Back to GetFilings.com



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

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ----------- to ----------

Commission file number 1-13638


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


Delaware 13-3711775
- -------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)



10 East 40th Street, New York, NY 10016
- ----------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)

212-576-4000

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

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


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

Yes X No

At October 31, 2002, the number of outstanding shares of the registrant's common
stock, par value $.01 per share, was 36,310,227 shares of Common Stock.







TABLE OF CONTENTS
Page


PART I. FINANCIAL INFORMATION........................................................... 1

Item 1. Financial Statements (unaudited)................................................ 1

Condensed Consolidated Balance Sheets as of September 30, 2002 and
December 31, 2001............................................................... 1

Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss) for the Three Months and Nine Months Ended September 30, 2002
and 2001........................................................................ 2

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2002 and 2001..................................................... 3

Notes to Condensed Consolidated Financial Statements............................ 4

Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 13

General......................................................................... 13

Results of Operations........................................................... 14

Liquidity and Capital Resources................................................. 17

Item 4. Controls and Procedures......................................................... 19

PART II. OTHER INFORMATION........................................................................ 20

Item 1. Legal Proceedings............................................................... 20

Item 2. Exhibits and Reports on Form 8-K................................................ 21

SIGNATURES........................................................................................ 21

CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.......................... 22



i



PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements


MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

September 30, December 31,
2002 2001
------------- -------------

ASSETS (unaudited)
Current assets:
Cash and cash equivalents............................................. $58,236 $21,591
Accounts receivable, net.............................................. 34,370 35,648
Inventories, net...................................................... 19,589 20,916
Income tax receivable................................................. -- 334
Amounts due from joint venture........................................ 4,118 --
Deferred financing costs.............................................. 7,531 9,144
Prepaid expenses and other current assets............................. 2,908 12,594
-------------- -------------

Total current assets.............................................. 126,752 100,227

Molds, tools and equipment, net........................................ 7,269 8,076
Product and package design costs, net.................................. 1,486 2,218
Accounts receivable, non-current portion............................... 13,336 11,890
Goodwill, net.......................................................... 367,912 380,675
Other intangibles, net................................................. 734 988
Deferred charges and other assets...................................... 101 139
Deferred financing costs............................................... 5,794 13,357
-------------- -------------

Total assets...................................................... $523,384 $517,570
============== =============

LIABILITIES, CUMULATIVE CONVERTIBLE EXCHANGEABLE REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current liabilities:

Accounts payable...................................................... $ 14,992 $13,052
Accrued expenses and other............................................ 41,064 35,270
Current portion of credit facility.................................... 9,228 6,172
Administrative claims payable......................................... 1,808 3,500
Unsecured creditors payable........................................... 3,571 5,239
Deferred revenue...................................................... 4,385 7,128
-------------- -------------

Total current liabilities......................................... 75,048 70,361
-------------- -------------

Senior notes........................................................... 150,962 150,962
Long-term portion of credit facility................................... 14,686 30,828
Accrued rent........................................................... 844 940
Deferred revenue, non-current portion.................................. 11,819 14,546
-------------- -------------

Total liabilities.................................................. 253,359 267,637
-------------- -------------
Cumulative convertible exchangeable
redeemable preferred stock..................................... 208,088 207,975
-------------- -------------
Stockholders' equity
Common stock........................................................... 436 421
Additional paid-in capital............................................. 254,690 238,769
Accumulated deficit.................................................... (159,722) (162,897)
Accumulated other comprehensive loss................................... (512) (1,380)
-------------- -------------

Total stockholders' equity before treasury stock................... 94,892 74,913
Treasury stock..................................................... (32,955) (32,955)
-------------- -------------
Total stockholders' equity.......................................... 61,937 41,958
-------------- -------------
Total liabilities, cumulative convertible exchangeable
redeemable preferred stock and stockholders' equity........... $523,384 $517,570
============== =============

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

1



MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ----------------------
2002 2001 2002 2001
------- ------- -------- --------

Net sales..................................... $84,378 $43,026 $212,539 $131,630
Cost of sales................................. 41,100 23,188 104,163 69,914
------- ------- -------- --------
Gross profit.................................. 43,278 19,838 108,376 61,716
------- ------- -------- --------
Operating expenses:
Selling, general and administrative...... 16,015 12,629 55,188 38,344
Pre-acquisition litigation charge........ -- -- -- 3,000
Depreciation and amortization............ 1,590 2,179 3,642 3,982
Amortization of goodwill................. 85 5,940 255 17,782
------- ------- -------- --------
Total operating expenses...................... 17,690 20,748 59,085 63,108
Other income.................................. 253 -- 967 --
Equity in net income (loss) of joint venture.. 1,785 (92) 7,126 (270)
------- ------- -------- ---------
Operating income (loss)....................... 27,626 (1,002) 57,384 (1,662)
Interest expense, net......................... 11,973 7,162 27,652 22,789
------- ------- -------- ---------
Income (loss) before provision for income taxes,
extraordinary gain and cumulative effect of change
in accounting principle....................... 15,653 (8,164) 29,732 (24,451)
Income tax provision.......................... 5,017 6,584 9,955 6,389
-------- ------- -------- ---------
Income (loss) before extraordinary gain and
cumulative effect of change in accounting
principle.................................... 10,636 (14,748) 19,777 (30,840)
Extraordinary gain, net of income tax provision
of $9,686.................................... -- 13,645 -- 13,645
-------- -------- -------- ---------
Income (loss) before cumulative effect of change
in accounting principle....................... 10,636 (1,103) 19,777 (17,195)
Cumulative effect of change in accounting
principle, net of income tax of $2,780........ 175 -- (4,386) --
--------- -------- -------- ---------
Net income (loss)............................. 10,811 (1,103) 15,391 (17,195)
Less: preferred dividend requirement.......... 4,080 4,006 12,216 11,957
--------- -------- -------- ---------
Net income (loss) attributable to common stock. $6,731 ($5,109) $ 3,175 ($29,152)
--------- -------- -------- ---------
Basic earnings (loss) per share before
extraordinary gain and cumulative effect of change
in accounting principle....................... $0.19 ($0.54) $0.21 ($1.25)
Extraordinary gain............................ -- 0.39 -- 0.40
Cumulative effect of change in accounting
principle.......... -- -- (0.12) --
--------- ---------- --------- ---------
Basic earnings (loss) per share attributable to
common stock.................................. $0.19 ($0.15) $0.09 ($0.85)
--------- ---------- --------- ---------
Weighted average number of basic shares
outstanding................................... 36,292 34,529 35,560 34,173
---------- --------- -------- ---------
Diluted earnings (loss) per share before
extraordinary gain and cumulative effect of
change in accounting principle................. $0.17 ($0.54) $0.19 ($1.25)
Extraordinary gain............................ -- 0.39 -- 0.40
Cumulative effect of change in accounting
principle..................................... -- -- (0.11) --
---------- --------- ------- --------
Diluted earnings (loss) per share attributable to
common stock.................................. $0.17 ($0.15) $0.08 ($0.85)
---------- --------- ------- ---------
Weighted average number of diluted shares
outstanding................................... 40,586 34,529 40,448 34,173
---------- --------- ------- ---------

Comprehensive income (loss)
Net income (loss)............................ $10,811 ($1,103) $15,391 ($17,195)
Other comprehensive income (loss)............ 868 -- (512) --
---------- --------- --------- ---------

