VALUEVISION MEDIA INC - 10-K Annual Report

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

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

FOR THE FISCAL YEAR ENDED JANUARY 31, 2003

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-20243
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VALUEVISION MEDIA, INC.
(Exact Name of Registrant as Specified in Its Charter)

MINNESOTA 41-1673770
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)

6740 SHADY OAK ROAD, EDEN PRAIRIE, MN 55344-3433
"WWW.SHOPNBC.COM" (Zip Code)
(Address of Principal Executive Offices)

952-943-6000
(Registrant's Telephone Number, Including Area Code)

SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE

SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: COMMON STOCK,
$0.01 PAR VALUE

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 in response 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 [ ]

As of April 21, 2003, 36,008,750 shares of the registrant's common stock
were outstanding. The aggregate market value of the common stock held by
non-affiliates of the registrant on such date, based upon the closing sale price
for the registrant's common stock as reported by the Nasdaq Stock Market on
April 21, 2003 was approximately $304,010,000. For purposes of determining such
aggregate market value, all officers and directors of the registrant are
considered to be affiliates of the registrant, as well as shareholders holding
10% or more of the outstanding common stock as reflected on Schedules 13D or 13G
filed with the registrant. This number is provided only for the purpose of this
Annual Report on Form 10-K and does not represent an admission by either the
registrant or any such person as to the status of such person.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A not later than
120 days after the close of the registrant's fiscal year ended January 31, 2003
are incorporated by reference in Part III of this Annual Report on Form 10-K.
The Compensation Committee Report and the stock performance graph contained in
the registrant's Proxy Statement are expressly not incorporated by reference in
this Annual Report on Form 10-K.
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VALUEVISION MEDIA, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
JANUARY 31, 2003

TABLE OF CONTENTS

1

PART I

ITEM 1. BUSINESS

A. GENERAL

ValueVision Media, Inc. and its subsidiaries ("ValueVision" or the
"Company") is an integrated direct marketing company that markets its products
directly to consumers through various forms of electronic media. The Company's
operating strategy incorporates television home shopping, Internet e-commerce,
vendor programming sales and fulfillment services and outsourced e-commerce and
fulfillment solutions. Effective May 16, 2002, the Company changed its name to
ValueVision Media, Inc. from ValueVision International, Inc. The Company is a
Minnesota corporation with principal and executive offices at 6740 Shady Oak
Road, Eden Prairie, Minnesota 55344-3433. The Company was incorporated in the
state of Minnesota on June 25, 1990 and its fiscal year ends on January 31. The
year ended January 31, 2003 is designated fiscal "2002" and the year ended
January 31, 2002 is designated fiscal "2001". In prior reporting years, fiscal
years were designated by the calendar year in which the fiscal year ended.
Effective with the fiscal year ended January 31, 2001, the Company changed the
naming convention for its fiscal years to more accurately align the name of the
Company's fiscal year with the calendar year it primarily represents. All prior
fiscal year references have been renamed accordingly.

The Company's principal electronic media activity is its television home
shopping business which uses on-air personalities to market brand name
merchandise and proprietary/private label consumer products at competitive
prices. The Company's live 24-hour per day television home shopping programming
is distributed primarily through long-term cable and satellite affiliation
agreements and the purchase of month-to-month full- and part-time block lease
agreements of cable and broadcast television time. In February 2003, the Company
sold ten of its eleven low power television ("LPTV") stations leaving only one
remaining low power station under its control. Beginning in April 2003, the
Company's programming also will be made available full-time to homes in the
Boston, Massachusetts market over the air via a full-power television broadcast
station that a subsidiary of the Company has acquired. The Company also
complements its television home shopping business by the sale of a broad array
of merchandise through its Internet shopping website (www.shopnbc.com) and
simulcasts the Company's television home shopping show live on the Internet 24
hours a day, 7 days a week.

On November 16, 2000, the Company entered into an exclusive license
agreement with National Broadcasting Company, Inc. ("NBC") pursuant to which NBC
granted ValueVision worldwide use of an NBC-branded name and the Peacock image
for a ten-year period. The Company rebranded its growing home shopping network
and companion Internet shopping website as "ShopNBC" and "ShopNBC.com",
respectively, in fiscal 2001. This rebranding is intended to position
ValueVision as a multimedia retailer, offering consumers an entertaining,
informative and interactive shopping experience, and as a leader in the evolving
convergence of television and the Internet.

In 1999, the Company founded ValueVision Interactive, Inc. as a wholly
owned subsidiary of the Company to manage and develop the Company's Internet
e-commerce initiatives. The Company, through its wholly owned subsidiary, VVI
Fulfillment Center, Inc. ("VVIFC"), provides fulfillment, warehousing and
telemarketing services to Ralph Lauren Media, LLC ("RLM"). VVIFC's services
agreement with RLM was entered into in conjunction with the execution of the
Company's investment and electronic commerce alliance entered into with Polo
Ralph Lauren Corporation ("Polo Ralph Lauren"), NBC and other NBC affiliates.
VVIFC also provides fulfillment and support services for the NBC Experience
Store in New York City and direct to consumer products sold on NBC's website and
to its FanBuzz, Inc. subsidiary. Through its wholly owned subsidiary, FanBuzz,
Inc., the Company also provides e-commerce and fulfillment solutions to some of
the most recognized sports, media and other well-known entertainment and retail
companies.

Electronic Media

The Company's principal electronic media activity is its live 24-hour per
day television home shopping network program. The Company's home shopping
network is the third largest television home shopping

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retailer in the United States. Through its continuous merchandise-focused
television programming, the Company sells a wide variety of products and
services directly to consumers. Sales from the Company's television home
shopping and companion Internet website business, inclusive of shipping and
handling revenues, totaled $529,682,000 and $453,747,000, representing 95% and
98% of net sales, for fiscal 2002 and 2001, respectively. Products are presented
by on-air television home shopping personalities; viewers can then call a
toll-free telephone number and place orders directly with the Company or enter
an order on the ShopNBC.com website. Orders are taken primarily by the Company's
call center representatives who use the Company's customized order capturing
system. The Company's television programming is produced at the Company's Eden
Prairie, Minnesota facility and is transmitted nationally via satellite to cable
system operators, satellite dish owners and, with the purchase of WWDP TV-46 in
Boston, one full powered broadcast television station.

Products and Product Mix. Products sold on the Company's television home
shopping network include jewelry, electronics, giftware, collectibles, apparel,
health and beauty aids, housewares, fitness products, seasonal items and other
merchandise. The Company devoted a significant amount of airtime to its higher
margin jewelry merchandise during fiscal 2002 and fiscal 2001. Jewelry accounted
for 73% of the programming airtime during fiscal 2002 and 74% of the programming
airtime in fiscal 2001. Jewelry represents the network's largest single category
of merchandise, representing 69% of television home shopping net sales in fiscal
2002, 67% of net sales in fiscal 2001 and 68% of net sales in fiscal 2000. The
Company has developed its jewelry product group to include proprietary lines
such as New York Collection (TM), 18 Karat Elegance (TM), Gems En Vogue (TM),
Galerie D' Bijoux (TM), Treasures D'Italia (TM), Fire En Vogue (TM), Carlo Viani
(TM), Moissanite, and Dreams of India (TM), all of which are produced to
ValueVision's specifications or designed exclusively for sale by the Company.

Program Distribution. Since the inception of the Company's television
operations, ValueVision has experienced continued growth in the number of
full-time equivalent ("FTE") subscriber homes that receive the Company's
programming. As of January 31, 2003, the Company served a total of 55.1 million
subscriber homes, or 50.5 million FTEs, compared with a total of 51.9 million
subscriber homes, or 44.0 million FTEs as of January 31, 2002. Approximately
44.1 million, 36.0 million and 27.6 million subscriber homes at January 31,
2003, 2002 and 2001, respectively, received the Company's television home
shopping programming on a full-time basis. As of January 31, 2003, the Company's
television home shopping programming was carried by 821 broadcasting systems
(526 in fiscal 2001) on a full-time basis and 101 broadcasting systems (132 in
fiscal 2001) on a part-time basis. Homes that receive the Company's television
home shopping programming 24 hours per day are counted as one FTE each and homes
that receive the Company's programming for any period less than 24 hours are
counted based upon an analysis of time of day and day of week. The total number
of cable homes that presently receive the Company's television home shopping
programming represents approximately 51% of the total number of cable
subscribers in the United States.

Satellite Service. The Company's programming is distributed to cable
systems, the full power television station in Boston and satellite dish owners
via a leased communications satellite transponder. Satellite service may be
interrupted due to a variety of circumstances beyond the Company's control, such
as satellite transponder failure, satellite fuel depletion, governmental action,
preemption by the satellite lessor and service failure. The Company has an
agreement for preemptable immediate back-up satellite service and believes it
could arrange for such back-up service, on a first-come first-served basis, if
satellite transmission is interrupted. However, there can be no assurance that
the Company will be able to maintain such arrangements and the Company may incur
substantial additional costs to enter into new arrangements and be unable to
broadcast its signal for some period of time.

B. BUSINESS STRATEGY

The Company's mission is to be a leader in innovative multimedia retailing,
offering consumers an entertaining, informative and interactive shopping
experience. The following strategies are intended to continue the growth of its
core television home shopping business and complimentary website: (i) leverage
the strong brand equity implicit in the NBC name and associated Peacock symbol
to achieve instant brand recognition with the ShopNBC television channel and
ShopNBC.com internet shopping website; (ii) increase

3

program distribution in the United States via new or expanded broadcast
agreements with cable and satellite operators and other creative means for
reaching consumers such as webcasting on shopnbc.com; (iii) increase average net
sales per home by increasing penetration within the existing audience base and
by attracting new customers through a broadening of our merchandise mix; (iv)
continue to grow the Company's profitable and cash positive Internet business
with innovative use of marketing and technology, such as video on demand, 3-D
imaging and unique auction capabilities; (v) upgrade the overall quality of the
Company's network and programming consistent with expectations associated with
the NBC brand name; (vi) develop the sale of airtime to branded or recognized
manufacturers, cataloguers and retailers who are looking for an alternative
advertising medium to build their brand directly with the Company's audience
base; and (vii) leverage the service capabilities implicit in our existing
production, broadcasting, distribution and customer care capabilities to support
strategic partners, such as NBC, Ralph Lauren Media's Polo.com, the National
Hockey League and ESPN.

PROGRAMMING DISTRIBUTION:

Cable and Satellite Affiliation Agreements

As of January 31, 2003, the Company had entered into long-term affiliation
agreements with approximately seventy cable system operators along with the
satellite companies DIRECTV (TM) and EchoStar (DISH Network) (TM) which require
each operator to offer the Company's television home shopping programming
substantially on a full-time basis over their systems. The aggregate number of
homes served by these seventy cable and satellite operators is approximately
79.4 million, of which approximately 40.0 million homes (39.7 million FTEs)
currently receive the Company's programming. The stated terms of the affiliation
agreements range from three to twelve years. Under certain circumstances, the
television operators may cancel the agreements prior to their expiration. There
can be no assurance that such agreements will not be so terminated, that such
termination will not materially or adversely affect the Company's business or
that the Company will be able to successfully negotiate acceptable terms with
respect to any renewal of such contracts. In addition, these television
operators are also carrying the Company's programming on an additional 4.0
million homes (2.7 million FTEs) pursuant to short-term carriage arrangements.
The affiliation agreements provide that the Company will pay each operator a
monthly access fee and marketing support payments based upon the number of homes
viewing the Company's television home shopping programming. Certain of the
affiliation agreements also require payment of one-time initial launch fees,
which are capitalized and amortized on a straight-line basis over the term of
the agreements. The Company is seeking to enter into affiliation agreements with
other television operators providing for full or part-time carriage of the
Company's television home shopping programming.

Direct Satellite Service Agreements

In July 1999, the Company's programming was launched on the direct-to-home
("DTH") satellite services DIRECTV and DISH Network. Carriage on DIRECTV and
DISH Network is full-time under long-term distribution agreements. As of January
31, 2003, the Company's programming reached a total of approximately 17.6
million DTH homes on a full-time basis.

Other Methods of Program Distribution

The Company's programming is also made available full-time to "C"-band
satellite dish owners nationwide and, beginning in April 2003, was made
available to homes in the Boston, Massachusetts market over the air via a
full-power television broadcast station that a subsidiary of the Company has
acquired. In the past the Company used a number of LPTV stations for similar
purposes. In fiscal 2002 the Company's LPTV stations and satellite dish
transmissions were collectively responsible for not more than 5% of the
Company's sales. In February 2003, the Company completed the sale of ten of its
eleven LPTV stations for a total of $5 million. Management does not expect the
sale of these stations to have a significant impact on the ongoing operations of
the Company.

4

Internet Website

In fiscal 1997, the Company launched an interactive, retail Internet site
located at www.vvtv.com, which the Company rebranded as ShopNBC.com in fiscal
year 2001. The Internet site provides consumers with the opportunity to view and
hear the live 24-hour per day television home shopping program via the Company's
state-of-the-art webcasting technologies. The website provides viewers with an
opportunity to purchase general merchandise offered on the Company's television
home shopping program, and other related merchandise as well as bid and purchase
items on the auction portion of the website. Internet sales for the year ended
January 31, 2003 increased at a far greater percentage than television home
shopping sales over the year ended January 31, 2002. Sales from the Company's
Internet website business, inclusive of shipping and handling revenues, totaled
$94,481,000 and $62,328,000 representing 17% and 13% of consolidated net sales,
for fiscal 2002 and 2001, respectively. The Company expects to see continuous
strong growth in its Internet business and believes that its e-commerce business
complements the Company's base television home shopping business.

The Company's e-commerce activities are currently subject to a number of
general business regulations and laws regarding taxation and online commerce.
Due to the increasing popularity and use of the Internet and other online
services, it is possible that additional laws and regulations may be adopted
with respect to the Internet or other online services, covering such issues as
user privacy, security, advertising, pricing, content, copyrights and
trademarks, access by persons with disabilities, distribution, taxation, and
characteristics and quality of products and services. Congress currently is
considering a broad range of possible legislation intended to address issues
relating to online privacy and security, including measures to regulate and/or
limit the collection and use of online customers' personal and financial
information. Such legislation, if enacted, could make it more difficult for
companies to conduct business online. A temporary moratorium on taxation on
Internet access has been extended and remains in place until November 2003;
however, many states and companies oppose any further extensions of the
moratorium. In addition, in November 2002, a number of states approved a
multi-state agreement to simplify state sales tax laws by establishing one
uniform system to administer and collect sales taxes on traditional retailers
and electronic commerce merchants. No prediction can be made as to whether any
further extensions of the Internet tax moratorium will be enacted, or whether
individual states will enact legislation requiring retailers such as the Company
to collect and remit sales taxes on transactions that occur over the Internet.

Changes in consumer protection laws also may impose additional burdens on
those companies conducting business online. The adoption of any additional laws
or regulations may decrease the growth of the Internet or other online services,
which could, in turn, decrease the demand for the Company's products and
services and increase its cost of doing business through the Internet. Moreover,
it is not clear how existing laws governing issues such as sales and other taxes
and personal privacy would apply to the Internet and online commerce. The
European Union ("EU") now imposes specific privacy regulations, value-added tax
("VAT") on e-commerce transactions, and also requires that companies doing
business in the EU register in an EU member state. In addition, governments in
foreign jurisdictions already regulate the Internet or other online services in
such areas as content, privacy, network security, encryption or distribution.
This may affect the Company's ability to conduct business internationally
through its website.

In addition, as the Company's website is available over the Internet in all
states, and as it sells to numerous consumers residing in such states, such
jurisdictions may claim that the Company is required to qualify to do business
as a foreign corporation in each such state, a requirement that could result in
taxes and penalties for the failure to qualify. Any such new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to the Company's business or the application of
existing laws and regulations to the Internet and other online services could
have an adverse effect on the growth of the Company's business in this area.

5

C. STRATEGIC RELATIONSHIPS

NBC TRADEMARK LICENSE AGREEMENT

On November 16, 2000, the Company entered into a Trademark License
Agreement (the "License Agreement") with NBC pursuant to which NBC granted the
Company an exclusive, worldwide license (the "License") for a term of 10 years
to use certain NBC trademarks, service marks and domain names to rebrand the
Company's business and corporate name and companion Internet website on the
terms and conditions set forth in the License Agreement. The Company
subsequently selected the names "ShopNBC" and "ShopNBC.com." In connection with
the License Agreement, the Company issued to NBC warrants (the "License
Warrants") to purchase 6,000,000 shares of the Company's Common Stock, par value
$.01 per share, with an exercise price of $17.375 per share, the closing price
of a share of Common Stock on the Nasdaq National Market on November 16, 2000.
The agreement also includes a provision for a potential cashless exercise of the
License Warrants under certain circumstances. The License Warrants have a
five-year term from the date of vesting and vest in one-third increments, with
one-third exercisable commencing November 16, 2000, and the remaining License
Warrants vesting in equal amounts on each of the first two anniversaries of the
License Agreement. As of January 31, 2003, all of the License Warrants have
vested. Additionally, the Company agreed to accelerate the vesting of warrants
to purchase 1,450,000 shares of Common Stock granted to NBC in connection with
the March 1999 Distribution and Marketing Agreement (discussed below) between
NBC and the Company.

The Company has also agreed under the License Agreement to (i) restrictions
on using (including sublicensing) any trademarks, service marks, domain names,
logos or other source indicators owned or controlled by NBC or its affiliates in
connection with certain permitted businesses (the "Permitted Businesses"), as
defined in the License Agreement, before the agreement of NBC to such use, (ii)
the loss of its rights under the grant of the License with respect to specific
territories outside of the United States in the event the Company fails to
achieve and maintain certain performance targets, (iii) amend and restate the
current Registration Rights Agreement dated as of April 15, 1999 among the
Company, NBC and GE Equity so as to increase the demand rights held by NBC and
GE Equity from four to five, among other things, (iv) not, either directly or
indirectly, own, operate, acquire or expand its business to include any
businesses other than the Permitted Businesses without NBC's prior consent for
so long as the Company's corporate name includes the trademarks or service marks
owned or controlled by NBC, (v) strictly comply with NBC's privacy policies and
standards and practices, and (vi) until the earlier of the termination of the
License Agreement or the lapse of certain contractual restrictions on NBC,
either directly or indirectly, not own, operate, acquire or expand the Company's
business such that one third or more of the Company's revenues or its aggregate
value is attributable to certain services provided over the Internet. The
License Agreement also grants to NBC the right to terminate the License
Agreement at any time upon certain changes of control of the Company, the
failure by NBC to own a certain minimum percentage of the outstanding capital
stock of the Company on a fully-diluted basis, the failure of NBC and the
Company to agree on new trademarks, service marks or related intellectual
property rights, and certain other related matters. In certain events, the
termination by NBC of the License Agreement may result in the acceleration of
vesting of the License Warrants.

NBC AND GE EQUITY STRATEGIC ALLIANCE

In March 1999, the Company entered into a strategic alliance with NBC and
GE Capital Equity Investments, Inc. ("GE Equity"). Pursuant to the terms of the
transaction, NBC and GE Equity acquired 5,339,500 shares of the Company's Series
A Redeemable Convertible Preferred Stock (the "Preferred Stock"), and NBC was
issued a warrant to acquire 1,450,000 shares of the Company's Common Stock (the
"Distribution Warrants") under a Distribution and Marketing Agreement discussed
below. The Preferred Stock was sold for aggregate consideration of $44,265,000
(or $8.29 per share) and the Company will receive an additional payment of
approximately $12.0 million upon exercise of the Distribution Warrants. In
addition, the Company agreed to issue to GE Equity a warrant (the "Investment
Warrant") to increase its potential aggregate equity stake (together with its
affiliates, including NBC) at the time of exercise to 39.9%. NBC also has the
exclusive right to negotiate on behalf of the Company for the distribution of
its television home

6

shopping service. The sale of 3,739,500 shares of the Preferred Stock was
completed on April 15, 1999. Final consummation of the transaction regarding the
sale of the remaining 1,600,000 Preferred Stock shares was completed on June 2,
1999. The Preferred Stock was recorded at fair value on the date of issuance
less issuance costs of $2,850,000. The Preferred Stock is convertible into an
equal number of shares of the Company's Common Stock, subject to customary
anti-dilution adjustments, has a mandatory redemption on the 10th anniversary of
its issuance or upon a "change of control" at its stated value ($8.29 per
share), participates in dividends on the same basis as the Common Stock and has
a liquidation preference over the Common Stock and any other junior securities.
The excess of the redemption value over the carrying value is being accreted by
periodic charges to retained earnings over the ten-year redemption period. On
July 6, 1999, GE Equity exercised the Investment Warrant and acquired an
additional 10,674,000 shares of the Company's Common Stock for an aggregate of
$178,370,000, or $16.71 per share, representing the 45-day average closing price
of the underlying Common Stock ending on the trading day prior to exercise.
Following the exercise of the Investment Warrant, the combined ownership of the
Company by GE Equity and NBC on a fully diluted basis was and is currently
approximately 40%.

Shareholder Agreement

Pursuant to the Investment Agreement, the Company and GE Equity entered
into a Shareholder Agreement (the "Shareholder Agreement"), which provides for
certain corporate governance and standstill matters. The Shareholder Agreement
(together with the Certificate of Designation of the Preferred Stock) provides
that GE Equity and NBC will be entitled to designate nominees for an aggregate
of 2 out of 7 board seats so long as their aggregate beneficial ownership is at
least equal to 50% of their initial beneficial ownership, and 1 out of 7 board
seats so long as their aggregate beneficial ownership is at least 10% of the
"adjusted outstanding shares of Common Stock." GE Equity and NBC have also
agreed to vote their shares of Common Stock in favor of the Company's nominees
to the Board in certain circumstances. Subject to certain exceptions, all
committees of the Board will include a proportional number of directors
nominated by GE Equity and NBC. The Shareholder Agreement also requires the
consent of GE Equity prior to the Company entering into any substantial
agreements with certain restricted parties (broadcast networks and internet
portals in certain limited circumstances, as defined), as well as taking any
actions over certain thresholds, as detailed in the agreement, regarding the
issuance of voting shares over a 12-month period, the payment of quarterly
dividends, the repurchase of Common Stock, acquisitions (including investments
and joint ventures) or dispositions, and the incurrence of debt greater than
$40.0 million or 30% of the Company's total capitalization. The Company is also
prohibited from taking any action that would cause any ownership interest of
certain Federal Communication Commission ("FCC") regulated entities from being
attributable to GE Equity, NBC or their affiliates.

The Shareholder Agreement provides that during the Standstill Period (as
defined in the Shareholder Agreement), subject to certain limited exceptions, GE
Equity and NBC are prohibited from: (i) any asset/ business purchases from the
Company in excess of 10% of the total fair market value of the Company's assets,
(ii) increasing their beneficial ownership above 39.9% of the Company's shares,
(iii) making or in any way participating in any solicitation of proxies, (iv)
depositing any securities of the Company in a voting trust, (v) forming,
joining, or in any way becoming a member of a "13D Group" with respect to any
voting securities of the Company, (vi) arranging any financing for, or providing
any financing commitment specifically for, the purchase of any voting securities
of the Company, (vii) otherwise acting, whether alone or in concert with others,
to seek to propose to the Company any tender or exchange offer, merger, business
combination, restructuring, liquidation, recapitalization or similar transaction
involving the Company, or nominating any person as a director of the Company who
is not nominated by the then incumbent directors, or proposing any matter to be
voted upon by the shareholders of the Company. If during the Standstill Period
any inquiry has been made regarding a "takeover transaction" or "change in
control" which has not been rejected by the Board, or the Board pursues such a
transaction, or engages in negotiations or provides information to a third party
and the Board has not resolved to terminate such discussions, then GE Equity or
NBC may propose to the Company a tender offer or business combination proposal.

