   Product design costs...............................................    $8,125         $8,856
   Package design costs...............................................     3,567          3,868
   Less accumulated amortization......................................    (5,783)        (5,775)
                                                                        ----------      ---------
          Total.......................................................    $5,909        $ 6,949
                                                                        ==========      =========

Goodwill and other intangibles, net, consists of the following:

   Goodwill...........................................................  $492,424        $470,729
   Patents and other intangibles......................................     3,726           3,902
   Less accumulated amortization......................................    (8,419)        (34,270)
          Total.......................................................  $487,731        $440,361
                                                                        ==========      =========

Accrued expenses and other consists of the following:

   Accrued advertising costs..........................................    $8,183        $  6,787
   Accrued royalties..................................................     9,584           8,197
   Inventory purchases................................................     7,389           5,547
   Deferred financing costs...........................................     4,000             --
   Income taxes payable...............................................     4,709           4,366
   Deferred income taxes .............................................     2,693           5,948
   Litigation Trust accrual...........................................     2,100             675
   Other accrued expenses.............................................    32,014          21,860
                                                                        ----------      --------
          Total.......................................................   $70,672        $ 53,380
                                                                        ==========      ========
</TABLE>

                                      F-16

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999



5.   Debt Financing

     To partially  finance the acquisition of MEG, the Company obtained a $200.0
million loan (the "Bridge  Facility")  from UBS AG,  Stamford Branch ("UBS AG").
The Bridge Facility bore interest at either the bank's base rate (defined as the
higher of the prime rate or the sum of 1/2 of 1% plus the  Federal  Funds  Rate)
plus 5.50% or at the  Eurodollar  rate plus 6.50%.  On September  28, 1998,  the
Company and UBS AG entered an agreement  for a $50.0  million  Revolving  Credit
Facility ("UBS Credit Facility").  The Company incurred a commitment fee for the
Bridge Facility and the UBS Credit Facility.

     The UBS Credit  Facility  bears  interest  at either  the bank's  base rate
(defined  as the  higher  of the  prime  rate or the  sum of 1/2 of 1% plus  the
Federal Funds Rate) plus a margin  ranging from 0.75% to 1.25%  depending on the
Company's financial  performance or at the Eurodollar rate plus a margin ranging
from 1.75% to 2.25% depending on the Company's  financial  performance.  The UBS
Credit Facility  requires the Company to pay a commitment fee of 0.50% per annum
on the  average  daily  unused  portion  of the  facility.  There  have  been no
borrowings under the UBS Credit  Facility.  The Company had  approximately  $1.6
million in letters of credit  outstanding as of December 31, 1998,  which reduce
the available amount under the UBS Credit Facility.  UBS's commitment to advance
funds and  issue  letters  of credit  under  the UBS  Credit  Facility  has been
terminated effective as of February 3, 1999.

     The Bridge  Facility and the UBS Credit Facility were secured by all of the
Company's assets (other than Panini) and contained various financial  covenants,
as  well  as  restrictions  on  new   indebtedness,   acquisitions  and  similar
investments,  the sale or transfer of assets,  capital expenditures,  restricted
payments, payment of dividends, issuing guarantees and creating liens.

         On February 25, 1999, the Company  completed a $250.0 million  offering
of senior  notes  (the  "Senior  Notes")  in a  private  placement  exempt  from
registration  under the Securities Act of 1933 ("the Act") pursuant to Rule 144A
under the Act. Net proceeds of approximately $239.0 million were used to pay all
outstanding  balances  under the Bridge  Facility and for working  capital.  The
Senior  Notes are due June 15,  2009 and bear  interest  at 12% per  annum.  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 on June 15, 2007.  In addition,  35% of the Senior
Notes may, under certain circumstances, be redeemed before June 15, 2002 at 112%
of the principal amount,  plus accrued  interest.  Principal and interest on the
Senior Notes are  guaranteed  on a senior basis jointly and severally by each of
the Company's domestic  subsidiaries.  On August 20, 1999, the Company completed
an exchange  offer under which it exchanged  virtually  all of the Senior Notes,
which  contained  restrictions  on transfer,  for an equal  principal  amount of
registered,  transferable  notes whose terms are identical in all other material
respects to the terms of the Senior Notes.

         In  February  1999,  in  connection  with the  repayment  of the Bridge
Facility and the termination of the UBS Credit Facility, the Company recorded an
extraordinary  charge of approximately $1.5 million,  net of tax benefit for the
write-off of deferred financing costs associated with these two facilities.

                                      F-17

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

         On April 1, 1999, the Company and Citibank,  N.A.  ("Citibank") entered
an agreement for a $60.0 million  Revolving  Credit Facility  ("Citibank  Credit
Facility").  The Citibank  Credit  Facility  bears interest at either the bank's
base rate  (defined as the higher of the prime rate or the sum of 1/2 of 1% plus
the Federal Funds Rate) plus a margin  ranging from 0.75% to 1.25%  depending on
the Company's  financial  performance  or at the  Eurodollar  rate plus a margin
ranging from 2.25% to 2.75%  depending on the Company's  financial  performance.
The Citibank  Credit  Facility  requires the Company to pay a commitment  fee of
0.625% per annum on the average  daily  unused  portion of the  facility  unless
there is at least $20.0 million outstanding borrowings in which case the rate is
0.50% per annum for the amount outstanding above $20.0 million.  The Company has
not borrowed under the Citibank Credit Facility. The amount available under this
facility  is reduced by the  amount of letters of credit  outstanding,  which is
approximately  $385,000 as of December 31, 1999. The Citibank Credit Facility is
secured by a lien on all of the Company's inventory and receivables.

