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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the fiscal year ended December 31, 2003

OR

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

Commission File No. 1-13638

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

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

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

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

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

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

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

12% Senior Notes due 2009

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

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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





TABLE OF CONTENTS



PAGE
PART I

ITEM 1. BUSINESS.............................................................................. 1

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

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

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


PART II

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

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

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

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


i





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

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

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

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

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

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

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

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


ii


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

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



iii

PART I


ITEM 1. BUSINESS

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

General

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

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

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

Marvel Licensing

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

Feature Films

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

Television Programs

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

1



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

Destination-Based Entertainment

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

Toy Merchandise

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

Consumer Products

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

Promotions

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

Marvel Publishing

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

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

2


Customers, Marketing and Distribution

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

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

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

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

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

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

Toy Biz

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

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


3


Design and Development

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

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

Customers, Marketing and Distribution

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

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

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

Intellectual Property

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

Advertising

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

4


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

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

Competition

The industries in which the Company competes are highly competitive.

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

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

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

Employees

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

Financial Information about Geographic Areas

The following table sets forth revenues from external customers attributed
to geographic areas:


Revenue by Geographic Area
(in thousands)
2001 2002 2003
......................... .......................... ...........................

U.S. Foreign* U.S. Foreign* U.S. Foreign*
Licensing $ 30,309 $ 9,703 $ 47,565 $31,997 $106,264 $ 82,940
Publishing 40,685 8,819 53,678 10,823 61,363 11,892
Toys 70,996 20,712 118,873 36,110 64,607 20,560
-------- ------- -------- ------- -------- --------
Total $141,990 $39,234 $220,116 $78,930 $232,234 $115,392
======== ======= ======== ======= ======== ========

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



5


Government Regulations

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

The Acquisition of Marvel Entertainment Group, Inc.

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

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

Available Information

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

ITEM 2. PROPERTIES



The Company has the following principal properties:


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

(1) Used by all segments of the Company.

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

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

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

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



6



ITEM 3. LEGAL PROCEEDINGS

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

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

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

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

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


7


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


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

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


PART II

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

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




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

2002
First Quarter $ 8.35 $ 3.55
Second Quarter $ 9.15 $ 4.70
Third Quarter $ 7.15 $ 4.15
Fourth Quarter $ 9.40 $ 6.00


2003
First Quarter $13.82 $ 9.16
Second Quarter $24.50 $13.55
Third Quarter $23.75 $16.75
Fourth Quarter $31.64 $23.05

As of March 9, 2004, the approximate number of holders of the Company's
common stock was 39,400. This number includes both stockholders of record and
stockholders who hold stock in "street name," as indicated in a security
position listing provided by Automatic Data Processing, Inc.

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

Recent Sales of Unregistered Securities

Conversion of Preferred Stock into Common Stock

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

8


ITEM 6. SELECTED FINANCIAL DATA

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





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

1999 2000 2001 2002 2003
---- ---- ---- ---- ----
(in thousands, except per share amounts)
Statements of Operations Data:

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


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

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


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


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


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



9


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

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

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

Overview

Management Overview of Business Trends

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

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

Licensing

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

Publishing

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

10


Toy Biz

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

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

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

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

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

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

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

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

Net Sales

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




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



11


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

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

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

Operating Expenses: Cost of Sales

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

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

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

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

Operating Expenses: Selling, General and Administrative

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

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

12


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

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

Operating Expenses: Depreciation and Amortization

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

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

Results of Operations of the Company

Year ended December 31, 2003 compared with year ended December 31, 2002



Years Ended December 31,
(in thousands)

2002 2003 Change
-------- -------- ------

Licensing $ 79,562 $189,204 138%
Publishing 64,501 73,255 14%
Toys 154,983 85,167 (45%)
-------- -------- ------
Net Sales $299,046 $347,626 16%
======== ======== ======


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

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

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

13


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

Gross Profit: Gross profit increased by $111.3 million to $268.2 million in
2003 as compared to $156.9 million in 2002. The Licensing, Toy Biz and
Publishing segments' gross profit accounted for $189.2 million, $39.0 million
and $40.0 million, respectively. The growth in Licensing revenues as a
percentage of total revenues (where gross profit as a percentage of sales can
approximate 95%) increased the Company's consolidated gross profit as a
percentage of sales to 77% in 2003 from 53% in 2002.