Comprehensive income (loss).................. $11,679 ($1,103) $14,879 ($17,195)
---------- --------- --------- ---------

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

2





MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months
Ended September 30,
------------------------
2002 2001
--------- ----------


Cash flows from operating activities:
Net income (loss)......................................................... $15,391 ($17,195)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary gain, net of income tax provision........................... -- (13,645)
Cumulative effect of change in accounting principle, net of income tax
provision................................................................. 4,386 --
Deferred income taxes..................................................... 8,304 5,301

Depreciation and amortization............................................. 3,897 21,764
Amortization of deferred financing costs.................................. 11,939 1,053
Equity in net (income) loss of joint venture.............................. (7,126) 270
Distributions from joint venture.......................................... 1,664 957
Changes in operating assets and liabilities:
Accounts receivable.................................................... (168) 8,960
Inventories............................................................ 1,327 17,553
Income tax receivable.................................................. 334 --
Prepaid expenses and other current assets.............................. 9,686 (10,339)
Deferred charges and other assets...................................... 38 806
Accounts payable, accrued expenses and other liabilities............... 4,453 (4,706)
---------- -----------
Net cash provided byrating activities...................................... 54,125 10,779
---------- -----------
Cash flows from investing activities:
Increase in restricted cash............................................ -- (3,000)
Payment of administrative claims and unsecured creditors payable, net.. (3,360) (2,236)

Purchases of molds, tools and equipment................................ (1,298) (4,167)
Expenditures for product and package design costs...................... (805) (2,152)
Other intangibles...................................................... (1) (516)
---------- -----------
Net cash used in investing activities....................................... (5,464) (12,071)
---------- -----------

Cash flows from financing activities:
Deferred financing costs............................................... (196) --
Purchase of senior notes............................................... -- (6,701)
Stock purchase warrants exercised...................................... -- 1
Repayment of credit facility........................................... (13,086) --
Exercise of stock options.............................................. 1,266 --
---------- -----------
Net cash used in financing activities....................................... (12,016) (6,700)
---------- -----------
Net increase (decrease) in cash and cash equivalents......................... 36,645 (7,992)
Cash and cash equivalents, at beginning of period............................ 21,591 22,803
---------- -----------
---------- -----------
Cash and cash equivalents, at end of period.................................. $58,236 $14,811
========== ===========
========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the period (2002 amount includes $9,149
applicable to 2001 interest paid on senior notes in January 2002)........... $19,955 $15,310
Income taxes, net, paid during the period.............................. $194 $239

Non-cash transactions:
Preferred dividends requirement............................................ $12,216 $11,957
Receipt of $39.2 million in senior notes in satisfaction of licensing
fees....................................................................... -- $20,000
Conversion of preferred stock to common stock.............................. $12,102 $9,814
Fair value of warrants issued in connection with credit facility........... $2,567 --



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

3




MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(unaudited)

1. BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements of
Marvel Enterprises, Inc. and its subsidiaries (collectively, the "Company") have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss) for the three months and nine months
ended September 30, 2002 and the Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 2002 are not necessarily indicative of
those for the full year ending December 31, 2002. Certain prior year amounts
have been reclassified to conform to the current year's presentation. For
further information on the Company's historical financial results, refer to the
Consolidated Financial Statements and Footnotes thereto contained in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.

2. GOODWILL, OTHER INTANGIBLE ASSETS AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE

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. The Company will
perform its annual impairment review during the fourth quarter of each year,
commencing in the fourth quarter of 2002.

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 ($0.11 per share) to reduce the
carrying value of its goodwill, with respect to its toy merchandising and
distribution reporting unit. In the third quarter of 2002, the Company recorded
an adjustment of $0.2 million to the income tax provision related to this charge
so as to properly reflect estimated year-end taxes. Such charge is
non-operational in nature and is reflected as a cumulative effect of change in
accounting principle in the accompanying Condensed Consolidated Statement of
Operations and Comprehensive Income (Loss) for the nine months ended September
30, 2002. The Company will continue to evaluate this income tax provision and
make any necessary adjustments in the fourth quarter of 2002. As of September
30, 2002, the net cumulative effect of this change in accounting principle was
$4.4 million.

4



MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(unaudited)

A summary of the Company's goodwill before and after the application of SFAS
142, and total assets as of September 30, 2002, by reporting unit, is as follows
(in thousands):



Goodwill Total Assets
---------- --------------
Utilization of
January 1, Net Operating September 30, September 30,
2002 Impairments Loss Carryforwards 2002 2002
---------- ----------- -------------------- -------------- -------------

Licensing $324,193 $ - $ (5,597) $318,596 $ 374,195
Publishing 49,316 - - 49,316 78,372
Toy Merchandising
and Distributing $ 7,166 (7,166) - - 70,817
---------- ------------ ------------------- -------------- -------------
Total $380,675 $ (7,166) (5,597) $367,912 $ 523,384
========== ============ =================== ============== =============


As of September 30, 2002 and December 31, 2001, the Company's intangible
assets subject to amortization and related accumulated amortization consisted of
the following (in thousands):



September 30, 2002 December 31, 2001
-------------------------------------------- ------------------------------------------
Accumulated Accumulated
Gross Amortization Net Gross Amortization Net
----------- ---------------- ---------- ----------- ---------------- ---------

Patents $ 3,186 $ 2,857 $ 329 $ 3,185 $ 2,695 $ 490
Trademarks 1,264 859 405 1,264 766 498
----------- ---------------- ---------- ----------- ---------------- ---------
Total $ 4,450 $ 3,716 $ 734 $ 4,449 $ 3,461 $ 988
=========== ================ ========== =========== ================ =========


The Company recorded amortization expense of intangible assets of $85,000 and
$255,000 during the three months and nine months ended September 30, 2002
compared to $75,000 and $183,000 during the three and nine month periods ended
September 30, 2001. Based on the current amount of intangible assets subject to
amortization, the estimated amortization expense for each of the succeeding 5
years are as follows: 2002: $338,000; 2003: $304,000; 2004: $217,000; 2005:
$129,000; 2006: $ 0.

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):



Three Months Nine Months
Ended Ended
September 30, 2001 September 30, 2001
-------------------- ---------------------

Net loss attributable to common stockholders
As reported - historical basis $ (5,109) $ (29,152)
Add: Goodwill amortization 5,866 17,599
-------------------- ---------------------
Adjusted net income (loss) attributable to common stockholders $ 757 $ (11,553)
==================== =====================

Basic and diluted income (loss) per share attributable to
common stock $ 0.02 $ (0.34)


5


MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(In thousands)
(unaudited)



3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS

September 30 December 31
2002 2001
------------- -------------

Accounts receivable, net, consist of the following:
Accounts receivable........................................................ $58,423 $52,761
Less allowances
Doubtful accounts.............................................. (7,384) (5,275)
Advertising, markdowns, returns, volume, discounts and other... (16,669) (11,838)
-------------- -------------
Total................................................................... $34,370 $35,648
============== =============
Inventories, net, consist of the following:
Toys:
Finished goods............................................................ $10,017 $12,039
Component parts, raw materials and work-in-process........................ 2,568 3,849
-------------- -------------
-------------- -------------
Total toys.............................................................. 12,585 15,888