     The  interest  rates for  borrowings  as of December 31, 1998 and 1999 were
12.10% and 12.00%, respectively and the weighted average interest rates for 1998
and 1999 were 11.31% and 12.02%,  respectively.  The maximum amounts outstanding
during  1997,  1998 and 1999 were  $12.0  million,  $200.0  million  and  $250.0
million, respectively.

     The interest expense,  including amortization of Bridge Facility commitment
fees and other costs in 1998 and 1999,  for the years ended  December  31, 1997,
1998 and 1999 were $776,000, $9,440,000 and $32,077,000 respectively.

6.   Stockholders' Equity

     On September 11, 1998, the Company's  stockholders  approved changes in the
Company's  capital  structure in connection with the approval of the Plan. These
changes  eliminated  the Class B Common Stock,  authorized  an additional  150.0
million shares of common stock (for a maximum authorized amount of 250.0 million
shares) and authorized 100.0 million shares of preferred  stock,  including 75.0
million shares of 8% Preferred  Stock and 25.0 million shares of preferred stock
with a $.01 par value.

     The  8%  Preferred   Stock  is  convertible   into  1.039  fully  paid  and
non-assessable shares of common stock of the Company. The Company is required to
redeem all  outstanding  shares of the 8% Preferred  Stock on October 1, 2011 at
$10.00 per share plus all accrued and unpaid  dividends.  The 8% Preferred Stock
generally  votes together with the common stock on all matters.  The Company has
the option to pay the dividend in cash or  additional  8% Preferred  Stock,  but
cannot  pay cash  dividends  on its 8%  Preferred  Stock  as long as the  Bridge
Facility  is  outstanding.  On March  31,  June 30,  September  30 and  December
31,1999,  the Company  issued  344,312,  352,420,  359,019  and 366,184  shares,
respectively, of 8% Preferred Stock in payment of dividends declared and payable
to stockholders  of record on those dates.  In addition,  holders of warrants to
purchase the Company's 8% Preferred Stock exercised 17,525 warrants during 1999.
Proceeds from these exercises totaled approximately $192,000.

                                      F-18

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

     The Company  issued the following  securities in accordance  with the Plan:
(a) 7.9  million  shares  of 8%  Preferred  Stock to MEG  fixed  senior  secured
lenders, (b) 9.0 million shares of 8% Preferred Stock to new investors at $10.00
per  share,  (c) 13.1  million  shares of common  stock to the MEG fixed  senior
secured lenders, (d) four-year warrants to purchase up to 1.75 million shares of
common  stock at $17.25 per share,  (e)  three-year  warrants  to  purchase  4.0
million  shares of common stock at $12.00 per share,  (f) six-month  warrants to
purchase 3.0 million  shares of preferred  stock for $10.65 per share subject to
increase  based upon the date of issuance  of the  six-month  warrants,  and (g)
four-year  warrants to purchase 7.0 million shares of common stock at $18.50 per
share.
<TABLE>
<CAPTION>
     <S>                                                                                              <C>

     As of December 31, 1999, the Company had reserved shares of common stock for issuance as follows:
         Conversion of 8% preferred stock.........................................................    19,406
         Exercise of common stock purchase warrants...............................................    12,750
         Exercise of common stock options.........................................................     5,265
         Exercise of preferred stock purchase warrants.............................................      973
                                                                                                      ------
                                                                                             Total    38,394
</TABLE>


     In connection  with the Plan, the Company  received a $1.5 million  capital
contribution  from an affiliate of Mr.  Perlmutter and Mr. Arad. Mr.  Perlmutter
and Mr. Arad received no additional equity for such contribution.


7.   Stock Option Plans

     Under the terms of the Company's 1998 Stock Incentive Plan (the "1998 Stock
Incentive 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.  In  November  1998,  the  Company  authorized  a maximum
aggregate number of shares of Common Stock as to which options and rights may be
granted under the Stock Incentive Plan of 6.0 million shares,  including options
described  below.  All  options  granted  and  outstanding  under the  Company's
previous  stock  incentive  plan (the "1995 Stock Option Plan") and all previous
stock option plans of MEG were canceled at or prior to the  consummation  of the
Plan on October 1, 1998.

                                      F-19

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc).

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999


     Information  with  respect to options  under the stock  option plans are as
follows:
<TABLE>
<CAPTION>

                                                                                   Weighted
                                                                                   Average
                                                              Option Price per     Exercise
                                                   Shares           Share           Price
                                                  ----------   ------------------   ---------
<S>                                               <C>          <C>                  <C>

Outstanding at December 31, 1996...............    1,120,885      $15.00-$22.63
Canceled.......................................     (484,666)                         $18.12
Exercised......................................       (3,333)                         $18.00
Granted........................................
                                                        --
                                                        --
Outstanding at December 31, 1997...............      632,886      $15.00-$22.63
Canceled.......................................     (632,886)                        $17.92
Exercised......................................         --                              --
Granted (under 1998 Stock Incentive Plan)...       3,551,000                         $ 6.05
                                                   ---------
Outstanding at December 31, 1998...............    3,551,000      $ 5.88-$6.25
Canceled.......................................     (379,250)                         $6.06
Exercised......................................      (25,000)                         $5.88
Granted........................................    2,118,000                          $6.48
                                                   ---------
Outstanding at December 31, 1999...............    5,264,750      $ 5.00-$7.25        $6.22
                                                   =========