7

In addition, unless GE Equity and NBC beneficially own less than 5% or more
than 90% of the adjusted outstanding shares of Common Stock, GE Equity and NBC
shall not sell, transfer or otherwise dispose of any securities of the Company
except for transfers: (i) to certain affiliates who agree to be bound by the
provisions of the Shareholder Agreement, (ii) which have been consented to by
the Company, (iii) pursuant to a third party tender offer, provided that no
shares of Common Stock may be transferred pursuant to this clause (iii) to the
extent such shares were acquired upon exercise of the Investment Warrant on or
after the date of commencement of such third party tender offer or the public
announcement by the offeror thereof or that such offeror intends to commence
such third party tender offer, (iv) pursuant to a merger, consolidation or
reorganization to which the Company is a party, (v) in a bona fide public
distribution or bona fide underwritten public offering, (vi) pursuant to Rule
144 of the Securities Act of 1933, as amended (the "Securities Act"), or (vii)
in a private sale or pursuant to Rule 144A of the Securities Act; provided that,
in the case of any transfer pursuant to clause (v) or (vii), such transfer does
not result in, to the knowledge of the transferor after reasonable inquiry, any
other person acquiring, after giving effect to such transfer, beneficial
ownership, individually or in the aggregate with such person's affiliates, of
more than 10% of the adjusted outstanding shares of the Common Stock.

The Standstill Period will terminate on the earliest to occur of (i) the 10
year anniversary of the Shareholder Agreement, (ii) the entering into by the
Company of an agreement that would result in a "change in control" (subject to
reinstatement), (iii) an actual "change in control," (iv) a third party tender
offer (subject to reinstatement), and (v) six months after GE Equity and NBC can
no longer designate any nominees to the Board. Following the expiration of the
Standstill Period pursuant to clause (i) or (v) above (indefinitely in the case
of clause (i) and two years in the case of clause (v)), GE Equity and NBC's
beneficial ownership position may not exceed 39.9% of the Company on
fully-diluted outstanding stock, except pursuant to issuance or exercise of any
warrants or pursuant to a 100% tender offer for the Company.

Registration Rights Agreement

Pursuant to the Investment Agreement, ValueVision and GE Equity entered
into a Registration Rights Agreement providing GE Equity, NBC and their
affiliates and any transferees and assigns, an aggregate of four demand
registrations and unlimited piggy-back registration rights.

Distribution and Marketing Agreement

NBC and the Company entered into the Distribution and Marketing Agreement
dated March 8, 1999 (the "Distribution Agreement") which provides that NBC shall
have the exclusive right to negotiate on behalf of the Company for the
distribution of its home shopping television programming service. The agreement
has a 10-year term and NBC committed to delivering an additional 10 million FTE
subscribers over the first 42 months of the term. In compensation for such
services, the Company pays NBC an annual fee of $1.5 million (increasing no more
than 5% annually) and issued NBC the Distribution Warrants. The exercise price
of the Distribution Warrants is $8.29 per share. Of the aggregate 1,450,000
shares subject to the Distribution Warrants, 200,000 shares vested immediately,
with the remainder vesting 125,000 shares annually over the 10-year term of the
Distribution Agreement. In conjunction with the Company's November 2000
execution of the Trademark License Agreement with NBC, the Company agreed to
accelerate the vesting of the remaining unvested Distribution Warrants. The
Distribution Warrants are exercisable for five years after vesting. The value
assigned to the Distribution Agreement and Distribution Warrants of $6,931,000
was determined pursuant to an independent appraisal and is being amortized on a
straight-line basis over the term of the agreement. Assuming certain performance
criteria above the delivery by NBC to the Company of 10 million FTE homes are
met, NBC will be entitled to additional warrants to acquire Common Stock at the
then current market price. In fiscal 2001, the Company issued to NBC additional
warrants to purchase 343,725 shares of the Company's Common Stock at an exercise
price of $23.07. In the fourth quarter of fiscal 2002, the Company issued to NBC
additional warrants to purchase 36,858 shares of the Company's common stock at
an exercise price of $15.74 per share. These additional warrants were issued as
a result of NBC meeting its original performance target. The Company had a right
to terminate the Distribution Agreement after the twenty-fourth, thirty-sixth
and forty-second month anniversary if NBC was unable to meet the

8

performance targets. In addition, the Company would have been entitled to a $2.5
million payment from NBC if the Company terminated the Distribution Agreement as
a result of NBC's failure to meet the 24-month performance target. NBC may
terminate the Distribution Agreement if the Company enters into certain
"significant affiliation" agreements or a transaction resulting in a "change of
control."

POLO RALPH LAUREN/RALPH LAUREN MEDIA ELECTRONIC COMMERCE ALLIANCE

In February 2000, the Company entered into an electronic commerce strategic
alliance with Polo Ralph Lauren, NBC, NBCi and CNBC whereby the parties created
RLM, a joint venture formed for the purpose of bringing the Polo Ralph Lauren
American lifestyle experience to consumers via multiple media platforms,
including the Internet, broadcast, cable and print. RLM is currently owned 50%
by Polo Ralph Lauren, 37.5% by NBC and its affiliates and 12.5% by the Company.
In exchange for their ownership interest in RLM, NBC agreed to contribute $110
million of television and online advertising on NBC and CNBC properties, which
has subsequently been amended, NBCi agreed to contribute $40 million in online
distribution and promotion and the Company has contributed a cash funding
commitment of up to $50 million, of which all of the Company's commitment has
been funded through January 31, 2003. RLM's premier initiative is Polo.com, an
Internet website dedicated to the American lifestyle that includes original
content, commerce and a strong community component. Polo.com officially launched
in November 2000 and includes an assortment of men's, women's and children's
products across the Ralph Lauren family of brands as well as unique gift items.
In connection with the formation of RLM, the Company entered into various
agreements setting forth the manner in which certain aspects of the business of
RLM are to be managed and certain of the members' rights, duties and obligations
with respect to RLM, including the following:

Amended and Restated Limited Liability Company Agreement of Ralph Lauren Media

Each of Polo Ralph Lauren, NBC, NBCi, CNBC and the Company executed the
Amended and Restated Limited Liability Company Agreement (the "LLC Agreement"),
pursuant to which certain terms and conditions regarding operations of RLM and
certain rights and obligations of its members are set forth, including but not
limited to: (a) customary demand and piggyback registration rights with respect
to equity of RLM held by the members after its initial public offering, if any;
(b) procedures for resolving deadlocks among managers or members of RLM; (c)
rights of each of Polo Ralph Lauren on the one hand and NBC, the Company, NBCi
and CNBC, on the other hand, to purchase or sell, as the case may be, all of
their membership interests in RLM to the other in the event of certain material
deadlocks and certain changes of control of either Polo Ralph Lauren and/or its
affiliates or NBC or certain of its affiliates, at a price and on terms and
conditions set forth in the agreement; (d) rights of Polo Ralph Lauren to
purchase all of the outstanding membership interests of RLM from and after its
12th anniversary, at a price and on terms and conditions set forth in the
agreement; (e) rights of certain of the members to require RLM to consummate an
initial public offering of securities; (f) restrictions on Polo Ralph Lauren
from participating in the business of RLM under certain circumstances; (g)
number and composition of the management committee of RLM, and certain voting
requirements; (h) composition and duties of officers of RLM; (i) requirements
regarding meetings of members and voting requirements; (j) management of capital
contributions and capital accounts; (k) provisions governing allocations of
profits and losses and distributions to members; (l) tax matters; (m)
restrictions on transfers of membership interests; (n) rights and
responsibilities of the members in connection with the dissolution, liquidation
or winding up of RLM; and (o) certain other customary miscellaneous provisions.

Agreement for Services

RLM and VVIFC entered into an Agreement for Services under which VVIFC
agreed to provide to RLM, on a cost plus basis, certain telemarketing services,
order and record services, and fulfillment and warehouse services. The
telemarketing services to be provided by VVIFC consist of receiving and
processing telephone orders and telephone inquiries regarding merchandise, and
developing and maintaining a related telemarketing system. The order and record
services to be provided by VVIFC consist of receiving and processing orders for
merchandise by telephone, mail, facsimile and electronic mail, providing records
of such

9

orders and related customer-service functions, and developing and maintaining a
records system for such purposes. The merchandise and warehouse services consist
of receiving and shipping merchandise, providing warehousing functions and
fulfillment functions and developing a system for such purposes. The original
term of this agreement continued until June 30, 2010, subject to one-year
renewal periods after 2010, under certain conditions.

In the fourth quarter of fiscal 2002, VVIFC agreed to amend its existing
customer care and fulfillment services agreement with RLM in exchange for an $11
million cash payment. The cash payment was made in consideration for VVIFC's
fixed asset impairment incurred by the overbuild of the fulfillment center
utilized by VVIFC to provide services to RLM, for early termination of its
original long term services agreement and for the change in terms of the
agreement through the end of the period in which services are to be provided. In
accordance with this amendment, RLM will be permitted to negotiate with other
parties to provide it with customer care and fulfillment services. The Company
will continue to provide the services it currently provides to RLM through
December 31, 2003, at a flat cost per order and will have the right to match any
bona fide third party offer received by RLM for customer care and fulfillment
services thereafter.

D. MARKETING AND MERCHANDISING

Electronic Media

The Company's television and Internet revenues are generated from sales of
merchandise and services offered through its television home shopping
programming. ValueVision's programming features on-air television home shopping
network personalities. The Company's television home shopping business utilizes
live television 24 hours a day, seven days a week, to create an interactive and
entertaining atmosphere to effectively describe and demonstrate the Company's
merchandise. Selected customers participate through live conversations with
on-air hosts and occasional celebrity guests. The Company believes its customers
make purchases based primarily on convenience, value and quality of merchandise.

The Company produces targeted, themed, and general merchandise programs, in
studio, including Gems En Vogue, Isomers Skin Care, Gem Treasures, Italian Gold
with Stefano, The Computer Store, Electronic Connection, The New York
Collection, Brilliante, Time Zone, 18Karat Elegance, Home Living, Galerie
D'Bijoux and others. The Company supplements its studio programming with
occasional live on-location programs. The Company believes that its customers
are primarily women between the ages of 35 and 55, with household income of
approximately $50,000 to $75,000. ValueVision schedules special programming at
different times of the day and week to appeal to specific viewer and customer
profiles. The Company features frequent announced and occasionally unannounced,
special bargain, discount and inventory-clearance sales in order to, among other
reasons, encourage customer loyalty or add new customers.

In addition to the Company's daily produced television home shopping
programming, the Company may from time-to-time test other types of strategies,
including localized home shopping programming in conjunction with retailers and
other catalogers. The Company may seek to enter into joint ventures,
acquisitions, or similar arrangements with other consumer merchandising
companies, e-commerce and other television home shopping companies, television
stations, networks, or programmers to complement or expand the Company's
television home shopping business. Many of the Company's cable lease and
affiliation agreements provide for cross channel 30-second promotional spots.
The Company occasionally purchases advertising time on other cable channels to
advertise specialty shows and other special promotions.

The Company's television home shopping merchandise is generally offered at
or below comparable retail prices. Jewelry accounted for approximately 69% of
the Company's television home shopping net sales in fiscal 2002, 67% in fiscal
2001 and 68% in fiscal 2000. Electronics (primarily computers), giftware, home
decor, collectibles and related merchandise, apparel, health and beauty aids,
housewares, fitness products, seasonal items and other merchandise comprise the
remaining sales. The Company continually introduces new products on its home
shopping program. Inventory sources include manufacturers, wholesalers,
distributors, and importers.

10

ValueVision has also developed several lines of private label merchandise
that are targeted to its viewer/ customer preferences, including Dreams of
India(TM), Fire En Vogue(TM), Galerie D' Bijoux(TM), Carlo Viani(TM), Treasures
D'Italia(TM), New York Collection(TM) 18 Karat Elegance(TM) and Gems En
Vogue(TM). The Company intends to continue to promote private label merchandise,
which generally has higher than average margins. The Company also may negotiate
with celebrities, including television, motion picture and sports stars, for the
right to develop various licensed products and merchandising programs which may
include occasional on-air appearances by the celebrity.

The Company transmits daily programming to cable operators, satellite dish
owners and a full power television station in Boston, Massachusetts by means of
a communications satellite. In March 1994, the Company entered into a 12-year
satellite lease on Galaxy 1R Transponder 12 offering signal transmission to the
cable programming industry, including the Company. Under certain circumstances,
the Company's transponder could be preempted. The Company has an agreement for
preemptable immediate back-up satellite service and believes it could arrange
for such back-up service, on a first-come first-serve basis, if satellite
transmission is interrupted. However, there can be no assurance that the Company
will be able to continue transmission of its programming in the event of
satellite transmission failure or maintain such back-up service arrangements
without incurring substantial additional costs.

ShopNBC Catalog

Starting in fiscal 2001, the Company initiated a new ShopNBC catalog
program. The ShopNBC catalogs vary in page count and dimension and offer
customers a variety of products timely to the season in which the catalogs run.
Catalog offerings include a various assortment of ShopNBC merchandise from
jewelry to home goods, health & beauty products, apparel and electronics. The
ShopNBC catalog go out on a targeted basis approximately three times per year to
the Company's premier customers. In fiscal 2002 and 2001, the Company
experienced favorable response rates with respect to its ShopNBC catalog
mailings.

ShopNBC Private Label Credit Card

In October 2001, the Company launched a private label credit card program
using the ShopNBC name in partnership with Alliance Data Systems. The ShopNBC
credit card program provides a number of benefits to ShopNBC customers,
including providing customers with an initial 10% discount upon first use of
their ShopNBC card for all merchandise purchases except for computers and
electronics. Customers also receive a credit line unique to ShopNBC as well as
special product offers along with their billing statements, advance notices on
special promotions, gifts for ShopNBC card purchases made during special events
and special financing promotions. During fiscal 2002, the Company achieved a
milestone with respect to the card by issuing its one hundred thousandth
customer account on the ShopNBC credit card.

Favorable Purchasing Terms

The Company obtains products for its electronic direct marketing businesses
from domestic and foreign manufacturers and suppliers and is often able to make
purchases on favorable terms based on the volume of transactions. Many of the
Company's purchasing arrangements with its television home shopping vendors
include inventory terms that allow for return privileges of a portion of the
order or stock balancing. The Company is not dependent upon any one supplier for
a significant portion of its inventory.

E. ORDER ENTRY, FULFILLMENT AND CUSTOMER SERVICE

The Company's products are available for purchase via toll-free "800"
telephone numbers. In fiscal 1999, the Company entered into an agreement with
West Teleservices Corporation to provide the Company with telephone order entry
operators for the taking of home shopping customer orders. West Teleservices
Corporation provides teleservices to the Company from a service site located in
Baton Rouge, Louisiana. The facility provides call representatives that handle
the Company's order calls on the Company's on-line order capture computer
system. In fiscal 2002, the Company also contracted with eTelecare International
located in the Philippines to provide additional order entry options, provide
overnight support and to handle the

11

Company's additional call volume. The move was made to increase call capacity,
create redundant telecommunications paths and reduce operating expenses. In
fiscal 2001, the Company moved the automated voice response system to its
corporate headquarters as a cost savings initiative. Currently, approximately
25-35% of all telephone orders are completed in the automated voice response
system without the need to speak to a live operator. The Company's systems
display up-to-the-second data on the volume of incoming calls, the number of
call center representatives on duty, the number of calls being handled and the
number of incoming calls, if any, waiting for available call center
representatives. The systems automatically report and update available
merchandise quantities as customers place orders and stock is depleted. The
Company's computerized systems handle customer order entry, order fulfillment,
customer service, merchandise purchasing, on-air scheduling, warehousing,
customer record keeping and inventory control. The Company maintains back-up
power supply systems to ensure that interruptions to the Company's operations
due to electrical power outages are minimized.

The Company owns a 262,000 square foot distribution facility in Bowling
Green, Kentucky, which the Company uses to fulfill its obligations under the
service agreements entered into with RLM. In 2001, the Company entered into an
agreement with NBC to provide fulfillment and support services for the NBC store
in New York and direct to consumer products sold for NBC on the ShopNBC.com
website. In addition, the fulfillment facility provides call center and
fulfillment support for NBC and Telemundo direct response broadcast campaigns.
The Company's Bowling Green facility is also used for the fulfillment of
non-jewelry merchandise sold on the Company's television home shopping program
and the ShopNBC website. Additionally, this facility provides support services
to another of the Company's subsidiaries, FanBuzz, Inc. The Company also
distributes jewelry and other smaller merchandise from its Eden Prairie,
Minnesota fulfillment center.

The majority of customer purchases are paid by credit card. As discussed
above, in fiscal 2001, the Company launched a new private label credit card
program using the ShopNBC name. Purchases made with the ShopNBC credit card are
non-recourse to ValueVision. The Company does not offer C.O.D. terms to
customers. The Company utilizes an installment payment program called
"ValuePay," which entitles television and Internet home shopping customers to
pay via credit card for certain merchandise offered in two to six equal monthly
installments. The Company intends to continue to sell merchandise using the
ValuePay program due to its significant promotional value. It does, however,
create a credit collection risk from the potential inability to collect
outstanding balances.

Merchandise is shipped to customers via the United States Postal Service
and Federal Express or other recognized carriers and is delivered within seven
to ten days after an order is received. Orders are generally shipped to
customers within 48 hours after the order is placed. The Company offers express
service upon request at the customer's expense. The Company also has
arrangements with certain vendors who ship merchandise directly to its customers
after an approved customer order is processed.

The Company's Customer Service departments handle customer inquiries, most
of which consist of inquiries with respect to the status of pending orders or
returns of merchandise. The customer service representatives are on-line with
the Company's computerized order response and fulfillment systems. Being on-line
permits access to a customer's purchase history while on the phone with the
customer, thus enabling most inquiries and requests to be promptly resolved. In
October 2002, the Company consolidated all of its in-house customer service
functions to its Brooklyn Center, Minnesota facility, a move that increased
available customer service workstations by 80. In fiscal 2002, the Company also
contracted with RMH Teleservices, Inc. through its Thunderbay, Canada call
center facility to handle order and return status and overflow customer service
inquiries. The Company considers its order capture, fulfillment and customer
service functions as particularly important functions positioned with open
capacity to enable it to accommodate future growth. The Company designs all
aspects of its customer service infrastructure to meet the needs of the customer
and to accommodate future expansion.

The Company's television home shopping return policy allows a standard
30-day refund period from the date of invoice for all customer purchases. The
Company's return rates on its television and Internet sales have been
approximately 33% to 36% over the past three fiscal years. Management attributes
the high return rate in

12

part to the fact that it generally maintained higher than average unit price
points of approximately $193 in fiscal 2002 ($186 in fiscal 2001) and to the
high percentage of sales attributable to jewelry products. The Company is
continuing to manage return rates by adjusting average selling price points and
product mix in an effort to reduce the overall return rate related to its home
shopping business.

F. COMPETITION

The direct marketing and retail businesses are highly competitive. In its
television home shopping and Internet (e-commerce) operations, the Company
competes for consumer expenditures with other forms of retail businesses,
including traditional "brick and mortar" department, discount, warehouse and
specialty stores, other mail order, catalog and television home shopping
companies, infomercial companies and other direct sellers.

The Company also competes with retailers who sell and market their products
through the highly competitive Internet medium. The number of companies
providing these types of services over the Internet is large and increasing. The
Company expects that additional companies, including media companies and
conventional retailers, will offer services that directly compete with the
Company. In addition, as the use of the Internet and other online services
increase, larger, well-established and well-financed entities may continue to
acquire, invest in or form joint ventures with providers of e-commerce and
direct marketing solutions, and existing providers of e-commerce and direct
marketing solutions may continue to consolidate.

The television home shopping industry is highly competitive and is
dominated by two companies, QVC Network, Inc. ("QVC") and HSN, Inc. (formerly
known as Home Shopping Network, Inc. ("HSN")). The Company believes that the
home shopping industry is attractive to consumers, cable companies,
manufacturers and retailers. The industry offers consumers convenience, value
and entertainment, and offers manufacturers and retailers an opportunity to
test-market new products, increase brand awareness and access additional
channels of distribution. The Company believes the industry is well positioned
to compete with other forms of basic cable programming for cable airtime because
home shopping networks compensate basic cable television operators, whereas
other forms of cable programming typically receive compensation from cable
operators for carriage. The Company competes for cable distribution with all
other programmers, including other television home shopping networks such as
QVC, HSN and Shop at Home, Inc. ("SATH"). The Company currently competes for
viewership and sales with QVC, HSN and SATH in virtually all of its markets. The
Company is at a competitive disadvantage in attracting viewers due to the fact
that the Company's programming is not carried full time in all of its markets,
and that the Company may have less desirable cable channels in many markets. In
2002, SATH and E.W. Scripps Company ("Scripps") announced the completion of a
transaction that resulted in Scripps owning a controlling interest in the SATH
television-retailing network. Scripps is a media company with interests in
newspaper publishing, broadcast television, national television networks and
interactive media. QVC is currently jointly owned by Comcast Corporation and
Liberty Media Corp. HSN is a wholly owned subsidiary of USA Interactive, Inc.
Comcast, Liberty Media, Scripps and USA Interactive are larger, more diversified
and have greater financial, marketing and distribution resources than the
Company.

The Company expects increasing competition for viewers/customers and for
experienced home shopping personnel from major cable systems, television
networks, e-commerce and other retailers that may seek to enter the television
home shopping industry. The continued evolution and consolidation of retailers
on the Internet, together with strategic alliances being formed by other
television home shopping networks and Internet companies, will also result in
increased competition. The Company will also compete to lease cable television
time and enter into cable affiliation agreements. Entry and ultimate success in
the television home shopping industry is dependent upon several key factors, the
most significant of which is obtaining carriage on additional cable systems. The
Company believes that the number of new entrants into the television home
shopping industry may continue to increase. The Company believes that it is
positioned to compete because of its established relationships with cable
operators and its strategic relationship with NBC and GE Equity. No assurance
can be given, however, that the Company will be able to acquire additional cable
carriage at prices favorable to the Company. In March 2002, a federal court
invalidated certain FCC rules limiting the number of U.S. multichannel
subscribers that any cable or other television programming distributor can serve
and limiting the number of individual channels any cable operator can carry that
belong to affiliated companies.

13

The FCC is currently examining whether to impose new ownership limits in the
future; however, unless and until such limits are enacted, the court's decision
could, under certain circumstances, make it harder for the Company to obtain
carriage of its programming by cable providers. In addition, continued
consolidation in the cable and satellite industry may lead to higher costs for
ShopNBC programming over time. See "Competition" and "Industry Consolidation"
under "Risk Factors".

New technological and regulatory developments also may increase competition
and the Company's costs. The FCC has adopted rules for digital television
("DTV") that will allow full power television stations to broadcast multiple
channels of digital data simultaneously on the bandwidth presently used by one
normal analog channel. FCC rules allow broadcasters to use this additional
capacity to provide conventional programming, including home shopping
programming, as well as ancillary or supplemental services. The FCC has
determined to charge a fee for the provision of ancillary or supplemental
services, but not for traditional home shopping programming. See "Federal
Regulation." Every existing full power television station has been assigned an
additional channel on which to broadcast DTV until analog transmissions are
terminated. In addition, as of December 2002, three direct broadcast satellite
("DBS") systems were transmitting programming to subscribers and one additional
company had been issued licenses to provide DBS service. As of December 2002,
there were more than 18 million DBS subscribers. Congress has required DBS
operators to provide access to broadcast television stations in their local
markets, and DBS equipment prices and other "up-front costs," such as
installation, continue to decline significantly. Furthermore, private cable
operators ("PCOs"), also known as satellite master antenna television systems
("SMATV"), have begun to deliver video programming to multiple dwelling units.
These systems receive and process satellite signals at on-site facilities and
then distribute the programming to individual units. It is estimated that as of
June 2002, there were approximately 1.6 million PCO and SMATV residential
subscribers. Additionally, a number of telephone companies have acquired cable
franchises, and a number of local exchange carriers are using very high-speed
digital subscriber line ("VDSL") technology to deliver video programming,
high-speed Internet access, and telephone service over existing copper telephone
lines. The FCC has also certified several operators to offer open video systems
("OVS") in order to provide video programming to customers, although the number
of OVS systems actually operating continues to decline. Finally, in 1996, the
FCC completed auctions for authorizations to provide multichannel multipoint
distribution services ("MMDS"), also known as wireless cable, using Multipoint
Distribution Service and leased excess capacity on Instructional Television
Fixed Service channels. As of December 2002, there were approximately 490,000
MMDS subscribers.