Selling, General and Administrative Expenses Years Ended December 31,
(in thousands)
2002 2003 2002 2003
------- -------- ---- ----

Licensing $ 19,476 $61,140 23% 56%
Publishing 14,718 13,560 17% 13%
Toys 34,303 14,830 40% 14%
Corporate 17,303 19,352 20% 17%
------- -------- ---- ----
Total Selling, General and Administrative Expenses $85,800 $108,882 100% 100%
======= ======== ==== ====



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

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

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

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

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

14


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

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

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

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

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

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

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

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

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

15


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

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

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

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

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

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


16


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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

17


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

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

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

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

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

18


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



Contractual
Obligations Payments Due By Period
- --------------------------------------------------------------------------------------------
Less than More Than
(Amounts in thousands) Total 1 Year 1-3 Years 3-5 Years 5 Years
- --------------------------------------------------------------------------------------------

Long Term Debt Obligations $150,962 $ -- $ -- $ -- $150,962
- --------------------------------------------------------------------------------------------
Capital Lease Obligations -- -- -- -- --
- --------------------------------------------------------------------------------------------
Operating Lease Obligations 10,355 3,404 5,538 848 565
- --------------------------------------------------------------------------------------------
Purchase Obligations -- -- -- -- --
- --------------------------------------------------------------------------------------------
Other Long-Term Liabilities
Reflected on the Registrant's
Balance Sheet under GAAP 636 -- 570 66 --
- --------------------------------------------------------------------------------------------
Expected pension benefit
payments 12,889 1,215 2,395 2,428 6,851
- --------------------------------------------------------------------------------------------
Total $174,842 $4,619 $8,503 $ 3,342 $158,378
- --------------------------------------------------------------------------------------------


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

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

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

Critical Accounting Policies and Estimates

General

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

Revenue Recognition

Merchandise Sales, Sales Returns and Customer Allowances

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


19


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

Subscription Revenues

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

License Revenues

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

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

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



Years Ended December 31,
(in thousands)

2001 2002 2003
---- ---- ----

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



20


Allowance for Doubtful Accounts

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

Excess and Obsolete Inventory

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

Molds and Tools

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

Product and Package Design Costs

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

Goodwill and Other Intangibles

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

21



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

Royalties

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

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

Accounting for Joint Venture

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

Commitments and Contingencies

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

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

22


Recent Accounting Pronouncements

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

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


The Company's pro forma information follows:
Years Ended December 31,
2001 2002 2003
-------------------------------

(in thousands, except per share
data)


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

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

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



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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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


23


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

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


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


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

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

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


PART III

Item 10. Directors and Executive Officers of the Registrant

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


Item 11. Executive Compensation

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


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

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


24


Item 13. Certain Relationships and Related Transactions

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


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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


PART IV

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

(a) Documents Filed with this Report

1. Financial Statements

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

2. Financial Statement Schedule

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

3. Exhibits

See the accompanying Exhibit Index immediately below.

(b) Reports on Form 8-K.

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

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

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

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




25






EXHIBIT INDEX


Exhibit No.

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

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

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

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

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

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

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

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

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

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

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

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

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

26



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

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

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

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

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

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

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

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

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

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

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

27



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

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

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

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

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

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

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

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

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

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

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

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

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

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

28


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

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

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

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

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

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

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

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

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

21 Subsidiaries of the Registrant. (Filed herewith.)

23.1 Consent of Independent Auditors. (Filed herewith.)

23.2 Consent of Independent Auditors. (Filed herewith.)

23.3 Consent of Independent Auditors. (Filed herewith.)

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

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

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

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

*Management contract or compensatory plan or arrangement.

29



SIGNATURES

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


MARVEL ENTERPRISES, INC.

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



30





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


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


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


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


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


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


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


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


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


/s/ Lawrence Mittman Director March 11, 2004
- ---------------------
Lawrence Mittman



31





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE


Marvel Enterprises, Inc.