Exercisable at December 31, 1999                   1,671,140      $ 5.88-$7.25        $6.20
                                                   =========
</TABLE>

     Options  granted under the Stock  Incentive  Plan in 1999 vest generally in
three equal  installments  beginning 12 months after the date of grant.  Options
granted in 1998 vest  generally in four equal  installments  beginning  with the
date of the grant.  At December  31, 1999,  630,250  shares were  available  for
future grants of options and rights.  At December 31, 1999, the weighted average
remaining contractual life of the options outstanding is 7.97 years.

     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  FASB  Statement  No.  123,
"Accounting for Stock-Based  Compensation," ("FAS 123"). For the purposes of FAS
123 pro forma disclosures,  the estimated fair value of the options is amortized
to expense over the options' vesting period. The Company's pro forma information
follows:

                                      F-20

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc).

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999
<TABLE>
<CAPTION>


                                                                            Years Ended December 31,
                                                                       -------------------------------------
                                                                         1998        1999        1997
                                                                       ---------   ---------   -------------
                                                                       (in thousands, except per share data)
<S>                                                                    <C>         <C>         <C>

Net loss as reported...............................................    $(29,465)   $(32,610)    $(33,791)
Pro forma net loss.................................................     (29,816)    (35,679)    $(39,214)
Pro forma net loss per share attributable to Common Stock--basic
   And diluted.....................................................     $ (1.08)    $ (1.34)     $( 1.59)
</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 during
1995 and 1996: risk free interest rates ranging from 5.26% to 7.19%; no dividend
yield;  expected  volatility of 0.354; and expected lives of three years to five
years. The weighted  average  assumptions for the 1998 grants are: 6.0% interest
rate; no dividend  yield;  expected  volatility  of 0.567;  and expected life of
three years. The weighted average assumptions for the 1999 grants are: risk free
interest  rates  ranging  from  5.19% to  6.36%;  no  dividend  yield;  expected
volatility  of 0.553;  and expected  life of three years.  The option  valuation
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 FAS 123 for providing pro forma disclosures are not
likely to be  representative  of the  effects on  reported  net income in future
years.

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.  In 1997, the Marvel bankruptcy
and  concerns  among  retailers  about the  future of the  Marvel  brand  caused
customers to claim higher than expected return and other sales allowances.

     During the year ended  December 31, 1997,  three  customers  accounted  for
approximately 22%, 15% and 12%of total net sales. During the year ended December


                                      F-21

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc).

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

31, 1998, three customers  accounted for approximately 23%, 15% and 10% of total
net toy  sales.  During  the year  ended  December  31,  1999,  three  customers
accounted for approximately 29%, 18 % and 11% of total net toy sales.

     The Company's  Hong Kong  subsidiary  supervises 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.   During  the  years  ended  December  31,  1997,   1998  and  1999,
international  sales were  approximately  22%, 16%, and 15 %,  respectively,  of
total net toy sales.  During the years ended  December 31, 1997,  1998 and 1999,
the Hong Kong operations reported operating income of approximately  $5,868,000,
$1,534,000  and  $5,055,000  and  income  before  income  taxes  of  $6,102,000,
$1,884,000  and  $5,472,000,  respectively.  At December 31, 1998 and 1999,  the
Company had assets in Hong Kong of  approximately  $27,276,000 and  $35,997,000,
respectively.  The Hong Kong subsidiary represented $27,799,000 and $31,926,000,
of the Company's  consolidated retained earnings during the years ended December
31, 1998 and 1999,respectively.

9.   Restructuring and Other Unusual Costs

     In connection with the  consummation of the Plan, the Company  reviewed its
relationships  with  its  foreign   distributors,   as  well  as  the  Company's
relationship  with  certain  suppliers,  for  business  conflicts.  As  part  of
integrating  MEG's  operations  with those of the Company,  the Company plans on
reevaluating its international licensing and product distribution relationships.
In  addition,  certain  products  that were at  various  stages  of  design  and
marketing are being  discontinued and written-off  because of business conflicts
that arose out of the acquisition of MEG.

     As a result of the above  matters,  the  Company  recorded  allowances  and
unusual charges of  approximately  $16.8 million for the year ended December 31,
1998,  which relate to impairment of assets,  severance costs and the settlement
of litigation that arose in prior years regarding a licensing  agreement.  These
costs are reflected in the following captions in the statement of operations.

<TABLE>
<CAPTION>


                                              (in thousands)
     <S>                                      <C>

     Net sales (allowances)................   $     2,925
     Cost of sales.........................         1,193
     Selling general and administrative....        11,676
     Depreciation and amortization.........         1,032
                                              -----------
                                              $    16,826

     Cash charges..........................   $     3,400
     Non-cash charges......................   $    13,426
                                              -----------
                                              $    16,826
                                              ===========
</TABLE>

                                      F-22

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc).