Many of the Company's existing and potential competitors are larger and
more diversified than the Company, or have greater financial, marketing,
merchandising and distribution resources. Therefore, the Company cannot predict
the degree of success with which it will meet competition in the future.

G. FEDERAL REGULATION

The cable television industry and the broadcasting industry in general are
subject to extensive regulation by the FCC. The following does not purport to be
a complete summary of all of the provisions of the Communications Act of 1934,
as amended (the "Communications Act"), the Cable Television Consumer Protection
Act of 1992 (the "Cable Act"), the Telecommunications Act of 1996 (the
"Telecommunications Act") or the FCC rules or policies that may affect the
operations of the Company. Reference is made to the Communications Act, the
Cable Act, the Telecommunications Act and regulations and public notices
promulgated by the FCC for further information. The laws and regulations
affecting the industries are subject to change, including through pending
proposals.

There can be no assurance that laws, rules or policies that may have an
adverse effect on the Company will not be enacted or promulgated at some future
date.

Cable Television

The cable industry is regulated by the FCC under the Cable Act and FCC
regulations promulgated thereunder, as well as by local governments with respect
to certain franchising matters.

14

Leased Access. Cable systems are generally required to make up to 15% of
their channel capacity available for lease by nonaffiliated programmers. Little
use has been made of leased access because of the prohibitively high lease rates
charged by cable systems. The Cable Act directs the FCC to establish procedures
to regulate the rates, terms and conditions of cable time leases so as to
encourage leased access.

The FCC's rules cap leased access rates at the "average implicit fee" for a
channel on a cable system, which is the difference between the average
subscriber charge for a channel and the average license fee the cable operator
pays to carry programming. The Company's limited experience has been that the
rates remain largely unaffordable, although the rules do permit cable operators
to charge less than the maximum rates. The FCC also has established rules
governing the process of negotiating for carriage, making other changes to the
terms and conditions of leased access carriage and making it easier for
programmers like the Company to lease channels for less than a full 24-hour day.

The FCC has left open the question of whether video content transmitted
over the Internet qualifies as video programming for purposes of the leased
access requirements. Although it has indicated that it will continue to study
the issue, the FCC has concluded that at present Internet service providers
(ISPs) are not eligible to obtain leased access channel capacity for purposes
other than providing video programming.

Must Carry. In general, the FCC's current "must carry" rules under the
Cable Act entitle analog full power television stations to mandatory cable
carriage of their signals, at no charge, to all cable homes located within each
station's ADI provided that the signal is of adequate strength, and the cable
system has "must carry" designated channels available. In 1997, the Supreme
Court upheld in their entirety the "must carry" provisions applicable to analog
full power television stations. FCC rules currently extend similar cable "must
carry" rights to the primary video and programming-related material of new
television stations that transmit only digital television signals, and to
existing television stations that return their analog spectrum and convert to
digital operations. The FCC is considering additional issues relating to the
"must carry" rights of future DTV broadcast transmissions in an ongoing
proceeding, however, no prediction can be made as to the full scope of such
rights or whether such rights for DTV stations would be upheld against any
challenges under the principles established by the Supreme Court with respect to
analog "must carry." The FCC has also been asked to reevaluate its 1993
extension of "must carry" rights to predominantly home shopping television
stations. It has yet to act on that request, and there can be no assurance that
home shopping television stations will continue to have "must carry" rights. In
addition, under the Cable Act, cable systems may petition the FCC to determine
that a station is ineligible for "must carry" rights because of such station's
lack of service to the community, its previous noncarriage, or other factors. An
important factor considered by the FCC in its evaluation of such petitions is
whether a given station places "Grade B" coverage over the community in
question. The unavailability of "must carry" rights to the Company's existing or
future stations would likely substantially reduce the number of cable homes that
could be reached by any full power television station that the Company owns or
may acquire or on which it might provide programming.

Broadcast Television

General. The Company's acquisition and operation of television stations
are subject to FCC regulation under the Communications Act. The Communications
Act prohibits the operation of television broadcasting stations except under a
license issued by the FCC. The statute empowers the FCC, among other things, to
issue, revoke and modify broadcasting licenses, determine the locations of
stations, regulate the equipment used by stations, adopt regulations to carry
out the provisions of the Communications Act and impose penalties for violation
of such regulations.

Full Power Television Stations. In April 2003, a wholly owned subsidiary
of the Company acquired a full-power television station serving the Boston,
Massachusetts market. Another wholly owned subsidiary of the Company currently
has pending before the FCC an application for a construction permit for a full
power television station in Des Moines, Iowa. The Des Moines application is the
subject of mutually exclusive applications, and thus to the possibility of an
FCC auction at which the licenses would be awarded to the highest bidder. The
FCC has allowed applicants with mutually exclusive applications to reach
settlement agreements under which competing applicants for a single license
could agree to allow their applications to be

15

dismissed in exchange for compensation from a single remaining applicant. In
2000, the Company reached a timely settlement agreement with the other
applicants for the Des Moines construction permit. In February 2002, in order to
facilitate the transition to DTV, the FCC revised its rules to prohibit the
award of additional analog television construction permits for television
channels 52-69. The FCC permitted applicants for analog construction permits on
such channels, including the Company, to amend their applications to specify a
digital channel. In March 2002, the Company and the other applicants for the Des
Moines construction permit submitted a petition requesting a digital, as opposed
to analog, channel. The FCC granted that petition in September 2002. The
Company's request that the FCC approve the settlement agreement and dismiss its
application for the Des Moines license remains pending.

The Company's license for its Boston, Massachusetts television station will
expire in April 2007, but will be renewed upon a showing to the FCC that the
station has served the public interest, and that there have been no serious
violations by the station of the FCC's rules and regulations.

Low Power Television Stations. In February 2003, the Company completed the
sale of ten of its eleven LPTV stations, leaving only one remaining station
under the Company's control. Ownership and operation of LPTV stations are
subject to FCC licensing requirements similar to those applicable to full power
television stations. LPTV stations, however, are generally not eligible for
"must carry" rights. LPTV is a secondary broadcast service that is not permitted
to interfere with the broadcast signal of any existing or future full power
television station. Construction of a full power television station on the same
channel in the same region could therefore force an LPTV station off the air if
such interference is not corrected, subject to a right to apply for a
replacement channel. LPTV stations must also accept interference from existing
and future full power television stations. The advent of DTV is expected to
disrupt the operations of the Company's remaining LPTV station to an as-yet
unknown extent. The FCC has allocated an additional channel to be used for DTV
to every eligible full power television station in the nation, effectively
doubling the number of channels currently used by full power television stations
during the transition period between analog and digital transmissions.
Construction of these newly authorized DTV stations will therefore force many
LPTV stations off the air unless they can find substitute channels. It is not
known at this time whether the Company will be able to modify its LPTV station
license in a manner that will permit it to continue operations.

Foreign Ownership. Foreign governments, representatives of foreign
governments, aliens, representatives of aliens, and corporations and
partnerships organized under the laws of a foreign nation are barred from
holding broadcast licenses. Aliens may own up to 20% of the capital stock of a
licensee corporation, or generally up to 25% of a U.S. corporation, which, in
turn, has a controlling interest in a licensee.

Broadcast Multiple Ownership Limits. FCC rules regarding media ownership
currently limit a single corporation from dominating local TV markets; from
merging a community's TV stations, radio stations, and newspaper; from merging
two of the major TV networks; and from controlling more than 35 percent of all
TV households in the nation. In 2001, the FCC initiated a proceeding to seek
comment on proposed changes to certain of these rules, and in September 2002,
the FCC expanded the scope of that proceeding to provide a more comprehensive
reexamination of its broadcast and media multiple ownership rules. The FCC is
expected to rule on these proposals in mid-2003. Many of the Company's existing
and potential competitors are larger and more diversified than the Company, or
have greater financial, marketing, merchandising and distribution resources. If
enacted, changes to the FCC's media ownership rules could permit increased
consolidation in the broadcast industry, making it more difficult for the
Company to compete.

Alternative Technologies

Alternative technologies could increase the types of systems on which the
Company may seek carriage. Three DBS systems currently provide service to the
public and one additional company currently holds a license to provide DBS
services. The number of DBS subscribers has increased to more than 18 million
households as of December 2002, and Congress has enacted legislation designed to
facilitate the delivery by DBS operators of local broadcast signals and thereby
to promote DBS competition with cable systems. Approximately 490,000 households
now subscribe to wireless cable systems, also known as MMDS systems, which
provide traditional video programming and are beginning to provide advanced data
transmission

16

services. The FCC has completed auctions for MMDS licenses throughout the
nation. Lastly, the emergence of home satellite dish antennas has also made it
possible for individuals to receive a host of video programming options via
satellite transmission.

Advanced Television Systems

Technological developments in television transmission will in the future
make it possible for the broadcast and nonbroadcast media to provide advanced
television services -- television services using digital or other advanced
technologies. The FCC in late 1996 approved a DTV technical standard to be used
by television broadcasters, television set manufacturers, the computer industry
and the motion picture industry. This DTV standard allows the simultaneous
transmission of multiple streams of digital data on the bandwidth presently used
by a normal analog channel. It is possible to broadcast one "high definition"
channel ("HDTV") with visual and sound quality superior to present-day
television or several "standard definition" channels ("SDTV") with digital sound
and pictures of a quality slightly better than present television; to provide
interactive data services, including visual or audio transmission, on multiple
channels simultaneously; or to provide some combination of these possibilities
on the multiple channels allowed by DTV.

While broadcasters do not have to pay to obtain digital channels, the FCC
has ruled that a television station that receives compensation from a third
party for the ancillary or supplementary use of its DTV spectrum (e.g., data
transmission or paging services) must pay a fee of five percent of gross
revenues received. The FCC has rejected a proposal that fees be imposed when a
DTV broadcaster receives payment for transmitting home shopping programming,
although it left open the question whether interactive home shopping programming
might be treated differently. As noted above, the FCC has adopted rules
extending cable "must carry" rights to new television stations that transmit
only DTV signals, and to existing television stations that return their analog
spectrum and convert to digital operations.

It is not yet clear when and to what extent DTV or other digital technology
will become available through the various media; whether and how television
broadcast stations will be able to avail themselves or profit by the transition
to DTV; the extent of any potential interference with analog channels; whether
viewing audiences will make choices among services upon the basis of such
differences; whether and how quickly the viewing public will embrace the cost of
the new digital television sets and monitors; to what extent the DTV standard
will be compatible with the digital standards adopted by cable, DBS and other
services; or whether significant additional expensive equipment will be required
for television stations to provide digital service, including HDTV and
supplemental or ancillary data transmission services.

The Telecommunications Act requires that the FCC conduct a ten-year
evaluation regarding public interest in advanced television, alternative uses
for the spectrum currently being used by television broadcasters and reduction
of the amount of spectrum each broadcast licensee utilizes. In 2000, the FCC
began its first initial periodic review of the progress of the conversion to
digital television. In that review, the FCC revised certain of its rules and
policies with the goal of expanding the number of DTV stations on the air and
providing service to consumers who live in heavily populated areas. In February
2003, the FCC began a second periodic review of the conversion to digital
television, by seeking comment on whether any adjustments to its rules or
policies are necessary in order to ensure the continued progress of the DTV
transition. Among other things, the FCC has sought comment on rules that would
require that DTV stations elect the channel on which they intend to operate
following the transition to DTV as early as May 1, 2005, and on rules that would
end replication and maximization interference protection for commercial DTV
stations as of July 1, 2006, at the latest. Adoption of such rules could
negatively affect the Company's operations. There can be no assurance as to the
outcome of this or other future FCC proceedings addressing the DTV transition.

Telephone Companies' Provision of Programming Services

The Telecommunications Act eliminated the previous statutory restriction
forbidding the common ownership of a cable system and telephone company. The
extent of the regulatory obligations that the Telecommunications Act imposes on
a telephone company that selects and provides video programming services to
subscribers depends essentially upon whether the telephone company elects to
provide its

17

programming over an "open video system" or to do so as a cable operator fully
subject to the existing provisions of the Communications Act regulating cable
providers. A telephone company that provides programming over an open video
system will be subject only to new legislative provisions governing open video
systems and to certain specified existing cable provisions of the Communications
Act, including requirements equivalent to the "must carry" regulations. Such a
telephone company will be required to lease capacity to unaffiliated programmers
on a nondiscriminatory basis and may not select the video programming services
for carriage on more than one-third of activated channel capacity of the system.
Generally, a telephone company that provides video programming but does not
operate over an open video platform will be regulated as a cable operator.

The Company cannot predict how many telephone companies will begin
operation of open video systems or otherwise seek to provide video programming
services, or whether such video providers will be likely to carry the Company's
programming. The FCC has adopted rules that impose on open video systems many of
the obligations imposed upon cable systems, including those pertaining to "must
carry" and retransmission consent. The FCC has certified a number of OVS
operators to offer OVS service in 50 areas and one open video system is
currently operating. Moreover, a number of local carriers are planning to
provide or are providing video programming as traditional cable systems or
through MMDS, while other local exchange carriers are using VDSL technology to
deliver video programming, high-speed Internet access, and telephone service
over existing copper telephone lines.

H. SEASONALITY AND ECONOMIC SENSITIVITY

The Company's businesses are subject to seasonal fluctuation, with the
highest sales activity normally occurring during the fourth calendar quarter of
the year. Seasonal fluctuation in demand is generally associated with fourth
quarter seasonal holidays. The Company's businesses are sensitive to general
economic conditions and business conditions affecting consumer spending.
Additionally, the Company's television audience and therefore sales revenue can
be significantly impacted by major world events, which divert audience attention
away from the Company's programming.

I. EMPLOYEES

At January 31, 2003, the Company, including its wholly owned subsidiaries,
had approximately 830 employees, the majority of whom are employed in customer
service, order fulfillment and television production. Approximately 18% of the
Company's employees work part-time. The Company is not a party to any collective
bargaining agreement with respect to its employees. Management considers its
employee relations to be good.

J. EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the names, ages and titles at ValueVision, principal
occupations and employment for the past five years of the persons serving as
executive officers of the Company.

Gene C. McCaffery joined the Company in March 1998, was named Chief
Executive Officer in June 1998 and was appointed President and Chairman of the
Board in February 1999. Mr. McCaffery spent

18

14 years at Montgomery Ward & Co., Incorporated, a department store retailer,
most recently through 1995 as Senior Executive Vice President of Merchandising
Marketing; Strategic Planning and Credit Services. During this period, Mr.
McCaffery also served as Vice Chairman of Signature Group. From March 1996 to
March 1998, Mr. McCaffery served as Chief Executive Officer and managing partner
of Marketing Advocates, a celebrity-driven product and service development
company based in Los Angeles, California and Chicago, Illinois. He also served
as Vice-Chairman of the Board of ValueVision from August 1995 to March 1996. Mr.
McCaffery served as an infantry officer in Vietnam and was appointed as Civilian
Aide to the Secretary of the Army by President George Bush, Sr. in 1991, serving
until 2000.

Richard D. Barnes joined the Company as Senior Vice President and Chief
Financial Officer in November 1999 and was appointed Executive Vice President in
December 2000 and Chief Operating Officer in July 2001. From 1996 to November
1999, Mr. Barnes was a key financial executive with Bell Canada in Toronto,
serving as Senior Vice President, Operations, and Financial Management. At Bell
Canada, a major telecommunications supplier, Barnes also was a Group Vice
President of Finance, Planning, and Strategy. From 1993 to 1996, Mr. Barnes was
Vice President & Controller at The Pillsbury Company, a consumer food product
manufacturer and marketer. His previous business experience was principally in
the consumer products industry, holding CFO and/or other key financial,
development and strategic management positions with Bristol-Myers Squibb, The
Drackett Company (a Bristol-Myers subsidiary), Bristol-Myers Products Canada
Inc., Bristol-Myers Pharmaceutical Group, and Procter & Gamble Inc.

Liz Byerly Haesler joined the Company as Executive Vice President of TV and
Internet Sales in November 2002. From 2000 to 2002, Mrs. Haesler was Senior Vice
President of Merchandising at Marshall Field's, a division of Target
Corporation, based in Minneapolis. As Senior Vice President for Marshall
Field's, a $3 billion upscale department store retailer, Mrs. Haesler was
responsible for the merchandise planning for men's apparel, kid's, shoes and
cosmetics. Mrs. Haesler joined Marshall Field's in 1989 and held a variety of
senior merchandising positions in men's apparel, fragrances, shoes and intimate
apparel including Vice President of Cosmetics. Previously, she held various
management-level positions at Kaufman's, a division of May Department Stores.

John D. Ryan joined the Company as Executive Vice President of
Entertainment and Licensing in August 2001. Previously, Mr. Ryan spent over 20
years at global syndication company Worldvision Enterprises, Inc., serving as
President and Chief Executive Officer since 1989. During his tenure at
Worldvision, he directed worldwide distribution, syndication and licensing of
Worldvision's 20,000 hours of television programming and over 2,000 movies. The
Worldvision television library consisted of many successful shows, ranging from
such classic programs as Dallas and the Love Boat to the Aaron Spelling-
produced shows Beverly Hills 90210 and Melrose Place. Worldvision also
distributed some of daytime television's most popular soap operas, including
General Hospital and All My Children, as well as other children's programming
from Hanna Barbera. Under Mr. Ryan's leadership, Worldvision also launched a
successful cable channel in Central and South America called Tele Uno, which was
later sold to Sony and included as part of their bundled cable offering in Latin
America. Mr. Ryan also presided over one of the most celebrated and successful
syndicated programs of the last decade, Judge Judy.

Nathan E. Fagre joined the Company as Senior Vice President, General
Counsel and Secretary in May 2000. From 1996 to 2000, Mr. Fagre was Senior Vice
President and General Counsel of Occidental Oil and Gas Corporation in Los
Angeles, California, the oil and gas operating subsidiary of Occidental
Petroleum Corporation. At Occidental, an international oil exploration and
production company, Mr. Fagre was also a member of the Executive Committee. From
1995 to 1996, Mr. Fagre was Vice President and Deputy General Counsel of
Occidental International Exploration and Production Company. His previous legal
experience included corporate and securities law practice with the law firms of
Sullivan & Cromwell in New York and Gibson, Dunn & Crutcher in Washington, D.C.

W. Stann Leff joined the Company as Vice President -- Human Resources in
May 1999 and was appointed Senior Vice President in December 2000. From 1985
until joining the Company, Mr. Leff was senior Vice President of Human Resources
for four different divisions of May Department Stores in the cities

19

of Cleveland, St. Louis, Los Angeles, and Portland, respectively during that
period. Mr. Leff represents ValueVision Media as Vice Chairman of the Board of
Directors of the Minnesota Special Olympics.

K. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

Certain information contained herein and other materials filed by the
Company with the Securities and Exchange Commission (as well as information
included in oral statements or other written statements made or to be made by
the Company) contains certain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are based
on management's current expectations and are accordingly subject to uncertainty
and changes in circumstances. Actual results may vary materially from the
expectations contained herein due to various important factors, including (but
not limited to): changes in consumer spending and debt levels; changes in
interest rates; seasonal variations in consumer purchasing activities;
competitive pressures on sales; changes in pricing and gross profit margins;
changes in the level of cable and satellite distribution for the Company's
programming and fees associated therewith; the success of the Company's
e-commerce and rebranding; the success of the Company's strategic alliances and
relationships; the ability of the Company to manage its operating expenses
successfully; risks associated with acquisitions; changes in governmental or
regulatory requirements; litigation or governmental proceedings affecting the
Company's operations; and the ability of the Company to obtain and retain key
executives and employees. Investors are cautioned that all forward-looking
statements involve risk and uncertainty and the Company is under no obligation
(and expressly disclaims any such obligation to) update or alter its forward-
looking statements whether as a result of new information, future events or
otherwise.

L. RISK FACTORS

In addition to the general investment risks and those factors set forth
throughout this document (including those set forth under the caption
"Cautionary Statement Concerning Forward-Looking Information"), the following
risks should be considered regarding the Company.

Historical Losses. The Company experienced operating losses of
approximately $8.6 million, $5.5 million and $10.5 million in fiscal 1998, 2001
and 2002, respectively, and operating income of $4.0 million and $6.6 million in
fiscal 1999 and 2000, respectively. The Company reported net income per diluted
share of $.18 and $.73 in fiscal 1998 and 1999, respectively, and a net loss per
diluted share of $.78, $.25 and $1.06 in fiscal 2000, 2001 and 2002,
respectively. Net profits (losses) of approximately $8.3 million, $20.4 million,
$(47.7) million, $(11.3) million and $(23.9) million in fiscal 1998, 1999, 2000,
2001 and 2002, respectively, were derived from gains on sale of broadcast
stations and other investments, offset by other non-operating charges in fiscal
1998, and investment write downs in fiscal 2000, 2001 and 2002. There can be no
assurance that the Company will be able to achieve or maintain profitable
operations in future fiscal years.

NBC Rebranding and Trademark License Agreement. As discussed above, in
November 2000, the Company entered into a Trademark License Agreement with NBC
pursuant to which NBC granted the Company an exclusive, worldwide license for a
term of 10 years to use certain NBC trademarks, service marks and domain names
to effectively rebrand the Company's business and corporate name and companion
Internet website. Under the terms of the agreement, the Company's television
home shopping network, previously called ValueVision, and companion Internet
website was rebranded to ShopNBC and ShopNBC.com, respectively. In the event the
Company fails to achieve and maintain certain performance targets, the Company
may lose its rights under the License Agreement in specific territories outside
the United States. In addition, the License Agreement contains significant
restrictions on the Company's ability to use the rights granted to it in
connection with businesses other than certain specified "permitted businesses."
This restricts the ability of the Company to take advantage of certain business
opportunities. NBC has the right to terminate the License Agreement at any time
upon certain changes of control of the Company, the failure by NBC to own a
certain minimum percentage of the outstanding capital stock of the Company on a
fully-diluted basis, the failure of NBC and the Company to agree on new
trademarks, service marks or related intellectual property rights, and certain
other related matters. The termination of the License Agreement would require
the Company to pursue a new branding strategy, which would entail significant
expense and time to create and could have a negative impact on the Company's
presence in the marketplace. This may result in a material
20

adverse effect on the Company's sales and results of operations. In addition, in
certain events the termination by NBC of the License Agreement may result in the
acceleration of vesting of the License Warrants.

NBC and GE Equity Strategic Alliance. As a result of its equity ownership
of the Company, NBC and GE Equity can exert substantial influence over the
election of directors and the management and affairs of the Company.
Accordingly, GE Equity may have sufficient voting power to determine the outcome
of various matters submitted to the Company's shareholders for approval,
including mergers, consolidations and the sale of all or substantially all of
the Company's assets. Such control may result in decisions that are not in the
best interests of the Company or its shareholders. In addition, a termination of
the strategic alliance with NBC could adversely affect the Company's ability to
increase the number of households receiving the Company's television
programming. The Preferred Stock issued to NBC and GE Equity may also be
redeemed upon certain "changes of control" of the Company. In the event of any
such redemption, the requirement of the Company to pay cash in connection with
such redemption may have a material impact on the Company's liquidity and cash
resources.