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


Consolidated Financial Statement Schedule

Schedule II-Valuation and Qualifying Accounts........................................................... F-34


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




























F-1





REPORT OF INDEPENDENT AUDITORS

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

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

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

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

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


/s/Ernst & Young LLP


New York, New York
February 27, 2004

















F-2






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


December 31, December 31,
2002 2003
(in thousands, except
share data)
ASSETS
Current assets:

Cash and cash equivalents...................................................... $ 53,690 $ 32,562
Certificates of deposit and commercial paper................................... -- 214,457
Accounts receivable, net....................................................... 43,420 51,820
Inventories, net .............................................................. 16,036 12,975
Distribution receivable from joint venture, net................................ 2,102 2,056
Deferred income taxes, net .................................................... -- 18,197
Deferred financing costs....................................................... 667 667
Prepaid expenses and other current assets...................................... 6,700 2,273
--------- --------
Total current assets 122,615 335,007

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

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

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


See Notes to Consolidated Financial Statements.



F-3



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


Years Ended December 31,
2001 2002 2003
----- ---- ----
(in thousands, except per share
data)

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

See Notes to Consolidated Financial Statements.



F-4







MARVEL ENTERPRISES, INC.
DECEMBER 31, 2003

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME




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


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


See Notes to Consolidated Financial Statements.


F-5


MARVEL ENTERPRISES, INC.

DECEMBER 31, 2003

CONSOLIDATED STATEMENTS OF CASH FLOWS



Years Ended December 31,
2001 2002 2003
--------- ----------- -------
(in thousands)

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


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


See Notes to Consolidated Financial Statements.

F-6






MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003


1. Description of Business and Basis of Presentation

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

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

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









F-7




MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003


2. Summary of Significant Accounting Policies

Reclassifications

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

Principles of Consolidation

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

Use of Estimates

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

Cash Equivalents

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

Inventories

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

Joint Venture


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

Molds, Tools, and Equipment

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


F-8

MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003


Product and Package Design Costs

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

Goodwill and Other Intangibles

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

Other intangible assets are amortized over 3 to 10 years.

Long-Lived Assets

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

Deferred Financing Costs

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

Comprehensive Income

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


F-9


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

Research and Development

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

Revenue Recognition

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

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

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

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

Advertising Costs

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

Royalties

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

Income Taxes

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

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


F-10

MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

Foreign Currency Translation

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

Stock Based Compensation

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

In accordance with the provisions of SFAS 148, the Company has elected to
continue to account for its stock options under APB Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations. Under APB
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on date of grant, no compensation
expense is recognized. For the purposes of SFAS 148 pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options'
vesting periods. The Company's pro forma information follows: (See Note 17)


Years Ended December 31,
2001 2002 2003
------ ------ ------
(in thousands, except per share data)

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

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

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

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

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

F-11


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

Fair Value of Financial Instruments

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

The estimated fair values of the Company's Senior Notes and outstanding 8%
Cumulative Convertible Exchangeable Preferred Stock, par value $.01 per share
("8% Preferred Stock") are based on market prices, where available. The carrying
amounts and estimated fair values of these financial instruments were as
follows:


December 31, 2002 December 31, 2003
------------------ -----------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
(in thousands)

Senior Notes................. $ 150,962 $ 150,962 $ 150,962 $ 165,761
8% preferred stock........... $ 32,780 $ 32,541 $ - $ -


Concentration of Risk

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

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

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

Income (Loss) Per Share

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

Recent Accounting Pronouncements

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


F-12


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

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

3. Goodwill and Cumulative Effect of Change in Accounting Principle

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

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

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



F-13


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

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




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


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

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

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






F-14


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

4. Details of Certain Balance Sheet Accounts


December 31,
2002 2003
(in thousands)
Accounts receivable, net, consists of the following:
Toys:

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

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



F-15


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

5. Debt Financing

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

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

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

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

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


F-16


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003


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

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

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

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

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


F-17

MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

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

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

As of December 31, 2003, the Company had reserved shares of common stock for
issuance as follows:



Issuance of restricted stock ................................................................ 203,085
Exercise of common stock options................................................................ 12,470,959
----------
Total............................................................................................ 12,674,044
----------


7. Stock Option Plans

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

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




Weighted
Average
Exercise
Shares Price
--------- ---------

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

F-18


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

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

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

Weighted Average


Weighted Weighted
Outstanding Remaining Average Exercisable Average
Range of Options at Contractual Exercise at Exercise
Exercise Prices December 31, 2003 Life - (Years) Price December 31, 2003 Price
--------------- ----------------- -------------- ----- ----------------- -----