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

     Of these costs,  approximately  $14.9 million and $1.9 million were charged
to the third and fourth quarters,  respectively, of fiscal 1998. At December 31,
1999, $600,000 of the cash charges remain unpaid. The Company expects to pay the
remaining cash charges under contractual obligations extending to 2000.

10.   Income Taxes

     The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>

                                       Years Ended December 31,
                                   -------------------------------
                                      1997        1998       1999
                                   ---------  -----------  --------
                                            (in thousands)
<S>                                <C>         <C>         <C>

Current:
     Federal....................   $(19,196)   $(6,189)    $ (146)
     State......................       (191)       410        534
     Foreign....................        523        824      1,172
                                   ---------   --------    -------
                                   $(18,864)   $(4,955)    $1,560
Deferred:
     Federal....................   $  1,287    $ 6,025     $2,794
     State......................     (2,068)     3,316        128
                                   ---------   --------    -------
                                     (1,321)     9,341      2,922
                                   ---------   --------    -------
Income tax (benefit) expense ..... $(20,185)   $ 4,386     $4,482
                                   =========   ========    =======

</TABLE>

















                                      F-23

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc).

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

     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,
                                                                 --------------------------
                                                                    1997      1998        1999
                                                                 ---------   --------   --------
<S>                                                              <C>         <C>        <C>
Federal income tax provision computed at the statutory rate.....     (35.0)%   (35.0)%    (35.0)%
State taxes, net of Federal income tax effect...................      (5.7)%    (4.7)%      1.9%
Non-deductible amortization expense.............................       --        7.9%      30.0%
Foreign taxes...................................................       --        --         2.9%
Purchase accounting.............................................       --        --        17.1%
Increase in valuation allowance.................................       --       48.6%      --
Other...........................................................                (1.3)%    (0.8)%
                                                                  ----------  --------   --------
Total provision for income taxes................................     (40.7)%    15.5%      16.1%
                                                                  ==========  =========  ========
</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,
                                                          -------------------
                                                           1998        1999
                                                         --------   ---------
                                                            (in thousands)
         <S>                                             <C>        <C>
         Deferred tax assets:
              Accounts receivable ......................  $ 4,573    $ 5,159
              Inventory.................................    6,623      6,192
              Sales returns reserves....................    4,505      2,014
              Employment reserves.......................    3,999      4,017
              Restructuring reserves....................      589        477
              Reserve related to foreign investments....    2,373      3,546
              Other reserves............................    1,038        956
              Net operating loss carryforwards..........   26,847     43,849
              Tax credit carryforwards..................      657      4,019
              Other.....................................    3,759      3,932
                                                         --------   ---------
              Total gross deferred tax assets...........   54,963     74,161
              Less valuation allowance..................  (51,346)   (67,119)
                                                         --------   ---------
              Net deferred tax assets...................    3,617      7,042
                                                         --------   ---------
         Deferred tax liabilities:
              Depreciation/amortization ................      636        477
              Licensing, net............................    2,981      5,948
              Other.....................................      --         617
                                                         --------   ---------
              Total gross deferred tax liabilities......    3,617      7,042
                                                         --------   ---------
              Net deferred tax asset (liability)........     --         --
                                                         ========   =========
</TABLE>

                                      F-24

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

     During 1998 and 1999, the Company  recorded a valuation  allowance  against
its deferred tax assets as it was not assured that such assets would be realized
in the future.  The  valuation  allowance  at December 31, 1999  includes  $36.2
million which, if realized, will be accounted for as a reduction of goodwill.

     At  December  31,  1999,   the  Company  has  Federal  net  operating  loss
carryforwards of approximately $85.9 million. This loss carryforward will expire
in  years  2009  through  2019.   Of  the  total   Federal  loss   carryforward,
approximately  $78.3  million  is  subject  to a  Section  382  limitation.  Any
realization of the amount of loss subject to this  limitation  will be accounted
for as a reduction of goodwill.  Additionally, the Company expects to have state
and local net operating loss carryforwards of approximately  $128.0 million. The
state and local loss carryforwards will expire in various jurisdictions in years
2001 through 2019. The state and local loss  carryforwards are generally subject
to the Section 382 limitation. No benefit was provided for either the Federal or
state and local net operating loss carryforwards at December 31, 1999.

11.   Quarterly Financial Data (unaudited)

     Summarized quarterly financial information for the years ended December 31,
1998 and 1999 is as follows:
<TABLE>
<CAPTION>

                                                     1998                                            1999
                              --------------------------------------------   ---------------------------------------------
                                                                   Quarter Ended

                              March 31  June 30  September 30  December 31  March 31  June 30   September 30  December 31
                              --------  -------  ------------  -----------  --------  -------   ------------  -----------
                                                                   (in thousands, except per share data)
<S>                           <C>       <C>      <C>           <C>          <C>       <C>       <C>           <C>

Net sales..................    $42,641  $48,675   $  65,045     $ 75,715    $75,258   $61,510   $ 89,882      $ 92,995
Gross profit...............     19,408   22,895      26,300       35,495     42,608    30,679     47,531        47,969
Operating income (loss)....      1,882    3,607     (11,969)     (12,980)     9,068    (4,044)     3,172        (7,940)
Net income (loss)..........      1,076    2,106      (7,223)     (28,569)    (2,927)   (9,070)    (4,644)      (17,150)
Preferred divided
  Requirement..............         --       --         --         3,380      3,443     3,525      3,590         3,662
Basic and dilutive net income
  (loss) per common share...    $ 0.04   $ 0.08    $  (0.26)    $  (0.96)   $(0.19)   $ (0.38)   $ (0.25)     $ ( 0.62)

</TABLE>


     The income  (loss) per common  share  computation  for each quarter and the
year are separate  calculations.  Accordingly,  the sum of the quarterly  income
(loss) per common share amounts may not equal the income (loss) per common share
for the year.