Dependence on the Internet. The Company has made material investments in
anticipation of the growing use of the Internet as an effective medium of
commerce by merchants and shoppers. The Company's sales over the Internet
accounted for approximately 17% of net sales during fiscal 2002. The Company's
online marketplace initiatives through its current website are growing and the
Company must continue to attract new merchants in order to increase its
attractiveness to consumers; however, there can be no assurance that its efforts
in this regard will be successful or continue to be profitable. Additional laws
and regulations may be adopted with respect to the Internet or other online
services, covering such issues as user privacy, advertising, pricing, content,
copyrights and trademarks, access by persons with disabilities, distribution,
taxation and characteristics and quality of products and services. Such laws or
regulations, if enacted, could make it more difficult for the Company to conduct
business online, which could, in turn, decrease the demand for the Company's
products and services and increase its cost of doing business through the
Internet. Additionally, because material may be downloaded from websites hosted
by or linked from the Company and subsequently distributed to others, there is a
potential that claims will be made against the Company for negligence, copyright
or trademark infringement or other theories based on the nature and content of
this material. Inherent with the Internet and e-commerce is the risk of
unauthorized access to confidential data including consumer credit card
information, the risk of computer virus infection or other unauthorized acts of
electronic intrusion with the malicious intent to do damage. Although the
Company has taken precautionary steps to secure and protect its data network
from intrusion and acts of hostility, there can be no assurance that
unauthorized access to the Company's electronic systems will be prevented
entirely. Negligence and product liability claims also potentially may be made
against the Company due to the Company's role in facilitating the purchase of
certain products. The Company's liability insurance may not cover claims of
these types, or may not be adequate to indemnify the Company against this type
of liability. There is a possibility that such liability could have a material
adverse effect on the Company's reputation or operating results.

Competition. As a general merchandise retailer, the Company competes for
consumer expenditures with other forms of retail businesses, including
department, discount, warehouse and specialty stores, television home shopping,
mail order and catalog companies and other direct sellers. The catalog and
direct mail industry includes a wide variety of specialty and general
merchandise retailers and is both highly fragmented and competitive. The Company
also competes with retailers who sell and market their products through the
highly competitive Internet. In addition, as the use of the Internet increases,
larger, well-established and well-financed entities may continue to acquire,
invest in or form joint ventures with providers of e-commerce and direct
marketing solutions, and existing providers of e-commerce and direct marketing
solutions may continue to consolidate. Any of these trends would increase the
competition with respect to the Company. The Company also competes with a wide
variety of department, discount and specialty stores, which have greater
financial, distribution and marketing resources than the Company. The home
shopping industry is also highly competitive and is dominated by two companies,
HSN and QVC. The Company's television home shopping programming also competes
directly with HSN, QVC and SATH for cable distribution in virtually all of the
Company's markets. The Company is at a competitive disadvantage in attracting
viewers due to the fact that the Company's programming is not carried full-time
in all of its markets,

21

and the Company may have less desirable cable channels in many markets. QVC and
HSN are well-established and, similar to the Company, offer home shopping
programming through cable systems, owned or affiliated full and low power
television stations and directly to satellite dish owners and reach a
significantly larger percentage of United States television households than the
Company's broadcast. The television home shopping industry is also experiencing
vertical integration. QVC and HSN are both affiliated with cable operators or
cable networks serving significant numbers of subscribers nationwide. While the
Cable Television Consumer Protection and Competition Act of 1992 includes
provisions designed to prohibit coercion and discrimination in favor of such
affiliated programmers, the FCC has decided that it will rule on the scope and
effect of these provisions on a case-by-case basis. In 2002, SATH and Scripps
announced the completion of a transaction that resulted in Scripps owning a
controlling interest in the SATH television-retailing network. Scripps is a
media company with interests in newspaper publishing, broadcast television,
national television networks and interactive media. QVC is currently jointly
owned by Comcast Corporation and Liberty Media Corp. HSN is a wholly owned
subsidiary of USA Interactive, Inc. Comcast, Liberty Media, Scripps and USA
Interactive are larger, more diversified and have greater financial, marketing
and distribution resources than the Company.

Industry Consolidation. On December 19, 2001, ATT Corp. ("ATT") and
Comcast Corporation ("Comcast") announced the execution of a definitive
agreement to combine ATT Broadband with Comcast. The new company, called ATT
Comcast Corporation, has approximately 22 million subscribers. ATT Comcast
Corporation's assets consist of both companies' cable TV systems, as well as
ATT's interests in cable television joint ventures and its 25.5 percent interest
in Time Warner Entertainment, and Comcast's interests in QVC (a direct
competitor of the Company), E! Entertainment, The Golf Channel, and other
entertainment properties. ATT Comcast Corporation's ownership interest in QVC
could have an effect on the Company's ability to further expand its programming
to additional viewers and might impact the price paid to gain access to those
households that currently receive the Company's programming.

Potential Termination of Cable Time Purchase Agreements; Media Access;
Related Matters. The Company's television home shopping programming is
distributed primarily through purchased blocks of cable television time. Many of
the Company's cable television affiliation agreements are terminable by either
party upon 30 days, or less notice. The Company's television home shopping
business could be materially adversely affected in the event that a significant
number of its cable television affiliation agreements are terminated or not
renewed on acceptable terms.

Potential Loss of Satellite or Telecommunications Service. The Company's
programming is presently distributed to cable systems, full power television
stations and satellite dish owners via a leased communications satellite
transponder. In the future, satellite service may be interrupted due to a
variety of circumstances beyond the Company's control, such as satellite
transponder failure, satellite fuel depletion, governmental action, preemption
by the satellite lessor and service failure. The Company has an agreement for
preemptable immediate back-up satellite service and believes it could arrange
for such back-up service, on a first-come first-serve basis, if satellite
transmission is interrupted. However, there can be no assurance that the Company
will be able to maintain such arrangements and the Company may incur substantial
additional costs to enter into new arrangements and be unable to broadcast its
signal for some period of time. In addition, the primary provider of
telecommunication services to the Company, including to its call centers, is
MCI, which is presently under a Chapter 11 reorganization proceeding. Under
these circumstances, there can be no assurances that MCI will continue to
provide telecommunications services to the Company or to other customers. In the
event of a disruption or termination of services from MCI, the Company could
experience a temporary disruption in its business operations, a loss of revenue
and earnings, and could incur substantial additional costs in entering into new
arrangements with another telecommunication services provider.

Product Liability and Claims. Products sold by the Company and
representations related to such products may expose the Company to potential
liability from claims by purchasers of such products, subject to the Company's
rights, in certain instances, to seek indemnification against such liability
from the manufacturers of such products. In addition to potential claims of
personal injury, wrongful death or damage to personal property, the live
unscripted nature of the Company's television broadcasting may subject the
Company to claims of misrepresentation by its customers, the Federal Trade
Commission and state attorneys general. The
22

Company has generally required the manufacturers and vendors of these products
to carry product liability, errors and omissions and media perils insurance,
although in certain instances where a limited quantity of products are purchased
from non-U.S. vendors, the vendor may not be formally required to carry product
liability insurance. Certain of such vendors, however, may in fact maintain such
insurance. There can be no assurance that such parties will continue to maintain
this insurance or that this coverage will be adequate. There can be no assurance
that the Company will be able to maintain such coverage or obtain additional
coverage on acceptable terms, or that such insurance will provide adequate
coverage against all potential claims.

Risk of Collection. The Company utilizes an installment payment program
called "ValuePay" which entitles customers to purchase merchandise and generally
pay for the merchandise in two to six equal monthly installments. As of January
31, 2003 and 2002, the Company had approximately $59,632,000 and $48,078,000,
respectively, due from customers under the ValuePay installment program. The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. While
credit losses have historically been within the Company's estimates for such
losses, there is no guarantee that the Company will continue to experience the
same credit loss rate that it has in the past. A significant increase in the
Company's credit losses could result in a material adverse impact on the
Company's financial performance.

Enterprise Resource Planning ("ERP") Systems Conversion. In fiscal 2000,
the Company launched an effort to fully replace its legacy financial, order
fulfillment and customer care computer systems in an effort to further support
the Company's growing television home shopping and Internet businesses. The
installation of the Company's financial systems was successfully completed in
midyear 2000. Additionally, a new show scheduling and tracking system was
successfully launched in October 2001. In the second quarter of fiscal 2002, the
Company implemented the remaining modules of a new front-end ERP system to
provide a long-term systems foundation for the Company's future growth. The new
front-end systems conversion included the replacement of the Company's legacy
order capture, inventory and customer service support systems. The Company was
adversely impacted in the second and third quarters of fiscal 2002 by unforeseen
operational challenges related to the implementation of this ERP system. A
number of unplanned and unexpected conversion issues led to delays and
disruptions in the taking of orders, credit processing merchandise management,
reporting, and in the processing of shipments and other customer transactions,
which had a negative impact on net sales and gross margins during these quarters
and directly resulted in the Company incurring incremental expenses to cover
customer discounts, overtime, additional talk time in the call centers,
temporary labor, additional long distance costs, bad debt, credit card
chargebacks and various outbound customer communications. These difficulties
adversely impacted the Company's financial results primarily during the second
and third quarters of fiscal 2002 in the form of reduced net sales, reduced
gross profits and incremental unplanned operating expenses. The majority of the
implementation problems associated with the ERP system conversion can be
attributed to certain aspects of the software not functioning as promised or
expected. In the fourth quarter of fiscal 2002, the Company made significant
progress in stabilizing all aspects of the operating systems and was able to
handle its highest volume quarter with minimal disruption to the flow of
business. The Company's television home shopping and Internet businesses, which
are significantly dependent on these systems, could be materially adversely
affected in the event of additional errors or omissions in the installed
applications, or errors, which would prevent or delay the new systems from
performing as intended or its stabilization. The Company has taken specific
measures to ensure adequate functionality and stability for these systems;
however, there can be no assurances that all systems will continue to perform as
expected or that additional expenses will not be incurred. Additionally, due to
the disruptions experienced by customers during this time period, there can be
no assurances that customers will choose to continue to shop with the Company.

Seasonality and Economic Sensitivity. The television home shopping and
e-commerce businesses in general are somewhat seasonal, with the primary selling
season occurring during the last quarter of the calendar year. These businesses
are also sensitive to general economic conditions and business conditions
affecting consumer spending. The recent general deterioration in economic
conditions in the United States and uncertainties associated with global events
has led to reduced consumer confidence, reduced disposable

23

income and increased competitive activity, as well as the business failure of
companies in the retail and direct marketing industries. Such economic
conditions may lead to a reduction in consumer spending generally and in home
shopping specifically, and may lead to a reduction in consumer spending on the
types of merchandise the Company offers on its television programming and over
the Internet. Additionally, the Company's television audience and therefore
sales revenue can be significantly impacted by major world events, which divert
audience attention away from the Company's programming. Economic conditions may
also have a material adverse impact on the financial strength of the Company's
vendors and suppliers, some of whom are focused on a limited range of product
categories or who are dependent on home shopping as a primary outlet for their
sales. In the past fiscal year, two of the Company's top twenty vendors have
instituted insolvency or reorganization proceedings.

M. AVAILABLE INFORMATION

Our annual report on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K, and amendments to these reports are available, without
charge, as soon as reasonably practicable after they are filed electronically
with the Securities and Exchange Commission. Copies are available, without
charge, by contacting General Counsel, ValueVision Media, Inc., 6740 Shady Oak
Road, Eden Prairie, Minnesota 55344-3433.

Our Internet address is http://www.shopnbc.com.

ITEM 2. PROPERTIES

In February 2003, the Company entered into an agreement to purchase
property and two commercial buildings occupying approximately 209,000 square
feet in Eden Prairie, Minnesota (a suburb of Minneapolis). One of the buildings
is used for all corporate administrative, television production, customer
service and jewelry distribution operations of the Company. The second building
has approximately 70,000 square feet of commercial rental space, which the
Company leases out to third parties. The Company owns a 262,000 square foot
distribution facility on a 34-acre parcel of land in Bowling Green, Kentucky and
leases approximately 25,000 square feet of office space for a telephone call
center in Brooklyn Center, Minnesota, which the Company primarily uses to
fulfill its service obligations in connection with the Services Agreement
entered into with RLM and its own customer service operations. The Company
leases approximately 30,000 square feet of warehouse space in Hermitage,
Pennsylvania and approximately 13,000 square feet of office space in Minnetonka,
Minnesota in connection with its wholly owned subsidiary, FanBuzz. Additionally,
the Company rents transmitter site and studio locations in connection with its
full power Boston television station. The Company believes that its existing
facilities are adequate to meet its current needs and that suitable additional
or alternative space will be available as needed to accommodate expansion of
operations.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved from time to time in various claims and lawsuits in
the ordinary course of business. In the opinion of management, these claims and
suits individually and in the aggregate will not have a material adverse effect
on the Company's operations or consolidated financial statements.

In August 2001, the Company entered into a Consent Agreement and Order with
the Federal Trade Commission ("FTC") regarding the substantiation of certain
claims for health and beauty products made on-air during the Company's TV
programming and on the Company's Internet web site. To ensure that it remains in
compliance with the Consent Agreement and Order and with generally applicable
FTC advertising standards, the Company has implemented a Compliance Program
applicable to health and beauty products offered through ShopNBC. Under the
terms of the Consent Order, the Company must ensure that it has scientific
evidence to back up any claims it might make regarding the health benefits of
any food, drug, dietary supplement, cellulite-treatment product or weight-loss
program in connection with the advertisement or sale of such products. In the
event of noncompliance with the Consent Order, the Company could be subject to
civil penalties. The Company's execution of the Consent Agreement and Order with
the FTC did not have a material impact on the Company's operations or
consolidated financial statements. During fiscal year 2002,

24

the FTC made inquiries of the Company regarding certain statements made while a
guest on-air spokesperson was appearing for a multi-vitamin product called
Physicians RX. The FTC alleged that claims did not meet the applicable
requirements set forth in the Consent Agreement and Order, which was disputed by
the Company. The Company, without any admission of wrongdoing, entered into a
Consent Decree on April 17, 2003 and agreed to pay a penalty of $215,000. The
Company has the right to indemnification from the vendor who provided the
product and the on-air spokesman. The Consent Decree and penalty will not have a
material effect on the Company's operations or consolidated financial
statements.

In July 2001, Vincent Buonomo ("Buonomo"), a Florida resident, commenced a
purported class action lawsuit against the Company in Hennepin County District
Court, Minneapolis, Minnesota, alleging that he purchased a computer system from
the Company in September 2000 in response to a television program broadcast by
the Company that promised that Internet access with certain terms would
accompany the computer system, and that such promise was broken. Buonomo asserts
claims for breach of contract, breach of warranty, and violation of fraud and
deceptive trade practices statutes. On his own behalf and on behalf of the
purported class, Buonomo seeks compensatory damages in an unspecified amount,
rescission and other equitable relief, and an award of attorneys' fees, costs,
and disbursements. The Company has denied all liability to the plaintiff and the
purported class and has raised various affirmative defenses.

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

No matters were submitted to shareholders of the Company during the fourth
quarter ended January 31, 2003.

PART II

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

MARKET INFORMATION FOR COMMON STOCK

The Company's common stock symbol is "VVTV" and is traded on the Nasdaq
National Market tier of the Nasdaq Stock Market. The following table sets forth
the range of high and low sales prices of the common stock as quoted by the
Nasdaq Stock Market for the periods indicated.

HOLDERS

As of April 21, 2003 the Company had approximately 470 shareholders of
record.

DIVIDENDS

The Company has never declared or paid any dividends with respect to its
capital stock. Pursuant to the Shareholder Agreement between the Company and GE
Equity, the Company is prohibited from paying

25

dividends in excess of 5% of the Company's market capitalization in any quarter.
The Company currently expects to retain its earnings for the development and
expansion of its business and does not anticipate paying cash dividends in the
foreseeable future. Any future determination by the Company to pay cash
dividends will be at the discretion of the Board and will be dependent upon the
Company's results of operations, financial condition, any contractual
restrictions then existing, and other factors deemed relevant at the time by the
Board.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data for the five years ended January 31, 2003 have
been derived from the audited consolidated financial statements of the Company.
The selected financial data presented below are qualified in their entirety by,
and should be read in conjunction with, the financial statements and notes
thereto and other financial and statistical information referenced elsewhere
herein including the information referenced under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

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

(a) Results of operations for the year ended January 31, 2003 include the
operations of FanBuzz, Inc. as of the effective date of its acquisition,
March 8, 2002. See Note 4 of Notes to Consolidated Financial Statements.

(b) Results of operations for the year ended January 31, 2001 include a
write-off of $4.6 million relating to Montgomery Wards' bankruptcy filing in
December 2000. See Note 3 of Notes to Consolidated Financial Statements.

(c) In the second half of fiscal 1999, the Company divested the catalog
operations of Catalog Ventures, Inc. and Beautiful Images, Inc.

(d) In fiscal 1998, the Company divested its HomeVisions catalog operations and
recorded a $2.9 million restructuring and asset impairment charge in
connection with this decision.

(e) Income (loss) before income taxes and net income (loss) include a net
pre-tax loss of $37.3 million from the sale and holdings of investments and
other assets in fiscal 2002, a net pre-tax loss of $16.1 million from the
sale and holdings of investments and other assets in fiscal 2001, a net
pre-tax loss of $59.0 million from the sale and holdings of investments and
other assets in fiscal 2000, a net pre-tax gain of $32.7 million from the
sale and holdings of broadcast properties and other assets in fiscal 1999
and a net pre-tax gain of $22.8 million from the sale and holdings of
broadcast properties and other assets and pre-tax charges totaling $9.5
million associated with a litigation settlement and terminated acquisition
costs in fiscal 1998.

(f) EBITDA represents operating income (loss) for the respective periods
excluding depreciation and amortization expense. Management views EBITDA as
an important alternative operating performance measure because it is
commonly used by analysts and institutional investors in analyzing the
financial performance of companies in the broadcast and television home
shopping sectors. However, EBITDA should not be construed as an alternative
to operating income or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of operating performance or as a
measure of liquidity. EBITDA, as presented, may not be comparable to
similarly entitled measures reported by other companies.

A reconciliation of EBITDA to operating income (loss) is as follows:

27

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

INTRODUCTION

The following discussion and analysis of financial condition and results of
operations is qualified by reference to and should be read in conjunction with
the financial statements and notes thereto included elsewhere herein.

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

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations and other materials filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contain certain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based on
management's current expectations and are accordingly subject to uncertainty and
changes in circumstances. Actual results may vary materially from the
expectations contained herein due to various important factors, including (but
not limited to): changes in consumer spending and debt levels; changes in
interest rates; seasonal variations in consumer purchasing activities;
competitive pressures on sales; changes in pricing and gross profit margins;
changes in the level of cable and satellite distribution for the Company's
programming and fees associated therewith; the success of the Company's e-
commerce and rebranding initiatives; the success of the Company's strategic
alliances and relationships; the ability of the Company to manage its operating
expenses successfully; risks associated with acquisitions; changes in
governmental or regulatory requirements; litigation or governmental proceedings
affecting the Company's operations; and the ability of the Company to obtain and
retain key executives and employees. Investors are cautioned that all
forward-looking statements involve risk and uncertainty and the Company is under
no obligation (and expressly disclaims any such obligation) to update or alter
its forward-looking statements whether as a result of new information, future
events or otherwise.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses ValueVision's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. On an on-going basis, management
evaluates its estimates and assumptions, including those related to the
realizability of long-term investments and intangible assets, accounts
receivable, inventory and product returns. Management bases its estimates and
assumptions on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. There can be no assurance that
actual results will not differ from these estimates under different assumptions
or conditions.

Management believes the following critical accounting policies affect the
more significant assumptions and estimates used in the preparation of its
consolidated financial statements:

- Accounts receivable. The Company utilizes an installment payment program
called "ValuePay" which entitles customers to purchase merchandise and
generally pay for the merchandise in two to six equal monthly credit card
installments. As of January 31, 2003 and 2002, the Company had
approximately $59,632,000 and $48,078,000 respectively, due from
customers under the ValuePay installment program. The Company maintains
allowances for doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments. Estimates are used
in determining the allowance for doubtful accounts and are based on
historical collection experience, current trends, credit policy and a
percentage of accounts receivable by aging category. In determining these
percentages, the Company reviews its historical write-off experience,
current trends in the credit

28

quality of the customer base as well as changes in credit policies. While credit
losses have historically been within the Company's expectations and the
provisions established, there is no guarantee that the Company will continue to
experience the same credit loss rate that it has in the past or that
losses will be within current provisions.

- Inventory. The Company values its inventory, which consists primarily of
consumer merchandise held for resale, at the lower of average cost or
realizable value, and reduces its balance by an allowance for excess and
obsolete merchandise. As of January 31, 2003 and 2002, the Company had
inventory balances of $61,246,000 and $40,383,000, respectively. The
Company regularly reviews inventory quantities on hand and records a
provision for excess and obsolete inventory based primarily on a
percentage of the inventory balance as determined by its age and specific
product category. In determining these percentages, the Company looks at
its historical write-off experience, the specific merchandise categories
on hand, its historic recovery percentages on liquidations, forecasts of
future product television shows and the current market value of gold. If
actual recoveries or future demand or market conditions differ from the
Company's estimates and assumptions, additional inventory write-downs may
be required in future periods.

- Product returns. The Company records a reserve as a reduction of gross
sales for anticipated product returns at each month-end and must make
estimates of potential future product returns related to current period
product revenue. The Company's return rates on its television and
Internet sales have been approximately 33% to 36% over the past three
fiscal years. The Company estimates and evaluates the adequacy of its
returns reserve by analyzing historical returns by merchandise category,
looking at current economic trends and changes in customer demand and by
analyzing the acceptance of new product lines. Assumptions and estimates
are made and used in connection with establishing the sales returns
reserve in any accounting period. Material differences may result in the
amount and timing of revenue for any period if management's assumptions
and estimates were significantly different from actual product return
experiences.

- Long-term investments. As of January 31, 2003 and 2002, the Company had
equity investments totaling approximately $6,713,000 and $40,551,000
respectively, of which $-0- and $32,429,000, respectively related to the
Company's investment in the RLM joint venture after adjusting for the
Company's equity share of RLM losses under the equity method of
accounting and write down in fiscal 2002. At January 31, 2003 and 2002,
investments also included approximately $4,702,000 and $6,111,000,
respectively, related to equity investments made in companies whose
shares or underlying shares are traded on a public exchange and other
investments totaling $2,011,000, which are carried at the lower of cost
or net realizable value. The Company records an investment impairment
charge when it believes an investment has experienced a decline in value
that is deemed other than temporary. Future adverse changes in market
conditions, or continued poor operating results of the underlying
investments, could result in significant non-operating losses or an
inability to recover the carrying value of these investments that may not
be reflected in an investment's current carrying value, thereby possibly
requiring an impairment charge in the future. In the fourth quarter of
fiscal 2002, the Company evaluated the carrying value of its RLM
investment and believes that based on RLM's historic performance, future
earnings and cash flow outlook, recent services agreement amendment and
fourth quarter valuation analysis, an impairment had occurred and the
decline in value is other than temporary. As a result, the Company
recorded a $31,078,000 write down of its RLM investment in the fourth
quarter of fiscal 2002. While the Company believes that its estimates and
assumptions regarding the valuation of its remaining investments are
reasonable, different assumptions or future events could materially
affect the Company's evaluations.