Publishing:
Finished goods............................................................ 1,351 1,411
Editorial and raw materials............................................... 5,653 3,617
-------------- -------------
-------------- -------------
Total publishing........................................................ 7,004 5,028
-------------- -------------
Total................................................................... $19,589 $20,916
============== =============

Molds, tools and equipment, net, consists of the following:
Molds, tools and equipment................................................. $4,350 $3,410
Office equipment and other................................................. 12,262 12,096
Less accumulated depreciation and amortization............................. (9,343) (7,430)
-------------- -------------
Total.................................................................... $7,269 $8,076
============== =============

Product and package design costs, net, consists of the following:
Product design costs....................................................... $2,793 $2,255
Package design costs....................................................... 1,131 864
Less accumulated amortization.............................................. (2,438) (901)
-------------- -------------
Total.................................................................... $1,486 $2,218
============== =============

Accrued expenses and other:
Accrued royalties........................................................... $5,742 $2,737
Inventory purchases......................................................... 8,501 1,443
Income taxes payable........................................................ 3,135 2,051
Marvel Entertainment Group acquisition accruals............................. 1,287 1,857
Accrued bonuses............................................................. 2,427 --
Interest expense............................................................ 5,925 9,971
Accrued expenses - Fleer sale including pension benefits.................... 2,904 3,946
Pre-acquisition litigation charge........................................... 3,000 3,000
Other accrued expenses...................................................... 8,143 10,265
-------------- -------------
Total..................................................................... $41,064 $35,270
============== =============



6




MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(unaudited)

4. 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 Act") pursuant to Rule 144A under the Act. On
August 20, 1999, the Company completed an exchange offer under which it
exchanged virtually all of the senior notes, which contained restrictions on
transfer, for an equal principal amount of registered, transferable senior notes
("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 on 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.

On November 30, 2001, the Company and HSBC Bank USA entered into an
agreement for a senior credit facility (the "Credit Facility") comprised of a
$20 million revolving letter of credit facility renewable annually for up to
three years and a $37 million three year amortizing term loan facility, which
was used to finance the repurchase of a portion of the Company's Senior Notes.
The Company's ability to borrow additional funds from this facility was limited
to the period prior to February 1, 2002. The term loan facility amortizes
quarterly over three years with the outstanding principal due and payable on
December 31, 2004. At the option of the Company, the term loans bear interest
either at the lender's base rate plus a margin of 2.5% or the lender's reserve
adjusted LIBOR rate plus a margin of 3.5% (5.32% at September 30, 2002). The
Company may prepay the term loans applying the base rate at any time without
penalty, but may only prepay the LIBOR rate loans without penalty at the end of
the applicable interest period. On August 30, 2002, the Company voluntarily
prepaid $10 million toward the term loan. In connection with this accelerated
prepayment of the term loan, the Company recorded a charge of $4.1 million for
the write-off of deferred financing costs associated with the facility. The
letter of credit facility is a one-year facility subject to annual renewal,
expiring on the date which is five days prior to the final maturity for the term
loan facility. At September 30, 2002, $13.9 million of letters of credit were
outstanding. The Credit Facility contains customary mandatory prepayment
provisions for facilities of this nature, including an excess cash flow sweep.
It also 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 net worth and a minimum interest coverage and leverage ratio and
restrictions on paying cash dividends. The Credit Facility is secured by (a) a
first priority perfected lien in all of the assets of the Company; (b) a first
priority perfected lien in all of the capital stock of each of the Company's
domestic subsidiaries; (c) a first priority perfected lien in 65% of the capital
stock of each of the Company's foreign subsidiaries; and (d) cash collateral to
be placed in a cash reserve account in an amount equal to at least $10 million
at the end of each fiscal quarter.

7



MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(unaudited)

5. SHARES OUTSTANDING

The Condensed Consolidated Statement of Operations presents operations of
the Company for the three and nine months ended September 30, 2002. During the
first nine months of 2002, there were conversions of 1,210,185 shares of
preferred stock into 1,257,370 shares of common stock and 275,865 shares of
common stock were issued upon the exercise of employee stock options. The total
number of shares of common stock outstanding as of September 30, 2002 is
36,300,093. Assuming conversion of all of the outstanding 8% Preferred Stock,
the number of shares of common stock outstanding at September 30, 2002 would
have been 57,918,817; assuming conversion of all of the 8% Preferred Stock and
exercise of all outstanding warrants and employee stock options that are in the
money, the number of shares of common stock would have been 72,131,094. Assuming
conversion of all of the 8% Preferred Stock and exercise of all outstanding
warrants and employee stock options, the number of shares of common stock would
have been 81,714,302. Included in the 72,131,094 shares and 81,714,302 shares
are approximately 8,750,000 warrants that expired unexercised on October 2,
2002.

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):




Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------

2002 2001 2002 2001
------------ ------------ ------------- -----------
Numerator:
Net income $ 10,811 $ (1,103) $ 15,391 $ (17,195)
Preferred dividends (4,080) (4,006) (12,216) (11,957)
------------ ------------ ------------- -----------
Numerator for basic and diluted earnings per share -
income (loss) attributable to common stockholders $ 6,731 $ (5,109) $ 3,175 $ (29,152)
============ ============ ============= ===========

Denominator:

Denominator for basic earnings per share 36,292 34,529 35,560 34,173
Effect of dilutive warrants 2,189 - 2,384 -
Effect of employee stock options* 2,105 - 2,504 -
Effect of dilutive redeemable cumulative
exchangeable preferred stock** - - - -
------------ ------------ ------------- -----------
Denominator for diluted earnings per share -
adjusted weighted average shares and assumed
Conversions 40,586 34,529 40,448 34,173
============ ============ ============= ===========
Basic earnings per share $ 0.19 $ (0.15) $ 0.09 (0.85)
============ ============ ============= ===========
Diluted earnings per share $ 0.17 $ (0.15) $ 0.08 (0.85)
============ ============ ============= ===========


* Any dilution arising from the Company's outstanding employee stock options
during the three and nine months ended September 30, 2001 are not included as
their effect is anti-dilutive.

** The calculation of diluted earnings per share does not include the assumed
conversion of convertible preferred stock for the three and nine month periods
ended September 30, 2002 and September 30, 2001, as such would be anti-dilutive
- - caused by the effect of adding back the preferred stock dividends (to the
numerator) in such calculation.

8



MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(unaudited)

6. SEGMENT INFORMATION

The Company's operations consist of three segments: Toy Merchandising and
Distributing, Publishing and Licensing Segments.

Toy Merchandising and Distributing Segment

The toy merchandising and distributing segment designs, develops, markets
and distributes a limited line of toys to the worldwide marketplace. The
Company's toy products are based upon Spider-Man: The Movie and on Lord of the
Rings, which is licensed from New Line Cinema. The Spectra Star division (which
is presently scheduled to be closed on or about April 1, 2003) of the toy
merchandising and distributing segment designs, produces and sells kites in both
the mass market stores and specialty hobby shops. Spectra's sales amounted to
$10.7 million during the nine month period ended September 30, 2002 and this
division consists of $12.9 million total assets, principally inventory, land and
buildings.

Publishing Segment

The publishing segment creates and publishes comic books principally in
North America. The Company 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, and newly developed
Marvel Characters.

Licensing Segment

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

Set forth below is certain operating information for the segments of the
Company.