$2.38 - $3.27 351,008 7.47 $ 2.80 323,840 $ 2.82
$3.62 - $5.88 4,412,671 4.27 $ 3.81 4,139,506 $ 3.70
$6.13 - $8.30 3,463,972 6.43 $ 7.11 2,763,066 $ 6.81
$9.92 - $29.75 1,522,625 8.30 $ 20.57 293,625 $27.45



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

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

8. Sales to Major Customers and International Operations

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


F-19


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

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

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

9. Restructuring of Toy Biz Operations

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

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

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

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

F-20

MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003
10. Income Taxes

The provision (benefit) for income taxes is summarized as follows:


Years ended December 31,
------------------------
2001 2002 2003
------------- ------------- -------------
(in thousands)
Current:

Federal 0 0 4,121
State and Local............................... 384 590 1,886
Foreign....................................... 263 405 1,095
------------- ------------- -------------
$ 647 $ 995 $ 7,102
------------- ------------- -------------
Deferred:
Federal....................................... $ - $ 10,907 $ 5,711
State and Local............................... - - (14,089)
------------- ------------- -------------
$ - $ 10,907 $ (8,378)
------------- ------------- -------------
Income tax expense (benefit) $ 647 $ 11,902 $ (1,276)
============= ============= =============

The differences between the statutory Federal income tax rate and the effective
tax rate are attributable to the following:


Years ended December 31,
------------------------
2001 2002 2003
------------ --------- ------------

Federal income tax provision computed at the statutory rate..... (35.0)% 35.0% 35.0%
State and Local taxes, net of Federal income tax effect......... 1.0% 0.6% 1.0%
Valuation Allowance............................................. -- -- (38.2)%
Non-deductible amortization expense............................. 31.5% -- --
Foreign taxes................................................... 1.0% 1.0% 0.4%
Purchase accounting............................................. 4.5% (5.6)% -
Other........................................................... (0.5)% (0.2)% 1.0%
------------ --------- ------------
Total provision for income taxes................................ 2.5% 30.8% (0.8)%
============ ========= ============

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:


December 31,
------------------------
2002 2003
------------- -------------
(in thousands)

Deferred tax assets:
Accounts receivable.................................... $ 6,208 $ 304
Inventory.............................................. 4,085 2,079
Sales reserves......................................... 2,169 2,322
Employment reserves.................................... 4,100 464
Partnership interest................................... 4,902 (750)
Legal and other reserves............................... 5,527 3,420
Net operating loss carryforwards....................... 78,399 45,018
Tax credit carryforwards............................... 1,776 4,561
Other.................................................. 79 720
------------- -------------
Total gross deferred tax assets........................ $ 107,245 $ 58,138
Less valuation allowance............................... (96,737) (7,037)
------------- -------------
Net deferred tax assets................................ $ 10,508 $ 51,101
------------- -------------
Deferred tax liabilities:
Depreciation/ amortization............................. $ 830 $ (1,077)
Licensing, net......................................... 9,678 5,735
------------- -------------
Total gross deferred tax liabilities................... $ 10,508 $ 4,658
------------- -------------
Net deferred tax asset ......................................... $ - $ 46,443
============= =============


F-21


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

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

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

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

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

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

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

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

F-22


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

11. Quarterly Financial Data (Unaudited)

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



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


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

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

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



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

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

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

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

12. Related Party Transactions

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

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

F-23

MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

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

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

13. Commitments and Contingencies

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

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




Contractual Obligations Payments Due By Period
- ------------------------------------------------------------------------------------------------------
Less than After
(Amounts in thousands) Total 1 Year 1-3 Years 3-5 Years 5 Years

- ------------------------------------------------------------------------------------------------------
Long Term Debt Obligations $ 150,962 $ -- $ -- $ -- $ 150,962
- ------------------------------------------------------------------------------------------------------
Operating Lease Obligations 10,355 3,404 5,538 848 565
- ------------------------------------------------------------------------------------------------------
Purchase Obligations -- -- -- -- --
- ------------------------------------------------------------------------------------------------------
Other Long-Term Liabilities
Reflected on the Company's
Balance Sheet under GAAP 636 -- 570 66 --
- ------------------------------------------------------------------------------------------------------
Expected pension benefit
payments 12,889 1,215 2,395 2,428 6,851
- ------------------------------------------------------------------------------------------------------
Total $ 174,842 $ 4,619 $ 8,503 $ 3,342 $ 158,378
- ------------------------------------------------------------------------------------------------------