- Goodwill. As of January 31, 2003 and 2002, the Company recorded goodwill
totaling $9,442,000 and $-0- respectively, as a result of its acquisition
of FanBuzz, Inc in fiscal 2002. Effective February 1, 2002, the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets". Under this standard, goodwill is no longer
amortized, but must be tested for impairment at least annually or when
factors indicating impairment are present. In assessing the
recoverability of its goodwill, the Company must make assumptions
regarding estimated projected cash
29

flows and other factors to determine the fair value of the respective
asset and related reporting unit. The Company performed an impairment
test in the fourth quarter of fiscal 2002 and determined that an
impairment of goodwill had not occurred as the fair value of the FanBuzz
reporting unit exceeded its carrying value. The fair value of the
reporting unit was estimated using the present value of expected future
cash flows. If these estimates or related assumptions change in the
future, the Company may be required to record impairment charges for
goodwill in future periods. While the Company believes that its estimates
and assumptions regarding the valuation of goodwill are reasonable,
different assumptions or future events could materially affect the
Company's evaluations.

- Intangible assets. As of January 31, 2003 and 2002, the Company had
intangible assets totaling $31,724,000 and $34,405,000 respectively,
recorded as a result of warrants issued by the Company in connection with
the Trademark License Agreement, the Distribution and Marketing Agreement
entered into with NBC and the acquisition of FanBuzz, Inc. in fiscal
2002. In assessing the recoverability of the Company's intangible assets,
the Company must make assumptions regarding estimated future cash flows
and other factors to determine the fair value of the respective assets
and reporting units. If these estimates or related assumptions change in
the future, the Company may be required to record impairment charges for
these assets in future periods. While the Company believes that its
estimates and assumptions regarding the valuation of these intangible
assets are reasonable, different assumptions or future events could
materially affect the Company's evaluations.

- Stock-based compensation. The Company accounts for stock-based
compensation issued to employees in accordance with Accounting Principles
Board ("APB") No. 25, "Accounting for Stock Issued to Employees". In
cases where exercise prices are less than the fair value of the
underlying stock as of the date of grant, compensation expense is
recognized over the vesting period. For stock-based compensation issued
to non-employees, the Company accounts for the grants in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation". All options granted to employees had an
exercise price equal to the fair market value of the underlying common
stock on the date of grant and accordingly, no compensation expense is
reflected in net losses for fiscal 2002, 2001 and 2000.

- Deferred taxes. The Company accounts for income taxes under the
liability method of accounting whereby income taxes are recognized during
the fiscal year in which transactions enter into the determination of
financial statement income (loss). Deferred tax assets and liabilities
are recognized for the expected future tax consequences of temporary
differences between financial statement and tax basis of assets and
liabilities. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of the enactment of
such laws. The Company assesses the recoverability of its deferred tax
assets in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). In accordance with that standard, as of January 31, 2003, the
Company recorded a valuation allowance of approximately $18,738,000 for
its net deferred tax assets and net operating and capital loss
carryforwards. Based on the Company's recent history of losses, a full
valuation allowance was recorded in the fourth quarter of fiscal 2002 and
was calculated in accordance with the provisions of SFAS No. 109 which
places primary importance on the Company's most recent operating results
when assessing the need for a valuation allowance. Although management
believes that the Company's recent operating losses were heavily affected
by a challenging retail economic environment and slowdown in consumer
spending experienced by the Company and other merchandise retailers, the
Company intends to maintain a full valuation allowance for its net
deferred tax assets and loss carryforwards until sufficient positive
evidence exists to support reversal of the allowance.

ACQUISITION OF FANBUZZ, INC.

On February 25, 2002, the Company announced it had signed a definitive
agreement to acquire Minneapolis-based FanBuzz, Inc., an e-commerce and
fulfillment solutions provider of affinity based merchandise to some of the most
recognized sports, media and other well known entertainment brands in the world,
including ESPN, the Salt Lake 2002 Winter Games, the National Hockey League, the
Museum
30

Company, San Francisco Music Box and many other professional sports teams,
leagues and colleges. FanBuzz, Inc. has focused its business model of operating
online product stores and providing fulfillment and customer care solutions for
already-established brands and destinations. The purchase price of the
acquisition, which closed on March 8, 2002, was $14.1 million and has been
accounted for using the purchase method of accounting as stipulated by SFAS No.
141, "Business Combinations".

WRITE-DOWN OF INVESTMENTS

As of January 31, 2003 and 2002, the Company had equity investments
totaling approximately $6,713,000 and $40,551,000, respectively, of which
$-0-and $32,429,000, respectively, related to the Company's investment in the
RLM joint venture, after adjusting for the Company's equity share of RLM losses
under the equity method of accounting and write down in fiscal 2002. The
Company's other equity investments include minority interest holdings of
companies whose shares, or underlying shares in the case of warrant holdings,
are traded on a public exchange and are accounted for in accordance with the
provisions of Statement of Financial Accounting Standards No. 115 ("SFAS No.
115") for common stock holdings and Statement of Financial Accounting Standards
No. 133 ("SFAS No. 133") for warrant holdings. The Company also holds certain
nonmarketable equity investments of private enterprises, which are carried at
the lower of cost or net realizable value in the Company's financial statements.
In the fourth quarter of fiscal 2002, the Company evaluated the carrying value
of its RLM investment. The RLM joint venture to date has incurred significant
operating losses since it commenced operations in November 2000 and the
Company's expectations regarding RLM's growth, earnings capability and ability
to generate future positive cash flows have severely diminished. In addition,
the Company substantially amended its existing fulfillment and services
agreement with RLM in the fourth quarter. The Company believes that based on
RLM's historic performance, future earnings and cash flow outlook, recent
services agreement amendment and fourth quarter valuation analysis, an
impairment has occurred with respect to this investment and the decline in value
was determined to be other than temporary. As a result, the Company recorded a
$31,078,000 write down of its RLM investment in the fourth quarter of fiscal
2002. In addition to the RLM write down, in fiscal 2002 the Company also
recorded pre-tax investment losses totaling $1,070,000 relating primarily to an
investment made in 1997. During fiscal 2001, the Company recorded pre-tax
investment losses totaling $7,567,000 of which $6,006,000 related to the
write-off of the Company's investment in Internet company Wine.com in connection
with its dissolution. In fiscal 2000, the Company recorded pre-tax losses
totaling $56,157,000 relating to the write down of investments made primarily in
a number of Internet retailers whose decline in fair value was determined by the
Company to be other than temporary. The decline in fair value of these companies
was driven by their large operating losses and negative cash flow accompanied by
an environment not conducive to raising new financing. The major investment
components of the write-down in fiscal 2000 included minority investments made
in NBCi.com, Petopia.com, SelfCare.com, Roxy.com and BigStar Entertainment, Inc.

ENTERPRISE RESOURCE PLANNING ("ERP") SYSTEMS CONVERSION

In fiscal 2000, the Company launched an effort to fully replace its legacy
financial, order fulfillment and customer care computer systems in an effort to
further support the Company's growing television home shopping and Internet
businesses. The installation of the Company's financial systems was successfully
completed in midyear 2000. Additionally, a new show scheduling and tracking
system was successfully launched in October 2001. In the second quarter of
fiscal 2002, the Company implemented the remaining modules of a new front-end
ERP system to provide a long-term systems foundation for the Company's future
growth. The new front-end systems conversion included the replacement of the
Company's legacy order capture, inventory and customer service support systems.
The Company was adversely impacted in the second and third quarters of fiscal
2002 by unforeseen operational challenges related to the implementation of this
ERP system. A number of unplanned and unexpected conversion issues led to delays
and disruptions in the taking of orders, credit processing, merchandise
management, reporting, and in the processing of shipments and other customer
transactions, which had a negative impact on net sales and gross margins during
these quarters and directly resulted in the Company incurring incremental
expenses to cover customer discounts, overtime, additional talk time in the call
centers, temporary labor, additional long distance costs, bad debt, credit card
chargebacks and various outbound customer communications. These difficulties
adversely
31

impacted the Company's financial results primarily during the second and third
quarters of fiscal 2002 in the form of reduced net sales, reduced gross profits
and incremental unplanned operating expenses. The majority of the implementation
problems associated with the ERP system conversion can be attributed to certain
aspects of the software not functioning as promised or expected. In the fourth
quarter of fiscal 2002, the Company made significant progress in stabilizing all
aspects of the operating systems and was able to handle its highest volume
quarter with minimal disruption to the flow of business. The Company's
television home shopping and Internet businesses, which are significantly
dependent on these systems, could be materially adversely affected in the event
of additional errors or omissions in the installed applications, or errors,
which would prevent or delay the new systems from performing as intended or its
stabilization. The Company has taken specific measures to ensure adequate
functionality and stability for these systems; however, there can be no
assurances that all systems will continue to perform as expected or that
additional expenses will not be incurred. Additionally, due to the disruptions
experienced by customers during this time period, there can be no assurances
that customers will choose to continue to shop with the Company.

NBC TRADEMARK LICENSE AGREEMENT

On November 16, 2000, the Company entered into a Trademark License
Agreement (the "License Agreement") with National Broadcasting Company, Inc.
("NBC") pursuant to which NBC granted the Company an exclusive, worldwide
license (the "License") for a term of 10 years to use certain NBC trademarks,
service marks and domain names to rebrand the Company's business and corporate
name and companion Internet website on the terms and conditions set forth in the
License Agreement. The Company subsequently selected the names "ShopNBC" and
"ShopNBC.com." The new names are being promoted as part of a wide-ranging
marketing campaign that the Company launched in the second half of 2001. In
connection with the License Agreement, the Company issued to NBC warrants (the
"License Warrants") to purchase 6,000,000 shares of the Company's common stock,
par value $.01 per share (the "Common Stock"), with an exercise price of $17.375
per share. The agreement also includes a provision for a potential cashless
exercise of the License Warrants under certain circumstances. The License
Warrants have a five year term from the date of vesting and vest in one-third
increments, with one-third exercisable commencing November 16, 2000, and the
remaining License Warrants vesting in equal amounts on each of the first two
anniversaries of the License Agreement. As of January 31, 2003, the License
warrants are fully vested. Additionally, the Company agreed to accelerate the
vesting of warrants to purchase 1,450,000 shares of Common Stock granted to NBC
in connection with the Distribution and Marketing Agreement dated March 1999
between NBC and the Company. See Item 1 -- Business Section under "Strategic
Relationships" for a detailed discussion of the License Agreement.

NBC AND GE EQUITY STRATEGIC ALLIANCE

In March 1999, the Company entered into a strategic alliance with NBC and
GE Capital Equity Investments, Inc. ("GE Equity"). Pursuant to the terms of the
transaction, NBC and GE Equity acquired 5,339,500 shares of the Company's Series
A Redeemable Convertible Preferred Stock (the "Preferred Stock"), and NBC was
issued a warrant to acquire 1,450,000 shares of the Company's Common Stock (the
"Distribution Warrants") under a Distribution and Marketing Agreement. The
Preferred Stock was sold for aggregate consideration of $44,265,000 and the
Company will receive an additional payment of approximately $12.0 million upon
the exercise of the Distribution Warrants. In addition, the Company issued to GE
Equity a warrant (the "Investment Warrant") to increase its potential aggregate
equity stake (together with the Distribution Warrants issued to NBC) to 39.9%.
NBC also has the exclusive right to negotiate on behalf of the Company for the
distribution of its television home shopping service. The sale of 3,739,500
shares of the Preferred Stock was completed on April 15, 1999. Final
consummation of the transaction regarding the sale of the remaining 1,600,000
Preferred Stock shares was completed on June 2, 1999. On July 6, 1999, GE Equity
exercised the Investment Warrant acquiring an additional 10,674,000 shares of
the Company's Common Stock for an aggregate of $178,370,000, or $16.71 per
share, representing the 45-day average closing price of the underlying Common
Stock ending on the trading day prior to exercise. Proceeds received from the
issuance of the Preferred Stock and the Investment Warrant (and to be received
from the exercise of the Distribution Warrants) are for general corporate
purposes. Following the exercise of the Investment Warrant,
32

the combined ownership of the Company by GE Equity and NBC was and is currently
approximately 40%. See Item 1 -- Business Section under "Strategic
Relationships" for a detailed discussion of the NBC and GE Equity strategic
alliance.

POLO RALPH LAUREN/RALPH LAUREN MEDIA ELECTRONIC COMMERCE ALLIANCE

In February 2000, the Company entered into an electronic commerce strategic
alliance with Polo Ralph Lauren Corporation ("Polo Ralph Lauren"), NBC, NBCi and
CNBC.com LLC ("CNBC") whereby the parties created Ralph Lauren Media, LLC
("RLM"), a joint venture formed for the purpose of bringing the Polo Ralph
Lauren American lifestyle experience to consumers via multiple media platforms,
including the Internet, broadcast, cable and print. RLM is currently owned 50%
by Polo Ralph Lauren, 37.5% by NBC and its affiliates and 12.5% by the Company.
In exchange for their interest in RLM, NBC agreed to contribute $110 million of
television and online advertising on NBC and CNBC properties, which has
subsequently been amended, NBCi agreed to contribute $40 million in online
distribution and promotion and the Company has contributed a cash funding
commitment of up to $50 million, of which all of the Company's commitment has
been funded through January 31, 2003. RLM's premier initiative is Polo.com, an
Internet website dedicated to the American lifestyle that includes original
content, commerce and a strong community component. Polo.com was officially
launched in November 2000 and includes an assortment of men's, women's and
children's products across the Ralph Lauren family of brands as well as unique
gift items. In connection with the formation of RLM, the Company entered into
various agreements setting forth the manner in which certain aspects of the
business of RLM are to be managed and certain of the members' rights, duties and
obligations with respect to RLM. In addition, RLM and VVI Fulfillment Center,
Inc. ("VVIFC"), a wholly owned subsidiary of the Company, entered into an
Agreement for Services under which VVIFC agreed to provide all telemarketing,
fulfillment and distribution services to RLM. See Item 1 -- Business Section
under "Strategic Relationships" for a detailed discussion of the RLM strategic
alliance.

In the fourth quarter of fiscal 2002, VVIFC agreed to amend its existing
customer care and fulfillment services agreement with RLM in exchange for an $11
million cash payment. The cash payment is to be made in consideration for
VVIFC's fixed asset impairment incurred by the overbuild of the fulfillment
center utilized by VVIFC to provide services to RLM, for early termination of
its original long term services agreement and for the change in terms of the
agreement through the end of the period in which services are to be provided. In
accordance with this amendment, RLM will be permitted to negotiate with other
parties to provide it with customer care and fulfillment services. The Company
will continue to provide the services it currently provides to RLM through
December 31, 2003, at a flat cost per order and will have the right to match any
bona fide third party offer received by RLM for customer care and fulfillment
services. Of the $11,000,000 cash received, $2,600,000 relates to a prepayment
for a portion of the ongoing services the Company is obligated to provide
through December 31, 2003, and therefore was recorded as deferred revenue. The
Company also wrote off and received cash consideration of $5,900,000 for fixed
assets dedicated to the arrangement with RLM that were deemed to be impaired as
a result of the early termination of the original services agreement. The effect
of amending its RLM services agreement was to increase fourth quarter operating
income and net income by $2,500,000, representing consideration received for the
early termination of the agreement.

WRITE-OFF DUE TO BANKRUPTCY

In December 2000, Montgomery Ward & Co., Incorporated announced that it had
filed for bankruptcy and the Company terminated the use of the Montgomery Ward
private label credit card (the "MW Card") in its television home shopping
operations as of January 31, 2001. In conjunction with the bankruptcy filing,
the Company wrote off impaired assets totaling $4,609,000. Assets written off
consisted primarily of uncollected spot advertising and credit card processing
receivables totaling $3,112,000 and the remaining 1997 Montgomery Ward Operating
Agreement and License intangible asset balance of $1,497,000 which the Company
had concluded was permanently impaired as a result of the bankruptcy filing and
the subsequent termination of the use of the MW Card.

33

RESULTS OF OPERATIONS

Results of operations for the year ended January 31, 2003 include the
operations of FanBuzz, Inc. as of the effective date of its acquisition, March
8, 2002.

The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of net sales.

SALES

Consolidated net sales, inclusive of shipping and handling revenue, for the
year ended January 31, 2003 (fiscal 2002) were $554,926,000 compared to
$462,322,000 for the year ended January 31, 2002 (fiscal 2001), a 20% increase.
The Company has recently reported its largest revenue quarter in the Company's
history. The increase in consolidated net sales is directly attributable to the
continued improvement in and increased sales from the Company's television home
shopping and Internet operations and incremental sales associated with newly
acquired FanBuzz, Inc. Net sales attributed to the Company's television home
shopping and Internet operations increased 17% to $529,682,000 for the year
ended January 31, 2003 from $453,747,000 for the year ended January 31, 2002.
The still challenging retail economic environment and slowdown in consumer
spending experienced by the Company and other merchandise retailers along with
uncertainties associated with global events has continued to have an adverse
effect on total net sales growth during fiscal 2002. In addition, as a result of
a company-wide systems conversion initiated in the second quarter of fiscal
2002, a number of unplanned and unexpected conversion issues led to delays in
processing shipments and other customer transactions, which reduced reported net
sales in both the second and third quarters. Notwithstanding the challenging
economic situation and the systems conversion, the continued growth in home
shopping net sales is primarily attributable to the growth in full-time
equivalent ("FTE") homes receiving the Company's television programming. During
the 12-month period ended January 31, 2003, the Company added approximately 6.5
million FTE subscriber homes (2.3 million FTEs in the fourth quarter alone), an
increase of 15%, going from 44.0 million FTE subscriber homes at January 31,
2002 to 50.5 million FTE subscriber homes at January 31, 2003. However, the
complete net sales impact and productivity from these additional homes is still
to be realized as these additional new homes have yet to completely mature. The
average number of FTE subscriber homes was 46.7 million for fiscal 2002 and 39.3
million for fiscal 2001, a 19% increase. In addition to new FTE subscriber
homes, television home shopping and Internet sales increased due to the
continued addition of new customers from households already receiving the
Company's television home shopping programming, an increase in the average order
size and a 52% increase in Internet

34

sales over fiscal 2001. In addition, total net sales increased over prior year
as a result of the Company's acquisition of FanBuzz, Inc. in March 2002. The
Company intends to continue to test and change its merchandising and programming
strategies with the goal of improving its television home shopping and Internet
results. However, while the Company is optimistic that television home shopping
and Internet sales results will continue to improve, there can be no assurance
that such changes in strategy will achieve the intended results or that the
economy will improve in the near term.

Consolidated net sales for the year ended January 31, 2002 were
$462,322,000 compared to $385,940,000 for the year ended January 31, 2001, a 20%
increase. The increase in consolidated net sales is directly attributable to the
increased net sales from the Company's television home shopping and Internet
operations. Net sales attributed to the Company's television home shopping and
Internet operations increased 20% to $453,747,000 for the year ended January 31,
2002 from $378,158,000 for the year ended January 31, 2001. The challenging
retail economic environment experienced by the Company and other merchandise
retailers in fiscal 2001, along with the economic effects following the dramatic
and tragic events of September 11, 2001 had a negative effect on total net sales
growth during the fiscal 2001 year. Despite the challenging economic situation,
growth in home shopping net sales was primarily attributable to the growth in
FTE homes receiving the Company's television programming which increased by
approximately 12 million homes from December 2000 to January 31, 2002 that still
had yet to mature. During the 12-month period ended January 31, 2002, the
Company added approximately 9.8 million FTE subscriber homes (2.7 million FTEs
in the fourth quarter alone), an increase of 29%, going from 34.2 million FTE
subscriber homes at January 31, 2001 to 44.0 million FTE subscriber homes at
January 31, 2002. The average number of FTE subscriber homes was 39.3 million
for fiscal 2001 and 27.9 million for fiscal 2000, a 41% increase. In addition to
new FTE subscriber homes, television home shopping and Internet sales increased
due to the continued addition of new customers from households already receiving
the Company's television home shopping programming, an increase in the average
order size and a 121% increase in Internet sales over fiscal 2000.

The Company records a reserve as a reduction of gross sales for anticipated
product returns at each month-end based upon historical product return
experience. The return rates for the Company's television home shopping and
Internet operations for the fiscal years ended January 31, 2003, 2002 and 2001
were approximately 36%, 34% and 33%, respectively. The return rate for the
television home shopping operations has increased over the past fiscal years and
historic industry averages and is attributable in part to a continued slowing of
the economy over the last two fiscal years and its effect on consumer purchasing
decisions and higher average unit television home shopping selling price points
for the Company (approximately $193 in fiscal 2002 versus $186 in fiscal 2001),
which typically result in higher return rates. Return rates in fiscal 2002 were
also impacted by disruptions associated with the Company's ERP systems
conversion. The Company is continuing to manage return rates and is adjusting
average selling price points and product mix in an effort to reduce the overall
return rate related to its home shopping business.

GROSS PROFIT

Gross profits for fiscal 2002 and 2001 were $199,347,000 and $171,973,000,
respectively, an increase of $27,374,000 or 16%. Gross margins for fiscal 2002
were 35.9% compared to 37.2% for fiscal 2001. The principal reason for the
increase in gross profit dollars was the increased sales volume from the
Company's television home shopping and Internet businesses. In addition, gross
profit for fiscal 2002 included positive contributions as a result of the
Company's acquisition of FanBuzz, Inc. Television home shopping and Internet
gross margins for fiscal 2002 and 2001 were 35.3% and 37.0%, respectively.
Television and Internet gross margins for fiscal 2002 decreased as compared to
fiscal 2001 partly as a result of a decrease in gross margin percentages
experienced on computers sold during fiscal 2002. Significant factors also
contributing to the decrease in television and Internet gross margin performance
in fiscal 2002 include customer service actions taken by the Company
attributable to the overall software conversion problems experienced in the
second and third quarters of fiscal 2002, a heavy promotional environment
generally in the retail industry in response to a sluggish economy, additional
promotional discounts resulting from customers' increased usage of the Company's
ShopNBC private label credit card and a third quarter write down in inventory as
a result of the Company's first post ERP systems conversion physical inventory.
The inability to service customers

35

effectively caused the Company to implement a series of customer amends and
promotional programs to compensate customers for inconveniences and reinforce
long-term loyalty. These programs included free shipping and handling offerings
and the issuance of discounts to customers to make up for shipment and other
customer processing delays all of which affected gross margin during fiscal
2002. In fiscal 2003, one of the Company's main priorities will be to diversify
its merchandise mix, particularly in the home, cosmetics, fitness products and
consumer electronics categories, and at the same time be more productive with
its jewelry airtime in order to effectively build these new product categories
to provide incremental sales and margin.

Gross profits for fiscal 2001 and 2000 were $171,973,000 and $144,520,000,
respectively, an increase of $27,453,000 or 19%. Gross margins for fiscal 2001
were 37.2% compared to 37.4% for fiscal 2000. The principal reason for the
increase in gross profit dollars was the increased sales volume from the
Company's television home shopping and Internet businesses. In addition, gross
profit for fiscal 2001 included positive contributions made from the Company's
fulfillment services. Television home shopping and Internet gross margins for
fiscal 2001 and 2000 were 37.0% and 36.7%, respectively. Overall, annual
television and Internet gross margins between comparable periods slightly
improved over prior year primarily as a result of improved and favorable vendor
pricing on jewelry merchandise and increases in the gross margin percentages in
the electronics/computer product category.

OPERATING EXPENSES

Total operating expenses were $209,834,000, $177,448,000 and $137,883,000
for the years ended January 31, 2003, 2002 and 2001, respectively, representing
an increase of $32,386,000 or 18% from fiscal 2001 to fiscal 2002, and an
increase of $39,565,000 or 29% from fiscal 2000 to fiscal 2001. For fiscal 2000,
total operating expense includes a $4,609,000 asset write-off resulting from a
bankruptcy filing by Montgomery Ward in the fourth quarter. Assets written off
consisted primarily of uncollected spot advertising and credit card processing
receivables and the remaining Montgomery Ward Operating Agreement and License
intangible asset. The Company concluded that the intangible asset was
permanently impaired as a result of the bankruptcy filing and the subsequent
termination of the Company's use of the MW Card.