      12.   Related Party Transactions

     Mr. Perlmutter  indirectly purchased  approximately $34.9 million of the 8%
Preferred Stock in connection with the Plan.

     Prior to the Company's  acquisition of MEG on October 1, 1998, MEG provided
support to the Company relating to licensing  agreements,  promotion,  legal and
financial  matters.  The cost for these  support  services has been  included in
selling,  general and administrative  expenses, and amounted to $141,000 for the
year ended  December 31, 1997. The Company did not receive any services from MEG
subsequent to the acquisition.

                                      F-25

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

      An affiliate of the Company, which is wholly-owned by Mr. Perlmutter, acts
as the Company's media  consultant in placing the Company's  advertising and, in
connection therewith, receives certain fees and commissions based on the cost of
the  placement of such  advertising.  During the years ended  December 31, 1997,
1998 and 1999, the Company paid fees and  commissions to the affiliate  totaling
approximately $1,274,000, $1,147,000 and $1,170,000,  respectively,  relating to
such advertisements.

     The Company accrued  royalties to Mr. Arad for toys he invented or designed
of $3,624,000,  $4,254,000  and  $2,981,000  during the years ended December 31,
1997,  1998 and 1999,  respectively.  At December 31, 1998 and 1999, the Company
had an accrual to Mr. Arad of $457,000 and $1,028,000,  respectively, for unpaid
royalties.

     The Company  shares  office  space and certain  general and  administrative
costs with  affiliated  entities.  Rent received from  affiliates  for the years
ended  December 31, 1997,  1998 and 1999 was  $116,000,  $105,000 and  $106,000,
respectively.  While  certain costs are not  allocated  among the entities,  the
Company believes that it bears its proportionate share of these costs.

13.   Commitments and Contingencies

      The  Company  is  a  party  to  various  noncancellable  operating  leases
involving  office and  warehouse  space  expiring on various dates from June 30,
2000 through April 30, 2010. The leases are subject to escalations based on cost
of living  adjustments and tax allocations.  Minimum future obligations on these
leases are as follows:

<TABLE>
<CAPTION>

                         (in thousands)
      <S>                  <C>

      2000..........       $  2,437
      2001..........          1,437
      2002..........            631
      2003..........            490
      2004..........            511
      Thereafter....          2,268
                           ---------
                           $  7,774
                           ========
</TABLE>


     Rent  expense  amounted  to  approximately  $1,220,000,   $1,060,000,   and
$2,691,000 for the years ended December 31, 1997, 1998 and 1999, respectively.

     The Company is a party to various royalty agreements with future guaranteed
royalty payments through 2001. Such minimum future obligations are as follows:

<TABLE>
<CAPTION>

                    (in thousands)
     <S>             <C>

     2000.....       $ 1,601
     2001.....           784
     2002.....            88
                     --------
                     $ 2,473
                     =======
</TABLE>


                                      F-26

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

     The Company has recorded approximately  $10,270,000 as a net receivable for
minimum  guaranteed  royalties as of December 31, 1999.  The portion  receivable
after one year from the  balance  sheet date is included  in other  assets.  The
minimum guaranteed royalties receivable are due as follows:
<TABLE>
<CAPTION>


                                           (in thousands)
     <S>                                    <C>

     2000............................       $  6,733
     2001............................          4,151
     2002............................          2,478
     2003 and thereafter.............          3,000
     Allowances and discounting......         (6,092)
                                            ---------
                                            $ 10,270
                                            =========
</TABLE>

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  outstanding  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.

     Certain Bankruptcy Proceedings. As a result of the consummation of the Plan
on October 1, 1998,  all claims against MEG with respect to orders issued by the
District  Court in  connection  with the Plan  have been  released,  as have all
claims by MEG against the Company and all claims against the Company  concerning
the effect of the June 1997 change of control of MEG on the voting  power of the
stock in the Company owned by MEG.

     Spider-Man  Litigation.  The Company's  subsidiaries  Marvel  Entertainment
Group, Inc. and Marvel  Characters,  Inc.  (collectively,  the "Marvel Parties")
have been parties to a consolidated  case,  concerning  rights to produce and/or
distribute a live action motion  picture based on the  Spider-Man  character and
pending in the Superior  Court of the State of California  for the County of Los
Angeles,  to which  Metro-Goldwyn  Mayer Studios Inc. and two of its  affiliates
("MGM"),  Columbia  Tristar  Home Video and related  entities  ("Sony"),  Viacom
International  Inc.  ("Viacom") and others were also parties.  In February 1999,
the Superior Court granted summary  judgment to the Marvel Parties and dismissed
MGM's  claims.  In March  1999,  MGM,  Sony and the Marvel  Parties  settled all
remaining claims among themselves. The litigation among Sony, the Marvel Parties
and Viacom  over  claims by Viacom to the rights to  distribute  on pay and free
television a feature  length live action motion  picture based on the Spider-Man
character were not resolved.  After a trial in February 1999, the Superior Court
held that  Viacom  has no  rights  with  respect  to any  Spider-Man  film to be
produced  by Sony,  the  Marvel  Parties or any  future  licensee  of the Marvel
Parties. Viacom has filed a Notice of Appeal but no date for the appeal has been
scheduled.  It is the Company's  position that the Superior Court's decision was
correct  and that  Viacom  has no  rights  with  respect  to  distribution  of a
Spider-Man film. Although there can be no assurances,  the Company believes that
the Superior Court decision will be upheld on appeal.