Three months ended September 30, 2002



Licensing Publishing Toys Corporate Total
----------- ------------ -------------- ----------- ----------
(in thousands)

Net sales $25,007 $15,345 $44,026 $ -- $ 84,378
Gross profit 24,008 7,140 12,130 -- 43,278
Operating income (loss) 22,480 4,354 4,151 (3,359) 27,626
EBITDA(1) 22,512 4,359 5,789 (3,359) 29,301


Three months ended September 30, 2001

Licensing Publishing Toys Corporate Total
----------- ------------ -------------- ----------- ---------
(in thousands)

Net sales $ 5,996 $12,829 $24,201 $ -- $ 43,026
Gross profit 5,731 6,519 7,588 -- 19,838
Operating (loss) income (844) 2,827 57 (3,042) (1,002)
EBITDA(1) 4,134 3,622 2,403 (3,042) 7,117



9




MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(unaudited)

Nine months ended September 30, 2002



Licensing Publishing Toys Corporate Total
----------- ------------ -------------- ----------- ---------
(in thousands)

Net sales $51,335 $47,846 $113,358 $ -- $212,539
Gross profit 50,161 24,107 34,108 -- 108,376
Operating income (loss) 43,256 14,338 9,050 (9,260) 57,384
EBITDA(1) 43,351 14,351 12,839 (9,260) 61,281


Nine months ended September 30, 2001

Licensing Publishing Toys Corporate Total
----------- ------------ -------------- ----------- ---------
(in thousands)

Net sales $ 22,663 $34,203 $74,764 $ -- $131,630
Gross profit 22,106 16,951 22,659 -- 61,716
Pre-acquisition litigation charge -- -- -- (3,000) (3,000)
Operating income (loss) 904 6,751 722 (10,039) (1,662)
EBITDA(1) 15,840 9,136 5,165 (10,039) 20,102


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

7. SPIDER-MAN: THE MOVIE

During 1999, the Company entered into a license agreement with Sony
Pictures Entertainment, Inc., ("Sony") providing for the licensing of the
Spider-Man characters in exchange for a gross participation in the marketing of
the Spider-Man: The Movie (which was commercially released on May 3, 2002) and
related releases on DVD/VHS and likely other revenue sources (e.g., syndication
sales, etc.), and established an equally owned joint venture for the merchandise
licensing of the Spider-Man: The Movie characters.

Earnings associated with the Company's participation in the gross proceeds
of the movie have been recognized as non-refundable advance royalty payments as
received, which amounted to $10 million in 1999, and $2.5 million in the second
quarter of 2002. During the quarter ended September 30, 2002, Sony reported
Marvel's participation through such date at approximately $2.0 million in excess
of advances previously received - which amount was subsequently collected from
Sony. Prospectively, additional movie royalties will be recognized as revenue -
as reported by Sony.

Earnings associated with our merchandising joint venture (accounted for
under the equity method of accounting) amounted to approximately $1.8 million
during the three month period ended September 30, 2002, and $7.1 million during
the nine months ended September 30, 2002, and represent the Company's share of
merchandising royalties, net of expenses. The Company's share of the joint
venture's earlier losses were $0.3 million in each of the years 2000 and 2001.

10


8. TOY LICENSE

During 2001, the Company entered into a license agreement with Toy Biz
Worldwide, Ltd. (TBW), an unrelated entity, covering the manufacture and sale of
toy action figures and accessories and other toy products using all of Marvel's
characters other than those based upon the Spider-Man movie and television
characters. The license agreement has a term of 66 months, and included the
payment to Marvel of a minimum guaranteed royalty of $20 million. In addition,
the Company and TBW have entered into other agreements, which require Marvel to
provide TBW with certain administrative, selling, and management support for
which TBW is to reimburse Marvel. For the three and nine month periods ended
September 30, 2002, the Company was reimbursed approximately $1.7 million and
$5.9 million, respectively, for administrative and management support. The
Company is recognizing royalty revenue related to this license as toys are
shipped. The Company is also entitled to additional royalties based upon TBW's
profitability. During the three and nine month periods ended September 30, 2002,
the Company recognized royalty income under this license of $5.4 million and
$7.0 million, respectively. As of September 30, 2002, the related deferred
minimum guaranteed royalty amounted to $12.6 million, of which $0.8 million is
classified as current liabilities.

9. SUBSEQUENT EVENT

During October 2002, the Company commenced an Offer to Exchange shares of
Marvel's Cumulative Convertible Exchangeable Preferred Stock, at an exchange
ratio of 1.39 shares of Common Stock for each share of Preferred Stock to be
tendered. Each share of Preferred Stock currently is convertible at the option
of the holder into 1.039 Common Shares. If preferred stockholders for all of
such shares accept this exchange offer, approximately 28.9 million additional
shares will be issued (of which 7.3 million shares of Common Stock equates to
the premium over the original conversion ratio), which issuance will be
accounted for, in the fourth quarter, as a preferred dividend. Such dividend
would approximate $60 million, based upon an estimated Common Stock closing
price of $8.25 per share on the Offer's scheduled expiration date.



MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(unaudited)

10. COMMITMENTS AND CONTINGENCIES

Commitments

In June 2000, the Company entered into a merchandise licensing agreement to
manufacture and distribute a line of toys associated with a motion picture
trilogy. The first motion picture in the trilogy was released on December 19,
2001 and the remaining two are expected to be released during the fourth
quarters of 2002 and 2003, respectively. In connection with this licensing
agreement and future minimum royalty obligations, the Company was required to
provide the licensor with a $5.0 million cash payment and a standby letter of
credit in the amount of $10.0 million, which is outstanding at September 30,
2002.

The Company is a party to various other royalty agreements with future
guaranteed royalty payments through 2003. Minimum future obligations under all
royalty agreements are as follows:



(in thousands)


2002..... $5,471
2003..... 5,274
-------
Total $10,745
=======



The Company remains liable in connection with businesses previously sold.

Legal Matters

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

Marvel v. Simon. In December 1999, Joseph H. Simon filed in the U.S.
Copyright Office written notices under the Copyright Act purporting to terminate
effective December 7, 2001 alleged transfers of copyright in 1940 and 1941 by
Simon of the Captain America character to the Company's predecessor. On February
24, 2000, the Company commenced an action against Simon in the United States
District Court for the Southern District of New York. The complaint alleges that
the Captain America character was created by Simon and others as a "work for
hire" within the meaning of the applicable copyright statute and that Simon had
acknowledged this fact in connection with the settlement of previous suits
against the Company's predecessors in 1969. The suit seeks a declaration that
Marvel Characters, Inc., not Mr. Simon, is the rightful owner of the Captain
America character. In February 2002, the Court granted the Company's motion for
summary judgment. Simon appealed the Court's decision and the hearing on the
appeal was held in June 2002. The Company is awaiting the Court's decision.

X-Men Litigation. In April 2001, Twentieth Century Fox Film Corporation
sued Marvel, Tribune Entertainment Co., Fireworks Communications, Inc. and
Fireworks Television (US), Inc. in the United States District Court, Southern
District of New York, seeking an injunction and damages for alleged breach of
the 1993 X-Men movie license, unfair competition, copyright infringement and
tortuous interference with the contract arising from the Mutant X television
show being produced by Tribune and Fireworks under license from Marvel which was
released in the fall of 2001. On the same day Fox filed the foregoing suit,
Marvel commenced an action against Fox in the same court seeking a declaratory
judgment that the license of the Mutant X title and certain Marvel characters
did not breach the 1993 X-Men movie license with Fox.