Distribution and selling expense for fiscal 2002 increased $27,364,000 or
18% to $177,812,000 or 32% of net sales compared to $150,448,000 or 33% of net
sales in fiscal 2001. Distribution and selling expense increased primarily as a
result of increases in net cable access fees due to a 19% increase in the number
of average FTE subscribers over the prior year, additional costs associated with
the fulfillment and support for the NBC Experience Store in New York City and
direct-to-consumer products sold on NBC's website, increased costs associated
with new celebrities, additional distribution and selling costs associated with
the acquisition of FanBuzz, Inc. and increased costs associated with credit card
processing resulting from increased sales. In addition, as a result of the
Company's recent ERP systems conversion, which included the replacement of the
Company's legacy order capture, inventory and customer service support systems,
a number of unplanned and unexpected conversion issues led to delays in the
screening and processing of shipments and other customer transactions including
collection efforts and as a direct result the Company experienced an increase in
bad debt and chargebacks during the year. The Company also incurred incremental
operating expenses during the year to cover overtime, additional talk time in
the call centers, long distance charges, temporary labor and various outbound
customer communications.

Distribution and selling expense for fiscal 2001 increased $41,496,000 or
38% to $150,448,000 or 33% of net sales compared to $108,952,000 or 28% of net
sales in fiscal 2000. Distribution and selling expense increased from the prior
year primarily as a result of increases in net cable access fees due to a 41%
increase in the number of average FTE subscriber homes over the prior year,
increased marketing and advertising fees primarily associated with rebranding
the ShopNBC name, and increased costs associated with credit card processing and
telemarketing primarily resulting from increased sales. Distribution and selling
expense for fiscal 2001 increased as a percentage of net sales over fiscal 2000
primarily as a result of the Company's fixed cable access fee expense base
growing at a faster rate than the related incremental increase in television
home shopping net sales, which is to be expected from the rapid increase in
subscriber carriage over the prior year.

36

General and administrative expense for fiscal 2002 increased $1,426,000 or
10% to $16,085,000 or 3% of net sales compared to $14,659,000 or 3% of net sales
in fiscal 2001. General and administrative expense increased over prior year
primarily as a result of increases in general and administrative costs as a
result of the acquisition of FanBuzz, Inc., increased consulting fees associated
with the Company's systems conversion effort and the settlement of a vendor
litigation dispute. These increases were offset by a decrease in accrued bonuses
and management's efforts to control overall spending which resulted in decreases
in personnel costs, travel and placement fees. General and administrative
expense as a percentage of net sales remained flat from year to year.

General and administrative expense for fiscal 2001 decreased $1,420,000 or
9% to $14,659,000 or 3% of net sales compared to $16,079,000 or 4% of net sales
in fiscal 2000. General and administrative expense decreased from the prior year
due to tight management controls over spending resulting in decreases in
personnel costs, travel and information systems costs, placement fees and
decreases in general and administrative expense associated with the Company's
fulfillment service operations. As a result of the reduction in spending and
increase in overall net sales during fiscal 2001, general and administrative
expense as a percentage of net sales decreased from year to year.

Depreciation and amortization expense was $15,937,000, $12,341,000 and
$8,243,000 for the years ended January 31, 2003, 2002 and 2001, respectively,
representing an increase of $3,596,000 or 29% from fiscal 2001 to fiscal 2002
and an increase of $4,098,000 or 50% from fiscal 2000 to fiscal 2001.
Depreciation and amortization expense as a percentage of net sales was 3% for
both fiscal 2002 and 2001 and 2% for fiscal 2000. The dollar increase from
fiscal 2001 to fiscal 2002 is primarily due to increased depreciation and
amortization incurred during fiscal 2002 associated with the Company's
acquisition of FanBuzz, Inc. in March 2002 and as a result of assets placed in
service in connection with the Company's ERP systems conversion and
implementation. The dollar increase from fiscal 2000 to fiscal 2001 is primarily
due to a full year of amortization incurred in fiscal 2001 in connection with
the Company's NBC Trademark License Agreement and increased depreciation
associated with the Company's fixed assets and fulfillment service obligations
with RLM.

OPERATING INCOME (LOSS)

The Company reported an operating loss of $10,487,000 for the year ended
January 31, 2003 compared with an operating loss of $5,475,000 for the year
ended January 31, 2002, an increase of $5,012,000. Operating loss for fiscal
2002 increased from prior year primarily as a result of the Company experiencing
a gross margin shortfall, which was due partly as a result of a decrease in
gross margin percentages experienced on computers sold during fiscal 2002, the
impact of a number of customer amends and promotional programs initiated to
compensate customers for inconveniences experienced following the systems
conversion and reinforce long-term loyalty, the general promotional retail
environment and an inventory write down recorded following the Company's first
post ERP systems conversion physical inventory in the third quarter. Also
contributing to the increase in operating losses were increases in distribution
and selling expense, particularly net cable access fees for which the expense of
adding approximately 7 million new FTE homes since January 2002 is being
incurred but the future revenue benefit and productivity of these additional
homes is yet to be fully realized and increases in depreciation and amortization
as a result of the FanBuzz, Inc. acquisition. In addition, operating results
were reduced further due to additional operating expenses and amortization
expense incurred as a result of the company-wide ERP systems conversion and
implementation. These expense increases were somewhat offset by the increase in
net sales and gross profits reported by the Company's television home shopping
and Internet businesses.

The Company reported an operating loss of $5,475,000 for the year ended
January 31, 2002 compared with operating income of $6,637,000 for the year ended
January 31, 2001. Operating income for fiscal 2001 decreased from the prior year
primarily as a result of the Company achieving lower than expected sales levels
in fiscal 2001 coupled with increased distribution and selling expenses,
particularly net cable access fees for which the expense of adding approximately
12 million new homes since December 2000 is being incurred currently but the
future revenue benefit and productivity of these additional homes is yet to be
realized. The

37

net sales shortfall has been a direct result of the challenging economic
environment in general, the soft retail market in particular and the economic
effect following the tragic events of September 11, 2001. In addition, operating
income also decreased as a result of increased amortization expense associated
with the Company's Trademark License Agreement with NBC and increases in
depreciation associated with the Company's fixed assets and fulfillment
obligations with RLM. Fiscal 2001 operating expense increases were partially
offset by the increase in net sales and gross profits reported by the Company's
television home shopping and Internet businesses and a decrease in overall
general and administrative expense driven by tight controls over spending.

OTHER INCOME (EXPENSE)

Total other income (expense) was $(34,162,000) in fiscal 2002, $(7,543,000)
in fiscal 2001 and $(43,635,000) in fiscal 2000. Total other expense for fiscal
2002 included the following: pre-tax investment write-offs totaling $32,148,000
of which $31,078,000 related to the write-off of the Company's investment in
RLM, whose decline in fair value was determined by the Company to be other than
temporary; a pre-tax loss of $5,669,000 related to the Company's equity share of
losses in RLM; net pre-tax gains of $488,000 recorded on the sale, conversion
and holdings of security investments; and interest income of $3,167,000. Total
other expense for fiscal 2001 included the following: pre-tax investment
write-offs totaling $7,567,000 of which $6,006,000 related to write-off of the
Company's investment in Internet company Wine.com pursuant to its dissolution
(the declines in fair value of these investments were determined by the Company
to be other than temporary); a pre-tax loss of $8,838,000 related to the
Company's equity share of losses in RLM; net pre-tax gains of $277,000 recorded
on the sale and holdings of security investments; and interest income of
$8,585,000. Total other expense for fiscal 2000 included the following: a
pre-tax charge totaling $56,157,000 relating to the write-down of investments
made primarily in a number of Internet retailers whose decline in fair value was
determined by the Company to be other than temporary; a pre-tax loss of
$4,500,000 related to the Company's equity share of losses in RLM; net pre-tax
gains of $1,644,000 recorded on the sale and holdings of security investments;
and interest income of $15,378,000. The major investment components of the
write-down included minority investments in NBCi.com, Petopia.com, SelfCare.com,
Roxy.com and BigStar Entertainment, Inc. in fiscal 2000; The decrease in
interest income from fiscal 2001 to fiscal 2002 was primarily attributable to
reductions in federal funds rates experienced during the year, decreases in the
Company's cash balances driven by the Company's share repurchase program and
having a greater percentage of tax advantaged cash investments which typically
carry lower interest rates.

NET LOSS

Net loss available to common shareholders was $(39,392,000) or $(1.06) per
basic and diluted share for the year ended January 31, 2003. Net loss available
to common shareholders was $(9,769,000) or $(.25) per basic and diluted share
for the year ended January 31, 2002. Net loss available to common shareholders
was $(30,172,000) or $(.78) per basic and diluted share for the year ended
January 31, 2001. For the years ended January 31, 2003, 2002 and 2001,
respectively, the Company had approximately 37,173,000, 38,336,000 and
38,560,000 basic and diluted weighted average common shares outstanding.

For the years ended January 31, 2003, 2002 and 2001, net loss reflects an
income tax benefit of $(5,539,000), $(3,858,000) and $(7,104,000), respectively,
which resulted in a recorded effective tax rate of 12% in fiscal 2002, 30% in
fiscal 2001 and 19% in fiscal 2000. The Company's effective tax rate for the
year ended January 31, 2003 is lower than its historical effective tax rate as a
result of the Company recording an $18,738,000 valuation allowance against its
net deferred tax assets and net operating and capital loss carryforwards. Based
on the Company's recent history of losses, a full valuation allowance was
recorded in the fourth quarter of fiscal 2002 and was calculated in accordance
with the provisions of SFAS No. 109 which places primary importance on the
Company's most recent operating results when assessing the need for a valuation
allowance. Although management believes that the Company's recent operating
losses were heavily affected by a challenging retail economic environment and
slowdown in consumer spending experienced by the Company and other merchandise
retailers, the Company intends to maintain a full valuation allowance for its
net deferred tax assets and loss carryforwards until sufficient positive
evidence exists to support reversal of the reserve. The Company's effective tax
rate for the years ended January 31, 2002 and 2001 were lower than its

38

historical effective tax rate as a result of the uncertainty of future tax
benefits relating to certain investments written down during those years and an
increase in the mix of interest income generated from tax-free, short-term
investments in fiscal 2001.

PROGRAM DISTRIBUTION

The Company's television home shopping program was available to
approximately 55.1 million homes as of January 31, 2003 as compared to 51.9
million homes as of January 31, 2002 and to 42.6 million homes as of January 31,
2001. The Company's programming is currently available through affiliation and
time-block purchase agreements with approximately 920 cable and or satellite
systems. Beginning in April 2003, the Company's programming has also been made
available full-time to homes in the Boston, Massachusetts market over the air
via a full-power television broadcast station that a subsidiary of the Company
acquired. As of January 31, 2003, 2002 and 2001, the Company's programming was
available to approximately 50.5 million, 44.0 million and 34.2 million FTE
households, respectively. Approximately 44.1 million, 36.0 million and 27.6
million households at January 31, 2003, 2002 and 2001, respectively, received
the Company's programming on a full-time basis. Homes that receive the Company's
programming 24 hours a day are counted as one FTE each and homes that receive
the Company's television home shopping programming for any period less than 24
hours are counted based upon an analysis of time of day and day of week. In
March 2003, the Company completed the sale of ten of its eleven LPTV stations.
Management believes that the sale of these stations will not have a significant
impact on the ongoing operations of the Company.

QUARTERLY RESULTS

The following summarized unaudited results of operations for the quarters
in the fiscal years ended January 31, 2003 and 2002 have been prepared on the
same basis as the annual financial statements and reflect adjustments
(consisting of normal recurring adjustments), which the Company considers
necessary for a fair presentation of results of operations for the periods
presented. The Company's results of operations have varied and may continue to
fluctuate significantly from quarter to quarter. Results of operations in any
period should not be considered indicative of the results to be expected for any
future period.

39

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

(a) The sum of quarterly per share amounts does not equal the annual amount due
to changes in the calculation of average common and dilutive shares
outstanding required under Statement of Financial Accounting Standards No.
128, "Earnings per Share".

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

As of January 31, 2003 and 2002, cash and cash equivalents and short-term
investments were $168,634,000 and $227,831,000, respectively, a decrease of
$59,197,000 primarily driven by the Company's share repurchases and capital
additions. For the year ended January 31, 2003 working capital decreased
$47,723,000 to $226,566,000 compared to working capital of $274,289,000 for the
year ended January 31, 2002 The current ratio was 3.6 at January 31, 2003
compared to 5.5 at January 31, 2002. At January 31, 2003 and 2002, all
short-term investments and cash equivalents were invested primarily in money
market funds, high quality commercial paper with original maturity dates of less
270 days and investment grade corporate and municipal bonds and other tax
advantaged certificates with tender option terms ranging from one month to one

40

year. The Company's principal source of liquidity is its cash, cash equivalents
and short-term investments as well as its operating cash flows. Although
management believes the Company's short-term investment policy is conservative
in nature, certain short-term investments in commercial paper can be exposed to
the credit risk of the underlying companies to which they relate. The average
maturity of the Company's investment portfolio is approximately 30-60 days.
Management believes that funds currently held by the Company should be
sufficient to fund the Company's operations, anticipated capital expenditures or
strategic investments and cable launch fees through at least fiscal 2003.

Total assets at January 31, 2003 were $406,274,000 compared to $448,310,000
at January 31, 2002. Shareholders' equity was $274,646,000 at January 31, 2003,
compared to $344,820,000 at January 31, 2002, a decrease of $70,174,000. The
decrease in shareholders' equity from fiscal 2001 to fiscal 2002 resulted
primarily from the repurchase of 2,257,000 common shares totaling $33,806,000
under the Company's authorized stock repurchase plans and as a result of
recording a $39,110,000 net loss in fiscal 2002 primarily attributable to the
write down of the Company's investment in RLM. In addition, shareholders' equity
also decreased as a result of recording net unrealized losses on investments
classified as "available-for-sale" totaling $1,472,000, accrued interest on a
note receivable from an officer totaling $92,000 and accretion on redeemable
preferred stock of $282,000. These decreases were offset by increases in
shareholders' equity relating to the issuance of 36,858 common stock purchase
warrants valued at $172,000 to NBC issued in connection with the NBC
Distribution Agreement and by proceeds received of $4,416,000 related to the
exercise of stock options. As of January 31, 2003, the Company had long-term
debt obligations totaling $1,669,000 related to assets purchased under capital
lease arrangements. The decrease in shareholders' equity from fiscal 2000 to
fiscal 2001 resulted primarily from the $26,879,000 revaluation of common stock
purchase warrants granted to NBC in connection with the Company's NBC Trademark
License Agreement pursuant to the establishment of a fixed measurement date.
Shareholders' equity also decreased as a result of recording a $9,489,000 net
loss in fiscal 2001 primarily attributable to the write down of historical
investments. In addition, shareholders' equity also decreased $15,702,000 in
connection with the Company's repurchase of 1,092,000 common shares under its
authorized stock repurchase plan, $143,000 relating to an increased note
receivable from an officer, the recording of net unrealized losses on
investments classified as "available-for-sale" totaling $232,000 and accretion
on redeemable preferred stock of $280,000. These decreases were offset by
increases in shareholders' equity relating to the issuance of 343,725 common
stock purchase warrants valued at $1,175,000 to NBC issued in connection with
the NBC Distribution Agreement and by proceeds received of $2,944,000 related to
the exercise of stock options. As of January 31, 2002, the Company had long-term
debt obligations totaling $395,000 related to assets purchased under capital
lease arrangements.

For the year ended January 31, 2003, net cash provided by operating
activities totaled $3,666,000 compared to $19,007,000 in fiscal 2001 and net
cash provided by operating activities of $30,381,000 in fiscal 2000. Net cash
provided by operating activities for fiscal 2002 reflects a net loss, as
adjusted for depreciation and amortization, the write-down of investments,
deferred taxes, unrealized gains on security holdings, equity in losses of
affiliates and losses on the sale and conversion of investments. In addition,
net cash provided by operating activities for fiscal 2002 reflects increases in
accounts receivable, inventories and prepaid expenses, offset by an increase in
accounts payable and accrued liabilities and taxes payable. Accounts receivable
increased primarily due to an increase in sales made utilizing extended payment
terms and the timing of customer collections made pursuant to the "ValuePay"
installment program and increased credit card sales, offset by decreases in
vendor receivables and accrued interest due to lower cash and short term
investment balances. Inventories increased from fiscal 2001 primarily to support
increased sales volumes and due to the residual effect of the Company's
front-end ERP systems conversion where unexpected implementation issues caused
significant delays in the processing of transactions including shipments to
customers and returns to vendors. These system-related delays caused a
significant increase in inventory on hand over prior year though progress was
made in returning inventory quantities to more normal historic levels in the
last two quarters of the year. Inventories also increased due to a significant
reduction in "advance order" selling over prior year in an effort to improve
customer satisfaction through fewer stockouts and faster order fulfillment, to
support continued sales growth, the acquisition of FanBuzz, Inc. in March 2002
and the timing of merchandise receipts. These increases were mitigated by
aggressive management efforts to reduce inventory levels in the second half of
fiscal 2002. Prepaid expenses increased primarily as a result of the timing of
long-term cable

41

launch fee extension renewals, increases in deferred advertising, prepaid
shipping supplies and insurance premium increases following the Company's annual
insurance renewal. The increase in accounts payable and accrued liabilities is a
direct result of the increase in inventory levels, the timing of cable and
satellite affiliation vendor payments and the acquisition of FanBuzz, Inc.

Net cash provided by operating activities for fiscal 2001 reflects a net
loss, as adjusted for depreciation and amortization, the write-down of
investments, unrealized gains on security holdings and equity in losses of
affiliates, the cumulative effect of adopting SFAS No. 133 and losses on the
sale and conversion of investments. In addition, net cash provided by operating
activities for fiscal 2001 reflects decreases in accounts receivable, income
taxes receivable and prepaid expenses, offset by an increase in inventories and
a decrease in accounts payable and accrued liabilities. Accounts receivable
decreased primarily due to a reduction in sales made utilizing extended payment
terms, decreased vendor airtime receivables, decreased interest receivable
resulting from lower interest rates driven by reductions in federal funds rates
and the timing of customer collections made pursuant to the "ValuePay"
installment program, offset by increased receivables related to the Company's
new ShopNBC private label credit card. Inventories increased from fiscal 2000
primarily to support increased sales volumes and as a result of the timing of
merchandise receipts. The decrease in accounts payable and accrued liabilities
is primarily due to the timing of vendor payments. The decrease in income taxes
receivable relates to tax refunds received during fiscal 2001 resulting from the
net loss recorded in fiscal 2000 and other tax benefits recorded in connection
with the exercise of employee stock options in prior year.

Net cash provided by operating activities for fiscal 2000 reflects a net
loss, as adjusted for depreciation and amortization, gains on the sale of
property and investments, the write-down of investments, a write-off due to a
bankruptcy filing, unrealized losses on security holdings and equity in losses
of affiliates. In addition, net cash provided by operating activities for fiscal
2000 reflects increases in accounts receivable, inventories, prepaid expenses
and net income taxes receivable, offset by increases in accounts payable and
accrued liabilities. Accounts receivable increased primarily due to the increase
in net sales and the timing of credit card receivable payments. Inventories
increased from fiscal 1999 to support increased sales volume and due to the
timing of merchandise receipts. Prepaid expenses increased primarily as a result
of increases in prepaid advertising. The increase in income taxes receivable is
a result of the net loss recorded and benefits recorded in connection with the
exercise of employee stock options. The increase in accounts payable and accrued
liabilities is a direct result of the increase in inventory levels and the
timing of vendor payments.

The Company utilizes an installment payment program called "ValuePay" which
entitles customers to purchase merchandise and generally pay for the merchandise
in two to six equal monthly credit card installments. As of January 31, 2003,
the Company had approximately $59,632,000 due from customers under the ValuePay
installment program, compared to $48,078,000 at January 31, 2002. The increase
in ValuePay receivables from fiscal 2001 is primarily the result of increased
sales made utilizing extended payment terms over prior year offset by the net
effect of increased usage of the Company's ShopNBC private label credit card.
The credit card provider, Alliance Data Systems, assumes the risk associated
with consumer payments on the ShopNBC credit card. ValuePay was introduced many
years ago to increase sales while at the same time reducing return rates on
merchandise with above-normal average selling prices. The Company records a
reserve for uncollectible accounts in its financial statements in connection
with ValuePay installment sales and intends to continue to sell merchandise
using the ValuePay program. Receivables generated from the ValuePay program will
be funded in fiscal 2003 from the Company's present capital resources and future
operating cash flows.

Net cash provided by investing activities totaled $19,185,000 in fiscal
2002, compared to net cash used for investing activities of $80,079,000 in
fiscal 2001 and net cash used for investing activities of $34,708,000 in fiscal
2000. Expenditures for property and equipment were $16,332,000 in fiscal 2002
compared to $12,525,000 in fiscal 2001 and $24,557,000 in fiscal 2000.
Expenditures for property and equipment in fiscal 2002 and 2001 primarily
include capital expenditures made for the upgrade and conversion of the
Company's new front-end ERP computer software systems, related computer
equipment and other office equipment, web page development costs, warehouse
equipment, production equipment and expenditures on leasehold improvements.
Increases in property and equipment in fiscal 2002 were offset by a decrease of
approximately

42

$5,900,000 related to the write off of fixed assets dedicated to the arrangement
with RLM that were deemed impaired as a result of the early termination of the
Company's original services agreement with RLM. Principal future capital
expenditures include the acquisition of the Company's headquarters building and
property, the acquisition of full-power television station WWDP TV-46 in Boston,
Massachusetts, the upgrade, stabilization and replacement of computer software
and front-end ERP and merchandising systems, the upgrade of television
production and transmission equipment and related computer equipment associated
with the expansion of the Company's home shopping business and e-commerce
initiatives. During fiscal 2002, the Company invested $121,093,000 in various
short-term investments, received proceeds of $173,290,000 from the sale of
short-term investments, received proceeds of $2,000 from the sale of property
and investments and made disbursements of $4,375,000 for certain investments and
other long-term assets primarily related to the Company's equity interest in
RLM. Also during fiscal 2002, the Company invested $12,307,000, net of cash
acquired, in connection with the acquisition of FanBuzz, Inc.

During fiscal 2001, the Company invested $277,933,000 in various short-term
investments, received proceeds of $220,888,000 from the sale of short-term
investments, received proceeds of $1,148,000 from the sale of property and
investments and made disbursements of $11,657,000 for certain investments and
other long-term assets primarily related to the Company's equity interest in
RLM.

During fiscal 2000, the Company received $2,485,000 in proceeds from the
sale of property and other investments. In addition, during fiscal 2000, the
Company invested $198,872,000 in various short-term investments, received
proceeds of $246,520,000 from the sale of short-term investments, issued
$3,800,000 in the form of an officer note, received $863,000 in connection with
the repayment of outstanding notes receivable and made disbursements of
$57,347,000 for certain investments and other long-term assets primarily related
to the Company's equity interest in RLM.

Net cash used for financing activities totaled $29,850,000 in fiscal 2002
and related primarily to payments made of $33,806,000 in conjunction with the
repurchase of 2,257,000 shares of the Company's common stock at an average price
of $14.93 per share and payments of long-term capital lease obligations of
$436,000, offset by cash proceeds received of $4,392,000 from the exercise of
stock options. Net cash used for financing activities totaled $12,865,000 in
fiscal 2001 and related primarily to payments made of $15,702,000 in conjunction
with the repurchase of 1,092,000 shares of the Company's common stock at an
average price of $14.60 per share and payments of long-term capital lease
obligations of $61,000, offset by cash proceeds received totaling $2,898,000
from the exercise of stock options. Net cash provided by financing activities
totaled $2,151,000 in fiscal 2000 and related primarily to $5,073,000 of
proceeds received from the exercise of stock options offset by payments made of
$2,922,000 in conjunction with the repurchase of 214,000 shares of the Company's
common stock at an average price of $13.66.