                                      F-27

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

     Woldfman  Litigation.  On January 24, 1997,  Marvin A. Wolfman  ("Wolfman")
filed a proof of claim in the  bankruptcy  cases of MEG and  Marvel  Characters,
Inc.  asserting  ownership  rights to a number of  characters  that  appeared in
stories  written by Wolfman and published by Marvel Comics during the 1970s.  In
November  1999 a hearing was held in the United  States  District  Court for the
District of Delaware to determine the ownership rights to the characters covered
by Wolfman's claim and the matter is sub judice.

     On August  20,  1998,  Wolfman  commenced  an action in the  United  States
District  Court for the Central  District of California  against New Line Cinema
Corporation  ("New Line"),  Time Warner  Companies,  Inc., the Company,  MEG and
Marvel  Characters,  Inc. The  complaint in that action  alleges that the motion
picture Blade  (featuring Blade and Deacon Frost which were among the characters
included  within  Wolfman's  January  24,  1997  proof of claim),  produced  and
distributed  by New Line  pursuant  to an  agreement  with  MEG,  as well as the
Company's sale of action figure toys, infringes Wolfman's claimed copyrights and
trademarks as the author of the original stories  featuring the Blade and Deacon
Frost  characters  (collectively,  the "Work") and that Wolfman created the Work
and granted  MEG's  predecessor  in  interest  only the  non-exclusive  right to
publish  the Work in print  for  Marvel  Comics'  Tomb of  Dracula  series.  The
complaint also charges the defendants in the action with unfair  competition and
other  tortious  conduct based upon Wolfman's  asserted  rights in the Work. The
relief sought by the complaint  includes a declaration  that the defendants have
infringed Wolfman's copyrights, compensatory and punitive damages, an injunction
and  various  other forms of  equitable  relief.  In late  August  1998  Wolfman
dismissed the complaint against MEG and Marvel  Characters,  Inc. The action has
been  stayed  against  the other  named  defendants  pending  the outcome of the
November 1999 hearing in Delaware with respect to Wolfman's proof of claim.

     Marvel v.  Simon.  In  December  1999,  Joseph H.  Simon  filed in the U.S.
Copyright Office written notices under the Copyright Act purporting to terminate
effective  December 7, 2001  alleged  transfers of copyright in 1940 and 1941 by
Simon of the Captain America character to the Company's predecessor. On February
24, 2000,  the Company  commenced an action  against  Simon in the United States
District Court for the Southern District of New York. The complaint alleges that
the  Captain  America  character  was created by Simon and others as a "work for
hire" within the meaning of the applicable  copyright statute and that Simon had
acknowledged  this fact in  connection  with the  settlement  of previous  suits
against the Company's  predecessors  in 1969. The suit seeks a declaration  that
Marvel  Characters,  Inc.,  not Mr. Simon is the  rightful  owner of the Captain
America  character and that the  termination  notices filed by Simon are invalid
and of no legal effect.  Simon has asserted a counterclaim in the action seeking
a declaration that he is the sole owner of the Captain America character.

     Administration Expense Claims Litigation. Unresolved Administration Expense
Claims are pending which seek amounts totaling  approximately  $16.8 million and
additional  unresolved  Administration  Expense  Claims are pending which do not
seek specified  dollar amounts.  The Company is contesting all of the unresolved
Administration Expense Claims.  Although there can be no assurance,  the Company
expects  that it will be  required  to pay  substantially  less than the amounts
sought by the holders of the Administration Expense Claims.

                                      F-28

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

14.   Benefits Plans

     The Company has a 401(k) Plan for its employees. In addition, in connection
with the sale of Fleer (see Note 3), the Company  retained  certain  liabilities
related  to  a  noncontributory   defined  benefit  pension  plan  for  salaried
employees.  In prior years,  this plan was amended to prohibit  participation by
new  participants.  The accumulated  benefit  obligation is approximately  $19.2
million.  The funded value of plan assets is approximately $16.6 million and the
pension  liability  at December 31, 1999 is  approximately  $3.1  million.  Plan
expenses  for the  years  ended  December  31,  1997,  1998  and  1999  were not
significant.

15.   Segment Information

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

Toy Merchandising and Distributing Segment

     The toy merchandising and distributing segment designs,  develops,  markets
and distributes  both  innovative and traditional  toys in the United States and
internationally.  The Company's toy products  fall into three  categories:  toys
based on its characters, proprietary toys designed and developed by the Company,
and toys based on properties licensed to the Company by third parties.  Prior to
October 1, 1998, the Company  operated  solely within the toy and  merchandising
and distributing segment.