11



MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(unaudited)

Both suits were consolidated. On August 9, 2001, in response to Fox's motion for
a preliminary injunction and defendants' motion to dismiss Fox's claims, the
Court (i) granted the motion to dismiss all of Fox's claims except for its
breach of contract and copyright claims (ii) granted Fox's motion for a
preliminary injunction but only as to the defendants use of (a) video clips from
the X-Men film and/or trailer in order to promote the new Mutant X series and
(b) a logo that is substantially similar to the logo used by Fox in connection
with the X-Men film. The preliminary injunction has not and will not, have a
significant effect on the Company's operations. In January 2002, the United
States Appeals Court for the Second Circuit, in response to Fox's appeal,
affirmed the District Court's denial of Fox's motion for a preliminary
injunction to prevent the airing of the Mutant X series and remanded the case to
the District Court for further proceedings consistent with its opinion. At the
present time, the parties are engaged in pre-trial discovery with a trial on the
merits anticipated in Spring 2003.

MacAndrews & Forbes v. Marvel. On July 25, 2001, a jury verdict was entered
in the Sedgwick County, Kansas District Court in the amount of $3.0 million on a
breach of contract action based on a 1994 toy license between Toy Biz and The
Coleman Company. The complaint alleged that Toy Biz did not fulfill its
obligation to spend certain monies on the advertising and promotion of Coleman's
products. The Company filed an appeal which was heard in October 2002 and is
awaiting the Court's decision. The Company was required to post a letter of
credit in the amount of the judgment plus interest. The Company has provided for
this judgment during the second quarter of 2001 in the Consolidated Statement of
Operations.

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. (the "Marvel Defendants") in New
York 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. Marvel intends to oppose certification of the purported
class and vigorously defend this action on its merits.

Threatened Action. The Company has received a written claim by Stan Lee,
Chairman Emeritus, asserting the threat of litigation, in the event the Company
fails to pay him 10% of the profits derived by the Company from the profits of
the movies and television programs (including ancillary rights) utilizing the
Company's characters, as provided in the Employment Agreement between the
Company and Mr. Lee dated as of November 1, 1998. Pursuant to the terms of the
Employment Agreement, the Company is currently paying Mr. Lee a salary of $1
million per year and believes that Mr. Lee's claim is without merit. If Mr. Lee
commences suit, the Company intends to vigorously defend such action.

Administrative Expense Claims Litigation. The Company has initiated
litigation contesting the amount of certain Administrative Expense Claims
submitted to the Company for payment. As of September 30, 2002, the Company has
settled substantially all Administrative Expense Claims and believes the
remaining accrual of $1.8 million is sufficient to provide for its remaining
obligations.

12




Item 2 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURTIES 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 under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" could cause actual results to differ materially from those contained
in forward-looking statements made in this Form 10-Q Quarterly Report and in
oral statements made by authorized officers of the Company. When used in this
Form 10-Q, 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, or on behalf of, the Company: (i) the Company's potential
inability to successfully implement its business strategy, (ii) a decrease in
the level or a shift in the timing of media exposure or a decrease in popularity
of the Company's characters resulting in declining revenues from products based
on those characters, (iii) the continued financial stability of major licensees
of the Company (iv) the lack of commercial success of properties owned by major
entertainment companies that have granted the Company toy licenses, (v) the lack
of consumer acceptance of new product introductions, (vi) the imposition of
quotas or tariffs on toys manufactured in China as a result of a deterioration
in trade relations between the U.S. and China, (vii) changing consumer
preferences, (viii) production delays or shortfalls, (ix) continued pressure by
certain of the Company's major retail customers to significantly reduce their
toy inventory levels, (x) the impact of competition and changes to the
competitive environment on the Company's products and services, (xi) a decrease
in cash flow effecting the Company's ability to pay the outstanding indebtedness
(xii) changes in technology, (xiii) changes in governmental regulation, and
(xiv) other factors detailed from time to time in the Company's filings with the
Securities and Exchange Commission.

General
The Company's businesses are managed within three segments: Toy
Merchandising and Distributing, Publishing and Licensing Segments.

Toy Merchandising and Distributing Segment

The toy merchandising and distributing segment designs, develops, markets
and distributes a limited line of toys to the worldwide marketplace. The
Company's toy products are based upon Spider-Man: The Movie and on the Lord of
the Rings, which is licensed from New Line Cinema. The Spectra Star division
(which is presently scheduled to be closed on or about April 1, 2003 - see
Results of Operations) of the toy merchandising and distributing segment
designs, produces and sells kites in both the mass market stores and specialty
hobby shops. Spectra's sales amounted to $10.7 million during the nine month
period ended September 30, 2002 and this division consists of $12.9 million
total assets, principally inventory, land and buildings.

Publishing Segment

The publishing segment creates and publishes comic books principally in
North America. The Company 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 such as Spider-Man, X-Men as well as newly
developed Marvel Characters.

Licensing Segment

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

13




Results of Operations

Three months ended September 30, 2002 compared with the three months ended
September 30, 2001

The Company's net sales increased approximately $41.4 million to $84.4
million in the third quarter of 2002 (from approximately $43.0 million in the
third quarter of 2001). The increase is due to improved performance across each
of the Company's operating segments. Sales from the Toy segment increased
approximately $19.8 million to approximately $44.0 million in the third quarter
of 2002 (from approximately $24.2 million in the third quarter of 2001,
primarily due to the sales of action figures and accessories based on characters
from Spider-Man: The Movie, which were partially offset by lower sales of toys
from product categories that were discontinued in prior years. Sales from the
Publishing segment increased approximately $2.6 million to approximately $15.4
million in the third quarter of 2002 (from $12.8 million in the third quarter of
2001), primarily due to an increase in the sales of comic books and trade
paperbacks to the direct and mass markets. Revenue form the direct market
(specialty comic retail stores) increased approximately $2.3 million to $12.4
million in the three month period ended September 30, 2002 (from $10.1 million
in the three month period ended September 30, 2001 and consists of sales of
comic books and trade paperbacks. Revenue from the mass market increased
approximately $0.8 million to ($0.9 million) in the three month period ended
September 30, 2002 and consists of sales of trade paperbacks only. Sales of
trade paperbacks and comics have increased over 174% and over 14%, respectively,
in the 2002 period over the comparable period in 2001. Sales from the Licensing
segment increased approximately $19.0 million to approximately $25.0 million in
the third quarter of 2002 (from approximately $6.0 million in the third quarter
of 2001), primarily due to increased license fees from domestic and
international license agreements, including a substantial license agreement with
Vivendi Universal for online massive multi-player games based on the Company's
universe of characters and additional royalties received from Sony ($2.0
million) applicable to reported box office collections from Sony. Increased
overages associated with the Company's domestic and international licenses,
which are royalties in excess of a licensee's minimum guarantees, also
contributed to the increase in revenue in the third quarter of 2002.