CONTRACTUAL CASH OBLIGATIONS AND COMMITMENTS

In January 2002, the Securities and Exchange Commission issued Financial
Reporting Release No. 61, "Commission Statement about Management's Discussion
and Analysis of Financial Condition and Results of Operations" ("FRR No. 61").
While FRR No. 61 does not create new or modify existing requirements, it does
set forth certain views of the SEC regarding disclosure that should be
considered by registrants. Among other things, FRR No. 61 encourages registrants
to provide disclosure in one place, within the Management's Discussion and
Analysis of Financial Condition and Results of Operations, of the on and off
balance sheet arrangements that may affect liquidity and capital resources. The
following table summarizes the Company's

43

obligations and commitments as of January 31, 2003, and the effect such
obligations and commitments are expected to have on the liquidity and cash flow
of the Company in future periods:

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

(a) Future cable and satellite payment commitments are based on subscriber
levels as of January 31, 2003 and future payment commitment amounts could
increase or decrease as the number of cable and satellite subscribers
increase or decrease. Under certain circumstances, operators may cancel
their agreements prior to expiration.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" and the
accounting and reporting provisions of APB Opinion No. 30. The changes required
by SFAS No. 144 resolve significant implementation issues related to SFAS No.
121 and improve financial reporting by requiring that one accounting model be
used for long-lived assets to be disposed of by sale, whether previously held
and used or newly acquired. The requirements of SFAS No. 144 also broaden the
presentation of discontinued operations to include more disposal transactions.
The adoption of SFAS No. 144 did not have a material impact on the Company's
consolidated balance sheet or results of operations.

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS No. 146"). SFAS No. 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies EITF Issue No.
94-3. The Company will be required to adopt SFAS No. 146 effective for any exit
or disposal activities that are initiated after December 31, 2002. The adoption
of SFAS No. 146 is not expected to have a material impact on the Company's
consolidated balance sheet or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN No. 45"). FIN No. 45 clarifies the
requirements for a guarantor's accounting for and disclosure of certain issued
and outstanding guarantees. The initial recognition and initial measurement
provisions of FIN No. 45 are applicable to guarantees issued or modified after
December 31, 2002. The disclosure requirements of FIN No. 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FIN No. 45 is not expected to have a material impact on
the Company's consolidated balance sheet or results of operations.

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148. "Accounting for Stock-Based Compensation -- Transition and
Disclosure" ("SFAS No. 148"), which amends Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require more prominent and more frequent disclosures in
financial statements of the effects of stock-based compensation. The transition
guidance and annual disclosure provisions of SFAS No. 148 are effective for
fiscal years ending after December 15, 2002. The interim disclosure provisions
are effective for financial reports containing condensed financial statements

44

for interim periods beginning after December 15, 2002. The adoption of SFAS No.
148 is not expected to have a material impact on the Company's consolidated
balance sheet or results of operations. The Company will provide the interim
disclosures required by SFAS No. 148 beginning in the first quarter of 2003.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not enter into financial instruments for trading or
speculative purposes and does not currently utilize derivative financial
instruments as a hedge to offset market risk. The Company has held certain
equity investments in the form of common stock purchase warrants in public
companies and accounted for these investments in accordance with the provisions
of SFAS No. 133. As of January 31, 2003, the Company no longer has investments
in the form of common stock purchase warrants. The operations of the Company are
conducted primarily in the United States and as such are not subject to foreign
currency exchange rate risk. However, some of the Company's products are sourced
internationally and may fluctuate in cost as a result of foreign currency
swings. The Company has no long-term debt other than fixed capital lease
obligations, and accordingly, is not significantly exposed to interest rate
risk, although changes in market interest rates do impact the level of interest
income earned on the Company's substantial cash and short-term investment
portfolio.

45

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF VALUEVISION MEDIA, INC.
AND SUBSIDIARIES

46

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors of ValueVision Media, Inc. and
Subsidiaries:

We have audited the accompanying consolidated balance sheet of ValueVision
Media, Inc. and Subsidiaries (the Company) as of January 31, 2003 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended. Our audit also included the Schedule II:
Valuation and Qualifying Accounts for the year ended January 31, 2003, included
in Item 15. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the consolidated financial statements and financial
statement schedule based on our audits. The consolidated financial statements
and financial statement schedule of the Company as of January 31, 2002 and for
each of the two years in the period ended January 31, 2002 were audited by other
auditors who have ceased operations. Those auditors expressed an unqualified
opinion on those consolidated financial statements and financial statement
schedule in their report dated March 6, 2002.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of ValueVision Media,
Inc. and Subsidiaries at January 31, 2003 and the results of its operations and
its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

DELOITTE & TOUCHE LLP

Minneapolis, Minnesota,
March 14, 2003

47

THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ValueVision International, Inc.:

We have audited the accompanying consolidated balance sheets of ValueVision
International, Inc. (a Minnesota corporation) and Subsidiaries as of January 31,
2002 and 2001, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended January 31, 2002. These financial statements and the schedule referred to
below 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 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 financial position of ValueVision International,
Inc. and Subsidiaries as of January 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2002 in conformity with accounting principles generally accepted in
the United States.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
March 6, 2002

48

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial
statements.

49

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial
statements.

50

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001

51

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -- (CONTINUED)

FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001

The accompanying notes are an integral part of these consolidated financial
statements.

52

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial
statements.

53

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2003, 2002 AND 2001

1. THE COMPANY:

ValueVision Media, Inc. and Subsidiaries ("ValueVision" or the "Company")
is an integrated direct marketing company that markets its products directly to
consumers through various forms of electronic media. The Company's operating
strategy incorporates television home shopping, Internet e-commerce, vendor
programming sales, fulfillment services and outsourced e-commerce and
fulfillment solutions. Effective May 16, 2002, the Company changed its name to
ValueVision Media, Inc. from ValueVision International, Inc.

The Company's television home shopping business uses on-air personalities
to market brand name merchandise and proprietary/private label consumer products
at competitive prices. The Company's live 24-hour per day television home
shopping programming is distributed primarily through long-term cable and
satellite affiliation agreements and the purchase of month-to-month full and
part-time block lease agreements of cable and broadcast television time. In
addition, the Company distributes its programming through one Company-owned full
power television station in Boston, Massachusetts. The Company also complements
its television home shopping business by the sale of a broad array of
merchandise through its Internet shopping website (www.shopnbc.com) and
simulcasts the Company's television home shopping show live on the Internet 24
hours a day, 7 days a week.

On November 16, 2000, the Company entered into an exclusive license
agreement with National Broadcasting Company, Inc. ("NBC") pursuant to which NBC
granted ValueVision worldwide use of an NBC-branded name and the Peacock image
for a ten-year period. The Company rebranded its growing home shopping network
and companion Internet shopping website as "ShopNBC" and "ShopNBC.com",
respectively, in fiscal 2001. This rebranding is intended to position
ValueVision as a multimedia retailer, offering consumers an entertaining,
informative and interactive shopping experience, and position the Company as a
leader in the evolving convergence of television and the Internet.

In 1999, the Company founded ValueVision Interactive, Inc. as a wholly
owned subsidiary of the Company to manage and develop the Company's Internet
e-commerce initiatives. The Company, through its wholly owned subsidiary, VVI
Fulfillment Center, Inc. ("VVIFC"), provides fulfillment, warehousing and
telemarketing services on a cost plus basis to Ralph Lauren Media, LLC ("RLM").
VVIFC's services agreement with RLM was entered into in conjunction with the
execution of the Company's investment and electronic commerce alliance entered
into with Polo Ralph Lauren Corporation, NBC and other NBC affiliates. VVIFC
also provides fulfillment and support services for the NBC Experience Store in
New York City and direct to consumer products sold on NBC's website and to its
FanBuzz, Inc. subsidiary. Through its wholly owned subsidiary, FanBuzz, Inc.,
the Company also provides e-commerce and fulfillment solutions to some of the
most recognized sports, media and other well-known entertainment and retail
companies.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
ValueVision and its wholly owned subsidiaries. Intercompany accounts and
transactions have been eliminated in consolidation. The accompanying
consolidated results of operations for the year ended January 31, 2003, include
the operations of FanBuzz, Inc. as of the effective date of its acquisition,
March 8, 2002.

FISCAL YEAR

The Company's fiscal year ends on January 31. The year ended January 31,
2003 is designated fiscal "2002" and the year ended January 31, 2002 is
designated fiscal "2001". In prior reporting years, fiscal years were designated
by the calendar year in which the fiscal year ended. Effective with the fiscal
year ended

54

January 31, 2001, the Company changed the naming convention for its fiscal years
to more accurately align the name of the Company's fiscal year with the calendar
year it primarily represents. All prior fiscal year references have been renamed
accordingly.

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE

Revenue is recognized at the time merchandise is shipped or when services
are provided. Shipping and handling fees collected from customers are recognized
as merchandise is shipped and are classified as revenue in the accompanying
statements of operations in accordance with Emerging Issues Task Force ("EITF")
Issue No. 00-10, "Accounting for Shipping and Handling Fees and Cost" ("EITF
00-10"). The Company classifies shipping and handling costs in the accompanying
statements of operations as a component of cost of sales. Returns are estimated
and provided for at the time of sale based on historical experience. Payments
received for unfilled orders are reflected as a component of accrued
liabilities.

Accounts receivable consist primarily of amounts due from customers for
merchandise sales and from credit card companies, and are reflected net of
reserves for estimated uncollectible amounts of $3,500,000 at January 31, 2003
and $3,205,000 at January 31, 2002.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash, money market funds and
commercial paper with an original maturity of 90 days or less. The Company
maintains its cash balances at financial institutions in investment accounts
that are not federally insured. The Company has never experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
its cash and cash equivalents.

SHORT-TERM INVESTMENTS

Short-term investments consist principally of high quality commercial paper
with original maturities of from ninety-one (91) days to two hundred and seventy
(270) days and investment grade corporate and municipal bonds and other tax
advantaged certificates with tender option terms ranging from one month to one
year. These investments are stated at cost, which approximates market value due
to the short maturities of these instruments. The average maturity of the
Company's short-term investment portfolio is approximately 30-60 days. The
Company maintains its short-term investments at financial institutions in
investment accounts that are not federally insured. Although the Company's
short-term investment policy is conservative in nature, certain short-term
investments in commercial paper can be exposed to the credit risk of the
underlying companies to which they relate. The Company has never experienced any
losses in such accounts and believes it is not exposed to any significant credit
risk on its short-term investments.

INVESTMENTS IN EQUITY SECURITIES

The Company classifies certain investments in equity securities as
"available-for-sale" under the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"), and reports these investments at fair value. Under
SFAS No. 115, unrealized holding gains and losses on available-for-sale
securities are excluded from income and are reported as a separate component of
shareholders' equity. Realized gains and losses from securities classified as
available-for-sale are included in income and are determined using the average
cost method for ascertaining the cost of securities sold. As of January 31, 2003
and 2002, accumulated unrealized holding losses on available-for-sale securities
excluded from income and reported as a separate component of shareholders'
equity totaled $(2,517,000) and $(1,045,000), respectively.

Statement of Financial Accounting Standards No. 133 (" SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities", establishes
accounting and reporting standards requiring that derivative instruments, as
defined in the standard, be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires changes in the
derivative's fair value to be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company adopted the provisions of SFAS
No. 133, as amended, effective February 1, 2001. The impact of the initial
adoption of SFAS

55

No. 133 was a loss of $329,000 related to warrants held as investments and is
reflected in the fiscal 2001 consolidated statement of operations as a
cumulative effect of change in accounting principle. For the years ended January
31, 2003 and 2002, the Company also recorded in the consolidated statement of
operations unrealized gains on security holdings of $1,021,000 and $346,000,
respectively, relating to fair value adjustments made with respect to derivative
common stock purchase warrants held by the Company. In the second quarter of
fiscal 2002, the Company, in a cashless transaction, exchanged its warrants to
purchase a total of 438,356 shares of common stock of iDine Rewards Network,
Inc. ("iDine"; formerly Transmedia Network, Inc.) for 170,532 shares of the
common stock of iDine and recorded a loss of $526,000 on the exchange. As of
January 31, 2003, the Company no longer has derivative warrant investments.

Information regarding the Company's investments in available-for-sale and
SFAS No. 133 equity securities is as follows:

As of January 31, 2003 and 2002 all available-for-sale and SFAS No. 133
equity securities were classified as long-term investments in the accompanying
consolidated balance sheets. Also see "Investments and Other Assets."

Proceeds from sales of investment securities were $-0-, $821,000 and
$57,000 in fiscal 2002, 2001 and 2000, respectively, and related gross realized
losses included in income were $-0-, $(277,000) and $(389,000) in fiscal 2002,
2001 and 2000, respectively.

As of January 31, 2003 and 2002, respectively, the Company had no
investments classified as trading securities in the accompanying consolidated
balance sheets. Net unrealized holding losses on trading securities included in
income in fiscal 2000 totaled $(96,000).

INVENTORIES

Inventories, which consist primarily of consumer merchandise held for
resale, are stated at the lower of average cost or realizable value and are
reflected net of obsolescence write-downs of $3,048,000 at January 31, 2003 and
$1,370,000 at January 31, 2002.

ADVERTISING COSTS

Promotional advertising expenditures are expensed in the period the
advertising initially takes place. Advertising costs of $8,983,000, $9,702,000
and $6,861,000 for the years ended January 31, 2003, 2002 and 2001,
respectively, are included in the accompanying consolidated statements of
operations. Prepaid expenses and other includes deferred advertising costs of
$2,223,000 at January 31, 2003 and $1,172,000 at January 31, 2002, which will be
reflected as an expense during the quarterly period of benefit.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Improvements and renewals that
extend the life of an asset are capitalized and depreciated. Repairs and
maintenance are charged to expense as incurred. The cost and accumulated
depreciation of property and equipment retired or otherwise disposed of are
removed from the related accounts, and any residual values are charged or
credited to operations. Depreciation and amortization for financial reporting
purposes are provided on the straight-line method based upon estimated useful
lives.

56

Property and equipment consisted of the following at January 31:

NBC TRADEMARK LICENSE AGREEMENT

As discussed further in Note 16, in November 2000, the Company entered into
a Trademark License Agreement with NBC pursuant to which NBC granted the Company
an exclusive, worldwide license for a term of 10 years to use certain NBC
trademarks, service marks and domain names to rebrand the Company's business and
corporate name on the terms and conditions set forth in the License Agreement.
In connection with the License Agreement, the Company issued to NBC warrants to
purchase 6,000,000 shares of the Company's common stock at an exercise price of
$17.375 per share. The original fair value assigned to the NBC License Agreement
and related warrants was determined pursuant to an independent appraisal. At the
date of the agreement, a measurement date had not yet been established and the
Company revalued the Trademark License and warrants to $59,629,000, the
warrants' estimated fair value as of January 31, 2001, including professional
fees. In March 2001, the Company established a measurement date with respect to
the NBC Trademark License Agreement by amending the agreement, and fixed the
fair value of the Trademark License asset at $32,837,000, which is being
amortized over the remaining ten-year term of the Trademark License Agreement.
As of January 31, 2003 and 2002, accumulated amortization related to this asset
totaled $7,696,000 and $4,470,000, respectively.

CABLE DISTRIBUTION AND MARKETING AGREEMENT

As discussed further in Note 13, in March 1999, the Company entered into a
Distribution and Marketing Agreement with NBC, which provides that NBC shall
have the exclusive right to negotiate on behalf of the Company for the
distribution of its home shopping television service. Under the ten-year
agreement, NBC had committed to deliver 10 million full-time equivalent ("FTE")
subscribers over a forty-two month period. In compensation for these services,
the Company pays NBC a $1.5 million annual fee and issued NBC a Distribution
Warrant to purchase 1,450,000 shares of the Company's common stock at an
exercise price of $8.29 per share. The value assigned to the Distribution and
Marketing Agreement and related warrant of $6,931,000 was determined pursuant to
an independent appraisal and is being amortized on a straight-line basis over
the term of the agreement. As of January 31, 2003 and 2002, accumulated
amortization related to this asset totaled $2,616,000 and $1,923,000,
respectively.

In fiscal 2001, the Company issued to NBC additional warrants to purchase
343,725 shares of the Company's common stock at an exercise price of $23.07 per
share. The warrants were assigned a fair value of $1,175,000, are immediately
exercisable, and have a term of five years. In the fourth quarter of fiscal
2002, the Company issued to NBC additional warrants to purchase 36,858 shares of
the Company's common stock at an exercise price of $15.74 per share. The
warrants were assigned a fair value of $172,000, vest over five years and have a
five-year term from the date of vesting. These warrants were issued in
connection with the NBC Distribution and Marketing Agreement which provides that
additional warrants are to be granted at current market prices upon the
achievement of specific goals associated with the distribution of the Company's
television programming with respect to FTE subscriber homes. The fair value
assigned to these distribution

57

warrants were determined using the Black Scholes valuation model and are being
amortized over the weighted average term of the new distribution agreements
which range from five to seven years. As of January 31, 2003 and 2002, total
accumulated amortization related to these assets totaled $321,000 and $145,000,
respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations," ("SFAS No. 141") which requires all business
combinations initiated after June 30, 2001 to use the purchase method of
accounting and addresses the initial recognition and measurement of goodwill and
other intangible assets acquired in a business combination. The Company's
adoption of SFAS No. 141 in fiscal 2001 did not have a material effect on its
financial position or results of operations.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which addresses the financial accounting and reporting standards for
the acquisition of intangible assets outside of a business combination and for
goodwill and other intangible assets subsequent to their acquisition. This
accounting standard requires that goodwill be separately disclosed from other
intangible assets in the statement of financial position, and no longer be
amortized but tested for impairment on a periodic basis. These impairment tests
are required to be performed at adoption and at least annually thereafter. The
Company's adoption of SFAS No. 142 in fiscal 2002 did not have a material effect
on its financial position or results of operations. In connection with its
acquisition of FanBuzz, Inc. in the first quarter of fiscal 2002, the Company
recorded goodwill of $7,442,000. In the fourth quarter of fiscal 2002, the
Company finalized the purchase accounting related to its acquisition of FanBuzz,
Inc., which resulted in a $2,000,000 increase in goodwill. The Company performed
its annual impairment test in the fourth quarter of fiscal 2002 and determined
that an impairment of goodwill had not occurred as the fair value of the FanBuzz
reporting unit exceeded its carrying value. The fair value of the reporting unit
was estimated using the present value of expected future cash flows.

Changes in the carrying amount of goodwill for the year ended January 31,
2003 are as follows:

Balance as of January 31, 2002.............................. $ --
Goodwill acquired during the period......................... 9,442,000
Impairment losses........................................... --
----------
Balance as of January 31, 2003.............................. $9,442,000
==========

Intangible assets have been recorded by the Company as a result of the
acquisition of FanBuzz in the first quarter of fiscal 2002. The components of
amortizable intangible assets in the accompanying consolidated balance sheets
consist of the following:

Amortization expense for intangible assets for the year ended January 31,
2003 was $758,000. Estimated amortization expense for the succeeding five years
is as follows: $581,000 in fiscal 2003, $436,000 in fiscal 2004, $84,000 in
fiscal 2005, $15,000 in fiscal 2006 and $15,000 in fiscal 2007.

58

INVESTMENTS AND OTHER ASSETS

Investments and other assets consisted of the following at January 31:

As of January 31, 2003 and 2002, the Company had equity investments
totaling approximately $6,713,000 and $40,551,000, respectively, of which $-0-
and $32,429,000, respectively, related to the Company's investment in RLM after
adjusting for the Company's equity share of RLM losses under the equity method
of accounting and the write down of the RLM investment in fiscal 2002. The
Company's equity share of RLM losses was $5,669,000 in fiscal 2002, $8,838,000
in fiscal 2001 and $4,500,000 in fiscal 2000. At January 31, 2003 and 2002,
investments in the accompanying consolidated balance sheets also included
approximately $4,702,000 and $6,111,000, respectively, related to equity
investments made in companies whose shares are traded on a public exchange. As
discussed above, investments in common stock are classified as
"available-for-sale" investments and are accounted for under the provisions of
SFAS No. 115. Investments held in the form of stock purchase warrants are
accounted for under the provisions of SFAS No. 133. In addition, investments at
January 31, 2003 and 2002 include certain other nonmarketable equity investments
in private and other enterprises totaling approximately $2,011,000, which are
carried at the lower of cost or net realizable value.

As further discussed in Note 15, in February 2000, the Company entered into
a strategic alliance with Polo Ralph Lauren, NBC, NBCi and CNBC.com and created
RLM, a joint venture formed for the purpose of bringing the Polo Ralph Lauren
American lifestyle experience to consumers via multiple platforms, including the
Internet, broadcast, cable and print. The Company owns a 12.5% interest in RLM.
In connection with forming this strategic alliance, the Company had committed to
provide up to $50 million of cash for purposes of financing RLM's operating
activities of which the entire commitment has been funded through January 31,
2003.

In the fourth quarter of fiscal 2002, VVIFC agreed to amend, effective
February 1, 2003, its existing customer care and fulfillment services agreement
with RLM in exchange for an $11 million cash payment. The cash payment is to be
made in consideration for VVIFC's fixed asset impairment incurred by the
overbuild of the fulfillment center utilized by VVIFC to provide services to RLM
and for early termination of its original long term services agreement. In
accordance with this amendment, RLM will be permitted to negotiate with other
parties to provide it with fulfillment services. The Company will continue to
provide the services it currently provides to RLM through December 31, 2003, at
a flat cost per order and will have the right to match any bona fide third party
offer received by RLM for fulfillment services. Of the $11,000,000 cash
received, $2,600,000 relates to a prepayment for a portion of the ongoing
services the Company is obligated to provide through December 31, 2003, and
therefore was recorded as deferred revenue. The Company also wrote off and
received cash consideration of $5,900,000 for fixed assets dedicated to the
arrangement with RLM that were deemed to be impaired as a result of the early
termination of the original services agreement. The effect of amending its RLM
services agreement was to increase fourth quarter operating income and net
income by $2,500,000, representing consideration received for the early
termination of the agreement.

In the fourth quarter of fiscal 2002, the Company evaluated the carrying
value of its RLM investment by evaluating the current and forecasted financial
condition of the entity, its liquidity prospects, its cash flow forecasts and by
comparing its historical operational results to plan. The RLM joint venture to
date has incurred significant operating losses since it commenced operations in
November 2000 and the Company's expectations regarding RLM's growth, earnings
capability and ability to generate future positive cash flows have severely
diminished. In addition, as discussed above, the Company substantially amended
its existing

59

fulfillment and services agreement with RLM in the fourth quarter of fiscal
2002. The Company believes that based on RLM's historic performance, future
earnings and cash flow outlook, recent services agreement amendment and fourth
quarter valuation analysis, an impairment has occurred with respect to this
investment and the decline in value was determined to be other than temporary
whereby the Company will not be able to recover the carrying amount of its
investment. As a result, the Company recorded a $31,078,000 write down of its
remaining RLM investment in the fourth quarter of fiscal 2002.

The following summarized financial information relates to the RLM joint
venture as of December 31, 2002, 2001 and 2000 and for its fiscal years then
ended. Net sales: $21.4 million, $15.6 million and $2.0 million, respectively;
Gross profit: $12.9 million, $8.8 million and $1.0 million, respectively; Net
loss: $4.3 million, $23.8 million and $21.3 million, respectively; Total assets:
$9.4 million and $13.8 million, respectively; Total liabilities: $6.6 million
and $12.8 million, respectively.