Publishing Segment

     The publishing  segment  creates and publishes  comic books  principally in
North America.  The acquired  company has been publishing comic books since 1939
and has developed a roster of more than 3,500 Marvel  Characters.  The Company's
titles feature classic Marvel Super Heroes,  Spider-Man,  X-Men, newly developed
Marvel Characters,  and characters created by other entities and licensed to the
Company.

                                      F-29

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

Licensing Segment

     The  licensing  segment  relates  to the  licensing  of or  joint  ventures
involving the Marvel  Characters for use with (i) merchandise,  (ii) promotions,
(iii) publishing, (iv) television and film, (v) on-line and interactive software
and (vi) theme parks and site-based entertainment.

<TABLE>
<CAPTION>


                                                     Toys      Publishing Licensing                  Total
                                                   ---------   ---------- ---------                ---------
                                                                       (in thousands)
<S>                                                <C>         <C>        <C>                      <C>

Year ended December 31, 1997
Net sales.......................................   $ 150,812         --         --                 $ 150,812
Gross profit....................................      43,861         --         --                    43,861
Operating loss..................................     (49,288)        --         --                   (49,288)
EBITDA(1).......................................     (28,220)        --         --                   (28,220)
Total capital expenditures......................      17,744         --         --                    17,744

                                                     Toys      Publishing Licensing    Corporate      Total
                                                   ---------   ---------- ----------   ---------   ---------
                                                                       (in thousands)
                                                                                       <C>
Year ended December 31, 1998
Net sales.......................................   $ 212,436   $ 14,707   $  4,933         --      $ 232,076
Gross profit....................................      92,743      6,820      4,535         --        104,098
Operating (loss) income.........................     (18,742)       258       (976)        --        (19,460)
EBITDA(1).......................................       1,259      1,409      4,295         --          6,963

Total capital expenditures......................      17,325         --        --          --         17,325
Identifiable assets for continuing operations...     149,842    101,697    401,098       11,267      663,904

Net assets held for disposition.................         --      26,000       --           --         26,000
                                                   ---------   ---------- ---------    ---------   ---------
Total identifiable assets.......................   $ 149,842   $127,697   $401,098     $ 11,267    $ 689,904


                                                     Toys     Publishing  Licensing    Corporate    Total
                                                   ---------  ----------  ----------   ---------   --------
                                                                        (in thousands)
Year ended December 31, 1999
Net sales.......................................   $  245,775  $  43,007  $ 30,863       --        $ 319,645
Gross profit....................................      119,788     18,725    30,274       --          168,787
Operating income (loss).........................       10,932      3,707      (100)     (14,283)         256
EBITDA(1).......................................       30,282      8,341    19,851      (14,283)      44,191

Total capital expenditures......................       20,977         --       --         --          20,977

Identifiable assets for continuing operations...   $  184,973  $  86,263  $383,401        --        $654,637
                                                   ----------  ---------  ---------    --------     --------
Total identifiable assets.......................   $  184,973  $  86,263  $383,401        --        $654,637

</TABLE>

(1) "EBITDA"  is  defined  as  earnings  before  extraordinary  items,  interest
    expense, taxes, depreciation and amortization. EBITDA does not represent net
    income or cash flow from  operations as those terms are defined by generally
    accepted  accounting  principles and does not necessarily  indicate  whether
    cash flows will be sufficient to fund cash needs.

                                                       F-30
<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999

16.  Supplemental Financial Information

     The following represents the supplemental consolidating condensed financial
statements of Marvel Enterprises, Inc., which is the issuer of the Senior Notes,
and its subsidiaries that guarantee the Notes and the non-guarantor subsidiaries
as of December 31, 1998 and 1999 and for each of the three years ended  December
31, 1999.

<TABLE>
<CAPTION>

                                                 Issuer
                                                  And          Non-
                                              Guarantors    Guarantors    Total

                                              -----------   ----------  ---------
                                                        (in thousands)
<S>                                           <C>           <C>         <C>

For The Year Ended December 31, 1997
Net sales...................................  $   117,571   $ 33,241    $150,812
Gross profit................................       33,542     10,319      43,861
Operating (loss)income......................      (55,205)     5,917     (49,288)
Net (loss)income............................      (34,613)     5,148     (29,465)

For The Year Ended December 31, 1998
Net sales...................................  $   196,106   $ 35,970    $232,076
Gross profit................................       91,281     12,817     104,098
Operating (loss) income.....................      (21,106)     1,646     (19,460)
Net (loss) income...........................      (33,806)     1,196     (32,610)

For The Year Ended December 31, 1999
Net sales...................................  $   280,355   $ 39,290    $319,645
Gross profit................................      154,759     14,028     168,787
Operating (loss) income.....................       (4,925)     5,181         256
Net (loss) income...........................      (37,994)     4,203     (33,791)


                                                 Issuer
                                                  And          Non-       Inter-
                                              Guarantors    Guarantors    company      Total
                                              -----------   ----------  -----------  --------
                                                            (in thousands)
December 31, 1998
Current assets .............................  $   173,985   $ 27,095     $ (28,496)  $172,584
Non-current assets..........................      513,412      3,908         --       517,320
                                              -----------   ----------   ----------  --------

Total assets................................  $   687,397   $ 31,003     $ (28,496)  $689,904
                                              ===========   ========     ==========  ========
Current liabilities.........................      329,674      4,798       (28,496)   305,976
Non-current liabilities.....................       27,924         --         --        27,924
8% Preferred Stock..........................      172,380         --         --       172,380
Stockholders' equity........................      157,419     26,205         --       183,624
                                              -----------   --------     ----------  --------