Gross profit increased approximately $23.5 million to approximately $43.3
million in the third quarter of 2002 (from approximately $19.8 million in the
third quarter of 2001). This was primarily due to improvements in each of the
Company's operating segments. Gross profits improved 319% in Licensing, 10% in
Publishing, and 60% in Toys as compared to the third quarter of 2001.
Consolidated gross profit as a percentage of net sales increased to
approximately 51% in the 2002 period from approximately 46% in the 2001 period.
The gross profit percentage for the Toy segment decreased to 28% in the 2002
period - from 31% in the 2001 period, primarily due to the fact that the mix of
2002's product line consisted of lower margin items which was less profitable
than the product mix of the prior period. The gross profit percentage for
Publishing segment decreased to 47% in the 2002 period from 51% in the 2001
period, primarily due to an increase in reserves recorded for estimated slow
moving trade inventory. The gross profit percentage for Licensing remained
consistent in the third quarter of 2002 as compared to the third quarter of
2001.

Selling, general and administrative expenses increased approximately $3.4
million to approximately $16.0 million, or approximately 19% of net sales in the
third quarter of 2002 as compared to approximately $12.6 million or
approximately 29% of net sales in the third quarter of 2001. The Licensing
segment accounted for approximately $1.8 million of the increase which is
primarily due to increases in recorded accounts receivable reserves, the
recognition of development costs associated with the X-Men Evolution television
series and higher sales commissions. The Publishing segment accounted for $0.1
mm of the increase which was primarily due to higher distribution fees as a
result of the increase in sales of comic books and trade paperbacks to the
direct and mass markets. The Toy segment accounted for approximately $1.2
million of the increase primarily due to the recording ($0.9 million) of various
impairment charges related to the net assets of the Company's Spectra Star/Quest
Aerospace division - which is expected to be closed on or about April 1, 2003.
This charge principally relates to the acceleration of guaranteed minimum
royalty amounts due on license agreements, and to reduce the net realizable
value of certain fixed assets. This overall increase was partially offset by an
increased reimbursement of $0.7 million during the three month period ended
September 30, 2002 from Toy Biz Worldwide Ltd., an unrelated entity, for
administrative and management support provided. The Corporate division accounted
for $0.3 million of the increase due to higher legal fees in the third quarter
of 2002 relating to various ongoing litigation (See Part II, Item 1, " Legal
Proceedings" for further details).

14




In the third quarter of 2002, the Company recognized $1.8 million in net
revenue as compared to expenses of $0.1 million in the third quarter of 2001 in
connection with its share in a jointly owned limited partnership with Sony whose
purpose is to pursue licensing opportunities for motion picture and television
related merchandise relating to the Spider-Man characters. The Company accounts
for the activity of this joint venture under the equity method.

Depreciation and amortization expense decreased approximately $6.4 million
to approximately $1.7 million in the 2002 period (from approximately $8.1
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 2 to the Condensed
Consolidated Financial Statements).

Net interest expense increased $4.8 million in the third quarter of 2002
as compared to the third quarter of 2001, primarily due to the write-off of
deferred financing costs associated with the accelerated prepayment of $10
million toward the Credit Facility. In addition, interest expense associated
with the term loan (originated December 2001) contributed to the increase in net
interest expense in the third quarter of 2002. Cash interest savings from the
2001 repurchase of Senior Notes were exceeded by the non-cash amortization of
deferred financing costs associated with the Credit Facility and the Perlmutter
Guaranty and Security Agreement. Cash interest expense aggregated approximately
$5.4 million and $6.8 million during the three month periods ended September 30,
2002 and 2001, respectively.

The Company's effective tax rate (32.1%) for the quarter was lower than the
federal statutory rate due primarily to the tax benefit from stock option
exercises and the payment of certain unsecured and administrative claims, which
arose during the bankruptcy. The Company has net operating loss carryforwards
(NOLs) of approximately $131.0 million, of which $38.8 million is related to the
acquisition of Marvel Entertainment Group. A portion of these pre-acquisition
NOLs was utilized in the quarter ended September 30, 2002 and is reflected as a
$3.7 million reduction in goodwill.

Nine months ended September 30, 2002 compared with the nine months ended
September 30, 2001

The Company's net sales increased approximately $80.9 million to $212.5
million for the nine months ended September 30, 2002 (from approximately $131.6
million for the nine months ended September 30, 2001). The increase is due to
improved performance across each of the Company's operating segments. Sales from
the Toy segment increased approximately $38.6 million to approximately $113.4
million in the 2002 period (from approximately $74.8 million in the 2001 period)
primarily due to the sales of action figures and accessories based on characters
from Spider-Man: The Movie. Sales from the Publishing segment increased
approximately $13.6 million to approximately $47.8 million in the 2002 period
(from $34.2 million in the 2001 period) primarily due to an increase in the
sales of comic books and trade paperbacks to the direct and mass markets.
Revenue from the direct market (specialty comic retail stores) increased
approximately $11.1 million to $37.8 million in the nine month period ended
September 30, 2002 (from $26.7 million in the nine month period ended September
30, 2001) and consist of sales of comic books and trade paperbacks. Revenue from
the mass market increased approximately $3.3 million to ($3.8 million) in the
nine month period ended September 30, 2002 and consist of sales of trade
paperbacks only. Sales of trade paperbacks and comics have increased over 200%
and over 30%, respectively, in the 2002 period over the comparable period in
2001. Sales from the Licensing segment increased approximately $28.7 million to
approximately $51.3 million in the 2002 period (from approximately $22.6 million
in the 2001 period). Several factors contributed to the increase, first of which
is the Company's participation in the box office receipts ($4.5 million recorded
during the nine month period ended September 30, 2002) for Spider-Man: The Movie
as well as an advance payment of $5.0 million from Sony Pictures Entertainment
to begin production on the sequel of Spider-Man: The Movie. Second, increased
license fees from domestic and international license agreements, including the
license agreement with Vivendi Universal for online massive multi-player games
based on the Company's universe of characters. Third, increased overages
associated with the Company's domestic and international licenses, which are
royalties in excess of a licensee's minimum guarantees. Fourth, there was
additional revenue of $3.9 million recognized in connection with non-refundable
advance payments for future motion pictures based on the characters X-Men, Hulk,
Daredevil and Namor.

15




Consolidated gross profit increased approximately $46.7 million to
approximately $108.4 million for the nine months ended September 30, 2002 (from
approximately $61.7 million for the nine months ended September 30, 2001). While
each operating segment's gross profit as a percentage of net sales remained
fairly stable from 2001 to 2002, the growth in licensing revenues, where gross
profit as a percentage of sales amounts to approximately 96%, has given rise to
an increase in the Company's consolidated gross profit as a percentage of sales,
rising from 47% in the nine month period ended September 30, 2001, to 51% in the
comparable period in 2002.