F-24



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

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

The following table sets forth the Company's Other Commercial Commitments
as of December 31, 2003:


Other Commercial Amount of Commitment
Commitments Total Expiration Per Period
- -------------------------------------------------------------------------------------------------------

Less than Over
(Amounts in thousands) 1 Year 1-3 Years 4-5 Years 5 Years
- -------------------------------------------------------------------------------------------------------
Standby Letters of Credit $ 194 $ -- $ 194 $ $
- -------------------------------------------------------------------------------------------------------


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

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

Legal Matters

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

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

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

F-25


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

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

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


F-26


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

14. Benefits Plans

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

The following tables show disclosure amounts for the 2003 financial
statements as required under SFAS No. 87 as amended by SFAS No. 132. These
figures are based on the population data and actuarial assumptions as of January
1, 2003 and January 1, 2002 and on a September 30 measurement date.


2002 2003
----------------- -----------------

Accumulated Benefit Obligation, End of Year ............................... $ 18,749,102 $ 19,361,711

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

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

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

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



F-27




MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003



2002 2003
Total cost for plan year

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

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

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

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

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


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

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


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


F-28

MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003


15. Segment Information

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

Toy Merchandising and Distribution Segment

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

Publishing Segment

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


F-29



MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003

Licensing Segment

The licensing segment relates to the licensing of or joint ventures
involving the Marvel Characters for use in a wide variety of products, including
toys, electronic games, apparel, accessories, footwear, collectibles and
novelties; in a variety of media, including feature films, television programs,
and destination-based entertainment (e.g., theme parks); and for promotional
use.


Revenue by Geographic Area
(in thousands)
2001 2002 2003
......................... .......................... ...........................

U.S. Foreign* U.S. Foreign* U.S. Foreign*
Licensing $ 30,309 $ 9,703 $ 47,565 $31,997 $106,264 $ 82,940
Publishing 40,685 8,819 53,678 10,823 61,363 11,892
Toys 70,996 20,712 118,873 36,110 64,607 20,560
-------- ------- -------- ------- -------- --------
Total $141,990 $39,234 $220,116 $78,930 $232,234 $115,392
======== ======= ======== ======= ======== ========

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



Toys Publishing Licensing Corporate Total
(in thousands)
Year ended December 31, 2001

Net sales....................................... $91,708 $49,504 $40,012 -- $181,224
Gross profit.................................... 26,932 25,577 40,006 -- 92,515
Pre-acquisition litigation charge............... -- -- -- (3,000) (3,000)
Operating (loss) income......................... (5,807) 14,453 5,168 (12,521) 1,293

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

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



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

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

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


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

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

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



F-30


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003


16. Supplemental Financial Information (in thousands)

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



Issuer
And Non
Guarantors Guarantors Total
For The Year Ended December 31, 2001

Net sales................................... $157,893 $23,331 $181,224
Gross profit................................ 85,339 7,176 92,515
Operating income............................ 242 1,051 1,293
Net income.................................. 3,592 1,673 5,265

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

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




Issuer
And Non- Inter-
Guarantors Guarantors Company Total

December 31, 2002

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

$ 731,404 $ 45,967 $ (35,514) $ 741,857
========= ========= ========= =========


F-31




MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 200354



Issuer
and Non-
Guarantors Guarantors Total
Year Ended December 31, 2001
Cash flows from operating activities:

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


17. Subsequent Event (unaudited)

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




2001 2002 2003

Diluted net (loss) income per share:

As reported $(.31) $(1.18) $2.01
Pro forma ..................... $(.21) $ (.79) $1.33



F-32


MARVEL ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2003




Quarterly unaudited pro forma diluted earnings per share:

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


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





F-33



MARVEL ENTERPRISES, INC.


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS




Balance Charged to Sales Charged to Balance
At Beginning or Costs and Other at End
of Period Expenses Accounts Deductions of Period
Description (4)
(in thousands)
Year Ended December 31, 2001
Allowances included in Accounts
Receivable. Net:

Doubtful accounts--current ......................... $ 4,542 $ 3,470 (3) -- $ 2,737 $ 5,275
Doubtful accounts--non-current ..................... -- -- -- -- --
Advertising, markdowns,
volume discounts, and other ..................... $19,393 $ 15,037 (1) -- $22,592 $11,838

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

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

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

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

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



F-34