                                              $   687,397   $ 31,003     $ (28,496)  $689,904
                                              ===========   ========     ==========  ========

December 31, 1999

Current assets..............................  $   165,580   $ 7,329      $    --     $172,909
Non-current assets..........................      481,302    32,427        (32,001)   481,728
                                              -----------   -------      ----------  --------
Total assets................................  $   646,882   $39,756      $ (32,001)  $654,637
                                              ===========   =======      ==========  ========
Current liabilities.........................      103,877     9,114        (32,001)    80,990
Non-current liabilities.....................      251,094      --            --       251,094
8% Preferred Stock..........................      186,790        --          --       186,790
Stockholders' equity........................      105,121    30,642          --       135,763
                                              -----------   -------      ----------  --------

                                              $   646,882   $39,756      $ (32,001)  $654,637
                                              ===========   =======      ==========  ========

</TABLE>

                                      F-31

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999




<TABLE>
<CAPTION>



                                                                Issuer
                                                                  and        Non-
                                                              Guarantors  Guarantors     Total
                                                              ----------  -----------   --------
                                                                       (in thousands)
<S>                                                           <C>         <C>           <C>

Year Ended December 31, 1997
Cash Flows From Operating Activities:
Net (loss) Income..........................................   $  (34,613) $   5,148    $(29,465)
                                                              =========== ===========  =========
     Net cash provided by (used in) operating activities...       13,191       (440)     12,751
     Net cash (used in) provided by investing activities...      (22,503)       203     (22,300)
     Net cash provided by financing activities.............       11,123                 11,123
                                                              ----------- -----------  ---------
                                                                                --
                                                                                --
Net increase (decrease) in cash............................        1,811       (237)      1,574
Cash, at beginning of year.................................        5,151        871       6,022
                                                              ----------- -----------  ---------
Cash, at end of year.......................................   $    6,962  $     634    %  7,596
                                                              =========== ===========  =========

Year Ended December 31, 1998
Cash Flows From Operating Activities:
Net (loss) Income..........................................   $  (33,806) $   1,196    $(32,610)
                                                              =========== ===========  =========
     Net cash provided by operating activities...                 40,959      1,025      41,984
     Net cash used in investing activities...                   (285,164)      (225)   (285,389)
     Net cash provided by financing activities...                279,500                279,500
                                                              ----------- -----------  ---------
                                                                                --
                                                                                --
Net increase in cash......................................        35,295        800      36,095
Cash, at beginning of year ...............................         6,962        634       7,596
                                                              ----------- -----------  --------
Cash, at end of year......................................    $   42,257  $   1,434    $ 43,691
                                                              =========== ===========  =========

Year Ended December 31, 1999
Cash Flows From Operating Activities:
Net (loss) Income.........................................    $  (37,994) $   4,203    $(33,791)
                                                              =========== ==========   =========
     Net cash provided by operating activities............            57        758         815
     Net cash used in investing activities................       (18,981)       (29)    (19,010)
     Net cash provided by financing activities............        39,318       --        39,318
                                                              ----------- -----------
Net increase in cash......................................        20,394        729      21,123
Cash, at beginning of year...............................         42,257      1,434      43,691
                                                              ----------- -----------  ---------
Cash, at end of year.....................................     $   62,651  $   2,163    $ 64,814
                                                              =========== ==========   =========

</TABLE>


                                      F-32

<PAGE>

                            MARVEL ENTERPRISES, INC.
                            (formerly Toy Biz, Inc.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                December 31, 1999


<TABLE>
<CAPTION>

                                         VALUATION AND QUALIFYING ACCOUNTS

                                                    Allowances

                                        Balance      Acquired    Charged to Sales  Charged to              Balance
                                      At Beginning   in  MEG        or Costs and     Other                  at End
 Description                          of Period     Acquisition      Expenses      Accounts    Deductions  of Period
-----------------------------------   ------------  -----------   ---------------  ----------  ----------  ---------
                                                                   (in thousands)
<S>                                   <C>           <C>           <C>              <C>         <C>         <C>

Year Ended December 31, 1997
Allowances included in Accounts
   Receivable. Net:

Doubtful accounts--current.........       $  485        --             --             --        $    55    $   430
Advertising, markdowns, returns,
   volume discounts and other......       14,856        --           55,746(1)        --         41,215     29,387

Year Ended December 31, 1998
Allowances included in Accounts
   Receivable. Net:

Doubtful accounts--current.........          430       3,112            409(2)        --            343      3,608
Doubtful accounts--non-current.....          --          521             --           --            --         521
Advertising, markdowns, returns,
   volume discounts, and other.....       29,387       6,255         33,998(1)        --         48,325     21,315

Year Ended December 31, 1999
Allowances included in Accounts
   Receivable. Net:

Doubtful accounts--current.........        3,608          --          1,141(3)        --            798      3,951
Doubtful accounts--non-current.....          521          --            580(2)        --            121        980
Advertising, markdowns, returns,
   volume discounts and other......       21,315        (380)       47,728 (1)        --         44,102     24,561

</TABLE>


(1)  Charged to sales
(2)  Charged to costs and expenses.
(3)  1,228 charged to costs and expenses and (87) charged to sales.







                                      F-33