Selling, general and administrative expenses increased approximately $13.8
million to approximately $55.2 million or approximately 26% of net sales for the
nine months ended September 30, 2002 (from approximately $41.3 million - which
includes a $3.0 million pre-acquisition litigation charge as described below) or
approximately 31% of net sales for the nine months ended September 30, 2001. The
Licensing segment accounted for approximately $7.9 million of the increase, $4.3
million of which is attributable to recognition of development costs associated
with the X-Men Evolution television series, approximately $2.5 million
attributable to increases in recorded accounts receivable reserves,
approximately $0.3 million in higher commissions and approximately $0.8 million
in higher payroll expenses. The Publishing segment accounted for approximately
$2.9 million of the increase which was attributable to an increase in
distribution fees of approximately $1.8 million resulting from increased sales
to the direct and mass markets as well as an additional $0.2 million in accounts
receivable reserves, $0.4 million in payroll expenses and $0.5 million which
relates to a donation to the Twin Towers Fund resulting from proceeds raised
from sales of its "Heroes" issue. The Toy segment accounted for approximately
$3.8 million of the increase primarily due to an increase in selling expenses,
specifically advertising for Spider-Man: The Movie toys as well as the write-off
of prepaid royalties of approximately $3.1 million associated with the Lord of
the Rings toy license and the recording ($0.9 million) of various impairment
charges related to the net assets of the Company's Spectra Star/Quest Aerospace
division - which is presently scheduled to be closed on or about April 1, 2003.
This charge principally relates to the acceleration of guaranteed minimum
royalty amounts due on license agreements, and to reduce the net realizable
value of certain fixed assets. This was partially offset by reimbursement of
$4.5 million from Toy Biz Worldwide Ltd., an unrelated entity, for
administrative and management support provided. During the nine month period
ended September 30, 2002, Corporate's legal expenses associated with various
ongoing litigation (see Part II, Item 1, "Legal Proceedings" for futher detail)
have amounted to an increase of approximately $2.1 million, which amount
compares to a pre-acquisition litigation charge of $3 million recorded during
the comparable period of the prior year, associated with litigation involving
The Coleman Company (MacAndrews & Forbes v. Marvel - see Part II, Item 1, Legal
Proceedings).

For the nine months ended September 30, 2002 , the Company recognized $7.1
million in net revenue as compared to expenses of $0.3 million in the first nine
months of 2001 in connection with its share in a jointly owned limited
partnership with Sony whose purpose is to pursue licensing opportunities for
motion picture and television related merchandise relating to the Spider-Man
characters. The Company accounts for the activity of this joint venture under
the equity method.

During the six month period ended June 30, 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 retroactive to the adoption date for the
cumulative effect of the accounting change in the initial amount of $4.6
million, net of tax of $2.6 million, 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 quarter of 2002, the Company recorded an
adjustment of $0.2 million to the income tax provision related to this charge so
as to properly reflect estimated year-end taxes. The Company will continue to
evaluate this income tax provision and make any necessary adjustments in the
fourth quarter of 2002. As of September 30, 2002, the net cumulative effect of
this change in accounting principle was $4.4 million.

16




Depreciation and amortization expense decreased approximately $17.9
million to approximately $3.9 million in the 2002 period (from approximately
$21.8 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 2 to the Condensed
Consolidated Financial Statements).

Net interest expense increased approximately $4.9 million for the nine
month period ended September 30, 2002 period as compared to the nine month
period ended September 30, 2001 primarily due to the write-off of deferred
financing costs associated with the voluntary accelerated prepayment of $10
million toward the Credit Facility. In addition, interest expense associated
with the term loan contributed to the increase in net interest expense in the
nine months ended September 30, 2002. Cash interest savings from the 2001
repurchase of Senior Notes were exceeded by the non-cash amortization of
deferred financing costs associated with the HSBC financing and the Perlmutter
Guaranty and Security Agreement. Cash interest expense aggregated approximately
$15.7 million and $21.7 million during the nine month periods ended September
30, 2002 and 2001, respectively.

The Company's effective tax rate for the first nine months of 2002 (33.5%)
was lower than the federal statutory rate due primarily to the tax benefit from
stock option exercises and the payment of certain unsecured and administrative
claims, which arose during the bankruptcy. The Company has net operating loss
carryforwards (NOLs) of approximately $131.0 million, of which $38.8 million is
related to the acquisition of Marvel Entertainment Group. A portion of these
pre-acquisition NOLs was utilized in the nine months ended September 30, 2002
and recorded as an $8.3 million reduction in goodwill.

Liquidity and Capital Resources

The Company's primary sources of liquidity are cash on hand, cash flows
from operations and from the $20.0 million HSBC letter of credit facility. The
Company anticipates that its primary needs for liquidity will be to: (i) conduct
its business; (ii) meet debt service requirements; (iii) make capital
expenditures; and (iv) pay administrative expense claims.

Net cash provided by operating activities was approximately $54.1 million
for the nine months ended September 30, 2002 as compared to net cash provided by
operating activities of $10.8 million for the nine months ended September 30,
2001.

At September 30, 2002, the Company had working capital of $51.7 million.

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 Act") pursuant to Rule 144A under the Act. On
August 20, 1999, the Company completed an exchange offer under which it
exchanged virtually all of the senior notes, which contained restrictions on
transfer, for an equal principal amount of registered, transferable senior notes
("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 on 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.

17



On November 30, 2001, the Company and HSBC Bank USA entered into an
agreement for a senior credit facility (the "Credit Facility") comprised of a
$20 million revolving letter of credit facility renewable annually for up to
three years and a $37 million three year amortizing term loan facility, which
was used to finance the repurchase of a portion of the Company's Senior Notes.
The Company's ability to borrow additional funds from this facility was limited
to the period prior to February 1, 2002. The term loan facility amortizes
quarterly over three years with the outstanding principal due and payable on
December 31, 2004. At the option of the Company, the term loans bear interest
either at the lender's base rate plus a margin of 2.5% or the lender's reserve
adjusted LIBOR rate plus a margin of 3.5% (5.32% at September 30, 2002). The
Company may prepay the term loans applying the base rate at any time without
penalty, but may only prepay the LIBOR rate loans without penalty at the end of
the applicable interest period. On August 30, 2002, the Company voluntarily
prepaid $10 million toward the term loan. In connection with this accelerated
prepayment of the term loan, the Company recorded a charge of $4.1 million for
the write-off of deferred financing costs associated with the facility. The
letter of credit facility is a one-year facility subject to annual renewal,
expiring on the date which is five days prior to the final maturity for the term
loan facility. At September 30, 2002 $13.9 million of letters of credit were
outstanding. The Credit Facility contains customary mandatory prepayment
provisions for facilities of this nature, including an excess cash flow sweep.
It also 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 net worth and a minimum interest coverage and leverage ratio and
restrictions on paying cash dividends. The Credit Facility is secured by (a) a
first priority perfected lien in all of the assets of the Company; (b) a first
priority perfected lien in all of the capital stock of each of the Company's
domestic subsidiaries; (c) a first priority perfected lien in 65% of the capital
stock of each of the Company's foreign subsidiaries; and (d) cash collateral to
be placed in a cash reserve account in an amount equal to at least $10 million
at the end of each fiscal quarter.

In connection with the Credit Facility, the Company and Isaac Perlmutter
entered into a Guaranty and Security Agreement. Under the terms of the Guaranty,
Mr. Perlmutter has guaranteed the payment of the Company's obligations under the
Credit Facility in an amount equal to 25% of all principal obligations relating
to the Credit Facility plus an amount, not to exceed $10 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 million. Under the terms of the
Security Agreement, Mr. Perlmutter has provided the creditors under the 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.

In consideration for the Guaranty and Security Agreement, the Company
issued Mr. Perlmutter warrants on November 30, 2001 to purchase up to five
million shares of the Company's common stock. These warrants have an exercise
price of $3.11, a life of five years and whose exercisability is determined by a
calculation reflecting the amounts guaranteed by Mr. Perlmutter. During February
2002, Mr. Perlmutter guaranteed $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 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
are exercisable at September 30, 2002 (3,867,708 warrants at December 31, 2001).
The fair value for the warrants was estimated at the date of issuance using the
Black-Scholes 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 the exercisable warrants was
$13,048,735 and is included in the Condensed Consolidated Balance Sheets as
deferred financing costs and is being amortized as interest expense over the
three year term of the Credit Facility using the effective interest method.

18




The Company believes that cash on hand, cash flow from operations, credit
available under the HSBC letter of credit facility and other sources of
liquidity, will be sufficient for the Company to conduct its business, meet debt
service requirements, make capital expenditures and pay Administrative Expense
Claims.

The following tables set forth the Company's Contractual Cash Obligations and
Other Commercial Commitments as of September 30, 2002:




Contractual
Cash Obligations Payments Due By Period
----------------- -----------------------------------------------------
Less than After
(Amounts in thousands) Total 1 Year 1-3 Years 4-5 Years 5 Years
--------------------- --------- --------- --------- --------- ---------

Long Term Debt $ 174,876 9,228 14,686 $ - $150,962
Operating Leases 15,298 3,553 7,200 3,449 1,096
--------- --------- --------- --------- ---------
Total Contractual
Cash Obligations $ 190,174 $ 12,781 $ 21,886 $ 3,449 $152,058
========= ========= ========= ========= =========


Other Commercial Amount of Commitment
Commitments Expiration Per Period
------------------ -----------------------
Less than Over
(Amounts in thousands) Total 1 Year 1-3 Years 4-5 Years 5 Years
----------------------- --------- ---------- --------- ---------- ---------

Standby Letters of Credit $ 13,894 $ 5,194 $ 8,700 $ - $ -
========== ========== ========= ========== =========




Item 4. Controls and Procedures

Based upon their evaluation of the Company's disclosure controls and
procedures as of a date within 90 days of the filing of this Report, the 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 the Chief Executive Officer and Chief
Financial Officer completed their evaluation.

19




PART II. OTHER INFORMATION.
--------------------------------

Item 1. Legal Proceedings

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

Marvel v. Simon. In December 1999, Joseph H. Simon filed in the U.S.
Copyright Office written notices under the Copyright Act purporting to terminate
effective December 7, 2001 alleged transfers of copyright in 1940 and 1941 by
Simon of the Captain America character to the Company's predecessor. On February
24, 2000, the Company commenced an action against Simon in the United States
District Court for the Southern District of New York. The complaint alleges that
the Captain America character was created by Simon and others as a "work for
hire" within the meaning of the applicable copyright statute and that Simon had
acknowledged this fact in connection with the settlement of previous suits
against the Company's predecessors in 1969. The suit seeks a declaration that
Marvel Characters, Inc., not Mr. Simon, is the rightful owner of the Captain
America character. In February 2002, the Court granted the Company's motion for
summary judgment. Simon appealed the Court's decision and the hearing on the
appeal was held in June 2002. The Company is awaiting the Court's decision.

X-Men Litigation. In April 2001, Twentieth Century Fox Film Corporation
sued Marvel, Tribune Entertainment Co., Fireworks Communications, Inc. and
Fireworks Television (US), Inc. in the United States District Court, Southern
District of New York, seeking an injunction and damages for alleged breach of
the 1993 X-Men movie license, unfair competition, copyright infringement and
tortuous interference with the contract arising from the Mutant X television
show being produced by Tribune and Fireworks under license from Marvel which was
released in the fall of 2001. On the same day Fox filed the foregoing suit,
Marvel commenced an action against Fox in the same court seeking a declaratory
judgment that the license of the Mutant X title and certain Marvel characters
did not breach the 1993 X-Men movie license with Fox.

Both suits were consolidated. On August 9, 2001, in response to Fox's
motion for a preliminary injunction and defendants' motion to dismiss Fox's
claims, the Court (i) granted the motion to dismiss all of Fox's claims except
for its breach of contract and copyright claims (ii) granted Fox's motion for a
preliminary injunction but only as to the defendants use of (a) video clips from
the X-Men film and/or trailer in order to promote the new Mutant X series and
(b) a logo that is substantially similar to the logo used by Fox in connection
with the X-Men film. The preliminary injunction has not and will not, have a
significant effect on the Company's operations. In January 2002, the United
States Appeals Court for the Second Circuit, in response to Fox's appeal,
affirmed the District Court's denial of Fox's motion for a preliminary
injunction to prevent the airing of the Mutant X series and remanded the case to
the District Court for further proceedings consistent with its opinion. At the
present time, the parties are engaged in pre-trial discovery with a trial on the
merits anticipated in Spring 2003.

MacAndrews & Forbes v. Marvel. On July 25, 2001, a jury verdict was entered
in the Sedgwick County, Kansas District Court in the amount of $3.0 million on a
breach of contract action based on a 1994 toy license between Toy Biz and The
Coleman Company. The complaint alleged that Toy Biz did not fulfill its
obligation to spend certain monies on the advertising and promotion of Coleman's
products. The Company filed an appeal which was heard in October 2002 and is
awaiting the Court's decision. The Company was required to post a letter of
credit in the amount of the judgment plus interest. The Company has provided for
this judgment during the second quarter of 2001 in the Consolidated Statement of
Operations.

20



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. (the "Marvel Defendants") in New
York 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. Marvel intends to oppose certification of the purported
class and vigorously defend this action on its merits.

Threatened Action. The Company has received a written claim by Stan Lee,
Chairman Emeritus, asserting the threat of litigation, in the event the Company
fails to pay him 10% of the profits derived by the Company from the profits of
the movies and television programs (including ancillary rights) utilizing the
Company's characters, as provided in the Employment Agreement between the
Company and Mr. Lee dated as of November 1, 1998. Pursuant to the terms of the
Employment Agreement, the Company is currently paying Mr. Lee a salary of $1
million per year and believes that Mr. Lee's claim is without merit. If Mr. Lee
commences suit, the Company intends to vigorously defend such action.

Administrative Expense Claims Litigation. The Company has initiated
litigation contesting the amount of certain Administrative Expense Claims
submitted to the Company for payment. As of September 30, 2002, the Company has
settled substantially all Administrative Expense Claims and believes the
remaining accrual of $1.8 million is sufficient to provide for its remaining
obligations.

Item 2. Exhibits and Reports on Form 8-K.

a) Exhibits. See the Exhibits Index immediately below.

Exhibits No.
- -----------
10.1 Employment Agreement with Stan Lee dated as of November 30, 1998.

12 Statement re:Computation of Ratios dated as of September 30, 2002.

99.1 Certification by Chief Executive Officer pursuant to Sarbanes-Oxley Act

99.2 Certification by Chief Financial Officer pursuant to Sarbanes-Oxley Act

b) Exhibits and Reports on Form 8-K TheRegistrant filed the following reports on
Form 8-K during the quarter ended September 30, 2002:

None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.


MARVEL ENTERPRISES, INC.
(Registrant)

Dated: November 6, 2002 By:/s/ F. Peter Cuneo
---------------------------
F. Peter Cuneo
President and Chief
Executive Officer


By: /s/ Kenneth P. West
--------------------------
Kenneth P. West
Chief Financial Officer
21




CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Kenneth West, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Marvel Enterprises,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and c. presented in
this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

Dated: November 6, 2002

By:/s/ Kenneth West
-----------------------
Kenneth West
Chief Financial Officer

22





CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Peter Cuneo, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Marvel Enterprises,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and c. presented in
this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

Dated: November 6, 2002

By:/s/ Peter Cuneo
-----------------------
Peter Cuneo
Chief Executive Officer


23