The Company evaluates the carrying values of its other investments using
recent financing and securities transactions, present value and other pricing
models, as well as by evaluating available information on financial condition,
liquidity prospects, cash flow forecasts and comparing operating results to
plan. Impairment losses are recorded if events or circumstances indicate that
such investments may be impaired and the decline in value is other than
temporary. During fiscal 2002, in addition to the RLM write off, the Company
recorded pre-tax investment losses totaling $1,070,000 relating primarily to an
investment made in 1997. During fiscal 2001, the Company recorded pre-tax
investment losses totaling $7,567,000 of which $6,006,000 related to the write
off of the Company's investment in Internet company Wine.com pursuant to its
announced employee layoff, sale of assets to eVineyard.com and subsequent
dissolution. The declines in fair value were determined by the Company to be
other than temporary. In fiscal 2000, the Company recorded pre-tax investment
losses totaling $56,157,000 of which $55,574,000 related to the write down of
investments made primarily in a number of Internet retailers whose decline in
fair value was determined by the Company to be other than temporary. The decline
in fair value of these companies was driven by their large operating losses and
negative cash flow accompanied by an environment not conducive to raising new
financing. The major investment components of the write down in fiscal 2000
included minority equity investments made in NBCi.com, Petopia.com,
SelfCare.com, Roxy.com and BigStar Entertainment, Inc. In fiscal 2000, the
Company also recorded a pre-tax loss of $583,000 relating to an investment made
in 1998.

Prepaid launch fees represent prepaid satellite transponder launch fees and
amounts paid to cable operators upon entering into cable affiliation agreements.
These fees are capitalized and amortized over the lives of the related
affiliation contracts, which range from 4-8 years.

Other assets consist principally of deferred acquisition costs, long-term
deposits, notes receivable and Federal Communication Commission License fees,
all of which are carried at cost, net of accumulated amortization. Costs are
amortized on a straight-line basis over the estimated useful lives of the
assets, ranging from 5 to 25 years.

ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

INCOME TAXES

The Company accounts for income taxes under the liability method of
accounting in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"

60

("SFAS No. 109") whereby deferred tax assets and liabilities are recognized for
the expected future tax consequences of temporary differences between financial
statement and tax basis of assets and liabilities. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of the enactment of such laws. The Company assesses the recoverability of
its deferred tax assets in accordance with the provisions of SFAS No. 109. In
accordance with that standard, as of January 31, 2003, the Company recorded a
valuation allowance of approximately $18,738,000 for its net deferred tax assets
and net operating and capital loss carryforwards. Based on the Company's recent
history of losses, a full valuation allowance was recorded in the fourth quarter
of fiscal 2002 and was calculated in accordance with the provisions of SFAS No.
109 which places primary importance on the Company's most recent operating
results when assessing the need for a valuation allowance. Although management
believes that the Company's recent operating losses were heavily affected by a
challenging retail economic environment and slowdown in consumer spending
experienced by the Company and other merchandise retailers, the Company intends
to maintain a full valuation allowance for its net deferred tax assets and loss
carryforwards until sufficient positive evidence exists to support reversal of
the reserve. See Note 7 for additional information regarding income taxes.

NET LOSS PER COMMON SHARE

The Company calculates earnings per share ("EPS") in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"). Basic EPS is computed by dividing reported earnings by
the weighted average number of common shares outstanding for the reported
periods. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock of the Company during reported periods.

A reconciliation of EPS calculations under SFAS No. 128 is as follows:

For the years ended January 31, 2003 and 2002, approximately 7,499,000 and
7,815,000, respectively, in-the-money dilutive common share equivalents have
been excluded from the computation of diluted earnings per share, as required
under SFAS No. 128, as the effect of their inclusion would be anti-dilutive.

COMPREHENSIVE LOSS

The Company reports comprehensive loss in accordance with Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 establishes standards for reporting in the financial
statements all changes in equity during a period, except those resulting from
investments by and distributions to owners. For the Company, comprehensive loss
includes net loss and other comprehensive loss, which consists of unrealized
holding gains and losses from equity investments, classified as
"available-for-sale." Total comprehensive loss was $(40,582,000), $(9,721,000)
and $(39,598,000) for the years ended January 31, 2003, 2002 and 2001,
respectively.

61

STOCK-BASED COMPENSATION

At December 31, 2003, the Company has stock-based compensation plans, which
are described more fully in Note 6. The Company accounts for these plans under
the recognition and measurement principles of APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. No stock-based
employee compensation cost is reflected in net loss, as all options granted
under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net loss and loss per share if the Company had applied the fair
value recognition provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), to stock-based
employee compensation:

The weighted average fair values of options granted were as follows:

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal 2002, 2001 and 2000, respectively:
risk-free interest rates of 3.3, 4.5 and 5.0 percent; expected volatility of 45,
51 and 54 percent; and expected lives of 6 to 7.5 years. Dividend yields were
not used in the fair value computations as the Company has never declared or
paid dividends on its common stock and currently intends to retain earnings for
use in operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" ("SFAS No. 107"), requires disclosures of
fair value information about financial instruments for which it is practicable
to estimate that value. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used,
including discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes

62

certain financial instruments and all non-financial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company.

The following methods and assumptions were used by the Company in
estimating its fair values for financial instruments:

The carrying amounts reported in the accompanying consolidated balance
sheets approximate the fair value for cash and cash equivalents, short-term
investments, accounts receivable, accounts payable and accrued liabilities, due
to the short maturities of those instruments.

Fair values for long-term investments are based on quoted market prices,
where available. For equity securities not actively traded, fair values are
estimated by using quoted market prices of comparable instruments or, if there
are no relevant comparables, on pricing models, formulas or cash flow
forecasting models using current assumptions.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of revenues and
expenses during reporting periods. These estimates relate primarily to the
carrying amounts of accounts receivable and inventories, the realizability of
certain long-term assets and the recorded balances of certain accrued
liabilities and reserves. Ultimate results could differ from these estimates.

RECLASSIFICATIONS

Certain fiscal 2001 amounts in the accompanying consolidated balance sheets
have been reclassified to conform to the fiscal 2002 presentation, with no
impact on previously reported net loss or shareholders' equity.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and supercedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" and the accounting and
reporting provisions of APB Opinion No. 30. The changes required by SFAS No. 144
resolve significant implementation issues related to SFAS No. 121 and improve
financial reporting by requiring that one accounting model be used for
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. The requirements of SFAS No. 144 also broaden the presentation
of discontinued operations to include more disposal transactions. The adoption
of SFAS No.144 did not have a material impact on the Company's consolidated
balance sheet or results of operations.

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS No. 146"). SFAS No. 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies EITF Issue No.
94-3. The Company will be required to adopt SFAS No. 146 effective for any exit
or disposal activities that are initiated after December 31, 2002. The adoption
of SFAS No. 146 is not expected to have a material impact on the Company's
consolidated balance sheet or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 clarifies the
requirements for a guarantor's accounting for and disclosure of certain issued
and outstanding guarantees. The initial recognition and initial measurement
provisions of FIN 45 are applicable to guarantees issued or modified after
December 31, 2002. The disclosure requirements of FIN 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. The

63

adoption of FIN 45 is not expected to have a material impact on the Company's
consolidated balance sheet or results of operations.

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148. "Accounting for Stock-Based Compensation -- Transition and
Disclosure" ("SFAS No. 148"), which amends Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require more prominent and more frequent disclosures in
financial statements of the effects of stock-based compensation. The transition
guidance and annual disclosure provisions of SFAS No. 148 are effective for
fiscal years ending after December 15, 2002. The interim disclosure provisions
are effective for financial reports containing condensed financial statements
for interim periods beginning after December 15, 2002. The adoption of SFAS No.
148 is not expected to have a material impact on the Company's consolidated
balance sheet or results of operations. The Company will provide the interim
disclosures required by SFAS No. 148 beginning in the first quarter of 2003.

3. WRITE-OFF DUE TO BANKRUPTCY:

In December 2000, Montgomery Ward announced that it had filed for
bankruptcy and the Company terminated the use of the Montgomery Ward private
label credit card (the "MW Card") in its television home shopping operations as
of January 31, 2001. In conjunction with the bankruptcy filing, the Company
wrote off impaired assets totaling $4,609,000. Assets written off consisted
primarily of uncollected spot advertising and credit card processing receivables
totaling $3,112,000 and the remaining Montgomery Ward Operating Agreement and
License intangible asset balance of $1,497,000, which the Company concluded was
permanently impaired as a result of the bankruptcy filing and the subsequent
termination of the use of the MW Card.

4. ACQUISITION OF FANBUZZ, INC.:

On February 25, 2002, the Company announced it had signed a definitive
agreement to acquire 100% of the outstanding shares of the parent of
Minneapolis-based FanBuzz, Inc. ("FanBuzz"), that currently provides e-commerce
and fulfillment solutions to some of the most recognized sports, media and other
well known entertainment companies in the world, including ESPN, the Salt Lake
2002 Winter Games, the National Hockey League, the Museum Company, San Francisco
Music Box and many other professional sports teams, leagues and colleges.
FanBuzz has focused its business model on operating online product stores and
providing fulfillment and customer care solutions for already-established brands
and destinations. As a result of the acquisition, the Company has further
positioned itself to become a provider of outsourcing solutions to companies
wishing to add on-line/on-air commerce to their existing business models. The
Company also expects to reduce FanBuzz's costs through economies of scale. The
purchase price of the acquisition, which closed on March 8, 2002, was $14.1
million and has been accounted for using the purchase method of accounting as
stipulated by SFAS No. 141, "Business Combinations". The results of operations
of FanBuzz have been included in the accompanying consolidated financial
statements as of March 8, 2002, the date of acquisition. Pro-forma results of
the Company, assuming the acquisition had been made at the beginning of each
period presented, would not be materially different from the results reported.

64

The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed from FanBuzz on the date of acquisition:

Current assets.............................................. $ 3,965,000
Property and equipment...................................... 3,305,000
Other assets................................................ 78,000
Intangible assets........................................... 2,000,000
Goodwill.................................................... 9,442,000
-----------
Total assets acquired..................................... 18,790,000
-----------
Current liabilities......................................... 3,265,000
Capital lease obligations................................... 1,425,000
-----------
Total liabilities assumed................................. 4,690,000
-----------
Net assets acquired....................................... $14,100,000
===========

Total amortizable intangible assets acquired were $2,000,000 (4-year
weighted average useful life) and were assigned as follows: registered website
and URL address of $1,000,000 (3-year weighted average useful life), partnership
contracts of $280,000 (2-year weighted average useful life), non-compete
agreements of $230,000 (3-year weighted average useful life), favorable lease
contracts of $200,000 (13-year weighted average useful life) and other assets of
$290,000 (1-year weighted average useful life). Total goodwill recorded as a
result of the acquisition was $9,442,000 none of which is expected to be
deductible for tax purposes. The Company does not expect there to be any
significant residual value with respect to these acquired intangible assets.

5. LOW POWER TELEVISION STATIONS:

The FCC through the Communications Act of 1934 regulates the licensing of
LPTV stations' transmission authority. LPTV construction permits and the
licensing rights that result upon definitive FCC operating approval are awarded
solely at the discretion of the FCC and are subject to periodic renewal
requirements. As of January 31, 2003, the Company held licenses for eleven LPTV
stations. See Note 17 regarding the Company's subsequent sale of ten of its LPTV
stations.

6. SHAREHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK:

COMMON STOCK

The Company currently has authorized 100,000,000 shares of undesignated
capital stock, of which approximately 36,171,000 shares were issued and
outstanding as Common Stock as of January 31, 2003. The Board of Directors can
establish new classes and series of capital stock by resolution without
shareholder approval.

REDEEMABLE PREFERRED STOCK

As discussed further in Note 13, in fiscal 1999, pursuant to an Investment
Agreement between the Company and GE Equity, the Company sold to GE Equity
5,339,500 shares of its Series A Redeemable Convertible Preferred Stock, $0.01
par value for aggregate proceeds of $44,265,000 less issuance costs of
$2,850,000. The Preferred Stock is convertible into an equal number of shares of
the Company's Common Stock and has a mandatory redemption after ten years from
date of issuance at $8.29 per share, its stated value. The excess of the
redemption value over the carrying value is being accreted by periodic charges
to retained earnings over the ten-year redemption period.

65

WARRANTS

As discussed further in Notes 2 and 16, in November 2000, the Company
issued to NBC warrants to purchase 6,000,000 shares of the Company's common
stock at an exercise price of $17.375 per share. The warrants were issued in
connection with the Company's execution of a Trademark License Agreement
pursuant to which NBC granted the Company an exclusive, worldwide license to use
certain NBC trademarks, service marks and domain names to rebrand the Company's
business and corporate name for a term of ten years.

As discussed further in Note 13, in fiscal 1999, the Company issued to NBC
warrants to purchase 1,450,000 shares of the Company's common stock at an
exercise price of $8.29 per share. The warrants were issued in connection with
the Company's execution of a Distribution and Marketing Agreement with NBC. In
fiscal 2001, the Company issued to NBC warrants to purchase 343,725 shares of
the Company's common stock at an exercise price of $23.07 per share. The
warrants are immediately exercisable, and have a term of 5 years. In the fourth
quarter of fiscal 2002, the Company issued to NBC warrants to purchase 36,858
shares of the Company's common stock at an exercise price of $15.74 per share.
The warrants vest over 5 years, and have a term of 5 years from the date of
vesting. The additional warrants were issued in connection with the Company's
Distribution and Marketing Agreement with NBC which provides that warrants will
be granted at current market prices upon the achievement of specific goals in
connection with distribution of the Company's television programming with
respect to FTE subscriber homes.

In fiscal 1999, and in conjunction with a previous electronic commerce
alliance, the Company issued to Xoom.com, Inc. ("Xoom") a warrant (the
"ValueVision Warrant") to acquire 404,760 shares of the Company's common stock
at an exercise price of $24.706 per share. In consideration, Xoom issued a
warrant (the "Xoom Warrant," and collectively with the ValueVision Warrant, the
"Warrants") to the Company to acquire 244,004 shares of Xoom's common stock,
$.0001 par value, at an exercise price of $40.983 per share. Both Warrants are
subject to customary anti-dilution features and have a five-year term. The
exchange of warrants was made pursuant to the Company's original rebranding and
strategic electronic commerce alliance with NBCi. In fiscal 1999, Xoom.com, Inc.
and Snap! LLC, along with several Internet assets of NBC, were merged into NBCi
and in fiscal 2001, NBCi was repurchased by NBC. As a result of the NBC
acquisition, the Company had the opportunity to exercise its Xoom.com warrant to
receive the merger consideration; the Company chose not to exercise its rights
due to the uneconomic terms and subsequently the warrant lapsed. In connection
with the issuance of the ValueVision Warrant to Xoom, the Company agreed to
provide Xoom certain customary piggyback registration rights with no demand
registration rights.

STOCK OPTIONS

In June 2001, the shareholders of the Company voted to approve the 2001
Omnibus Stock Plan (the "2001 Plan"), which provides for the issuance of up to
3,000,000 shares of the Company's common stock. The 2001 Plan is administered by
the Company's Compensation Committee (the "Committee") and has two basic
components, discretionary options for employees and consultants and options for
outside directors. All employees of the Company or its affiliates are eligible
to receive awards under the 2001 Plan. The Committee may also award nonstatutory
stock options under the 2001 Plan to individuals or entities who are not
employees but who provide services to the Company in capacities such as
advisors, directors and consultants. The types of awards that may be granted
under the 2001 Plan include restricted and unrestricted stock, incentive and
nonstatutory stock options, stock appreciation rights, performance units and
other stock-based awards. Incentive stock options may be granted to participants
at such exercise prices as the Committee may determine but not less than 100% of
the fair market value of the underlying stock as of the date of grant. With
respect to incentive stock options, no stock option may be granted more than ten
years after the effective date of the 2001 Plan or be exercisable more than ten
years after the date of grant. The 2001 Plan also provides for additional
restrictions on incentive stock options granted to an individual who
beneficially owns 10% or more of the outstanding shares of the Company. The 2001
Plan also provides for option grants on an annual basis to each outside director
of the Company. All options granted to outside directors pursuant to the 2001
Plan are nonstatutory stock options with an exercise price equal to 100% of the
fair market value of the underlying stock as of the date of grant. All options
granted under the 2001 Plan are exercisable in whole or in

66

installments, as determined by the Committee, and are generally exercisable in
annual installments of 33% to 50%.

Previous to the adoption of the 2001 Plan, the Company had in place an
incentive stock option plan (as amended, the "1990 Plan"), which provided for
the grant of options to employees to purchase up to 4,250,000 shares of the
Company's common stock. In addition to options granted under the 1990 Plan, the
Company has also granted non-qualified stock options to purchase shares of the
Company's common stock to current and former directors, and certain employees.
The Company also adopted an executive incentive stock option plan (the "1994
Executive Plan"), which provides for the grant of options to certain executives
to purchase up to 2,400,000 shares of the Company's common stock. Incentive
stock options granted to participants under these Plans may be granted at such
exercise prices as the Committee may determine but not less than 100% of the
fair market value of the underlying stock as of the date of grant. The maximum
term for any options issued under either plan may not exceed 10 years from the
date of grant. All options granted are exercisable in whole or in installments,
as determined by the Committee, and are generally exercisable in annual
installments of 20% to 50%. The exercise price of the non-qualified stock
options equaled the market value of the Company's common stock at the date of
grant and the maximum term of such options does not exceed 10 years from the
date of grant.

A summary of the status of the Company's stock option plans as of January
31, 2003, 2002 and 2001 and changes during the years then ended are presented
below:

67

The following table summarizes information regarding stock options
outstanding at January 31, 2003:

STOCK OPTION TAX BENEFIT

The exercise of certain stock options granted under the Company's stock
option plans gives rise to compensation, which is includible in the taxable
income of the applicable employees and deductible by the Company for federal and
state income tax purposes. Such compensation results from increases in the fair
market value of the Company's common stock subsequent to the date of grant of
the applicable exercised stock options and is not recognized as an expense for
financial accounting purposes, as the options were originally granted at the
fair market value of the Company's common stock on the date of grant. The
related tax benefits are recorded as additional paid-in capital when realized,
and totaled $851,000, $2,778,000 and $4,348,000 in fiscal 2002, 2001 and 2000,
respectively. The Company has not recorded the tax benefit through paid in
capital in fiscal 2002 and 2001, as the related tax deductions were not taken
due to the losses incurred. These benefits will be recorded in the applicable
future periods.

COMMON STOCK REPURCHASE PROGRAM

In the second quarter of fiscal 2001, the Company's Board of Directors
authorized a $25 million common stock repurchase program whereby the Company may
repurchase shares of its common stock in the open market and through negotiated
transactions, at prices and times deemed to be beneficial to the long-term
interests of shareholders and the Company. In the second quarter of fiscal 2002,
the Company's Board of Directors authorized the repurchase of an additional $25
million of the Company's common stock. In November 2002, the Company's Board of
Directors authorized an additional $25 million for repurchases of the Company's
common stock pursuant to its common stock repurchase program. As of January 31,
2003, approximately $27 million remained under these stock repurchase
authorizations. The repurchase program is subject to applicable securities laws
and may be discontinued at any time without any obligation or commitment by the
Company to repurchase all or any portion of the shares covered by the
authorization. As of January 31, 2003, the Company had repurchased a total of
3,234,000 shares of its common stock for a total net cost of $47,912,000 at an
average price of $14.82 per share. During the year ended January 31, 2003, the
Company had repurchased 2,257,000 shares of its common stock at an average price
of $14.93 per share. During the year ended January 31, 2002, the Company had
repurchased 977,000 shares of its common stock at an average price of $14.60 per
share.

68

The Company had previously established a stock repurchase program whereby
the Company was able to repurchase shares of its common stock in the open market
up to a total of $26 million through negotiated transactions, at prices and
times deemed to be beneficial to the long-term interests of shareholders and the
Company. As of January 31, 2002, the Company had repurchased under the program
an aggregate of $26 million of its common stock. During fiscal 2001, the Company
repurchased 115,000 common shares under the program for a total net cost of
$1,443,000. During fiscal 2000, the Company repurchased 214,000 common shares
under the program for a total net cost of $2,922,000.

7. INCOME TAXES:

The Company records deferred taxes for differences between the financial
reporting and income tax bases of assets and liabilities, computed in accordance
with tax laws in effect at that time. The deferred taxes related to such
differences as of January 31, 2003 and 2002 were as follows:

The net deferred tax asset is classified as follows in the accompanying
consolidated balance sheets:

The benefit from income taxes consisted of the following:

A reconciliation of the statutory tax rates to the Company's effective tax
rate is as follows:

69

Based on the Company's recent history of losses and as discussed further in
Note 2, the Company has recorded a full valuation allowance for its net deferred
tax assets and loss carryforwards as of January 31, 2003 in accordance with the
provisions of SFAS No. 109. The Company recorded a partial valuation allowance
at January 31, 2002 and 2001 based on its assessment of the realizability of the
deferred tax assets at these dates. The ultimate realization of these deferred
tax assets depends on the ability of the Company to generate sufficient capital
gains in the future. As of January 31, 2003, the Company has net operating and
capital loss carryforwards of approximately $18,629,000 million that will expire
from January 31, 2007 through 2022.

8. COMMITMENTS AND CONTINGENCIES:

CABLE AND SATELLITE AFFILIATION AGREEMENTS

As of January 31, 2003, the Company had entered into 3 to 12 year
affiliation agreements with approximately 70 cable system operators along with
the satellite companies DIRECTV and EchoStar (DISH Network) which require each
to offer the Company's television home shopping programming on a full-time basis
over their systems. Under certain circumstances, these television operators may
cancel their agreements prior to expiration. The affiliation agreements provide
that the Company will pay each operator a monthly access fee and marketing
support payment based upon the number of homes carrying the Company's television
home shopping programming. For the years ended January 31, 2003, 2002 and 2001,
the Company paid approximately $79,542,000, $65,710,000 and $45,486,000 under
these long-term affiliation agreements.

The Company has entered into, and will continue to enter into, affiliation
agreements with other television operators providing for full or part-time
carriage of the Company's television home shopping programming. Under certain
circumstances the Company may be required to pay the operator a one-time initial
launch fee, which is capitalized and amortized on a straight-line basis over the
term of the agreement.

EMPLOYMENT AGREEMENTS

On December 2, 1999, the Company entered into an employment agreement with
its Chief Executive Officer, which was due to expire on March 31, 2001. The
employment agreement specifies, among other things, the term and duties of
employment, compensation and benefits, termination of employment and non-
compete restrictions. In addition, the employment agreement also provided for a
$1,000,000 retention bonus payable by the Company if the officer remains
employed through the end of the contract period. This bonus was accrued at
January 31, 2001 and was paid in April 2001. On October 9, 2000, the Company
amended and extended the term of the employment agreement with its Chief
Executive Officer by an additional 36 months, which was due to expire on April
1, 2004 (the "First Extended Term"). The employment agreement provides for an
additional $1,000,000 retention bonus, which is being accrued and expensed over
the First Extended Term, and is payable by the Company if the officer remains
employed through the end of the first extended contract period. On September 2,
2002, the Company amended and agreed to extend the term of the employment
agreement for an additional 21 months, which will now expire on December 31,
2005 (the "Second Amended Term"). The employment agreement provides for an
additional $583,000 retention bonus, which will be accrued and expensed over the
Second Extended Term, and is payable by the Company if the officer remains
employed through the end of the second extended contract period.

The Company had entered into employment agreements with its former chief
executive officer and chief operating officer, which expired on January 31,
1999. The employment agreements provided that each officer be granted options to
purchase 375,000 shares of common stock at $8.50 per share and 375,000 shares of
common stock at $10.50 per share. The options were to vest and become
exercisable at the earliest of the Company achieving certain net income goals,
as defined, or in September 2003. As of January 31, 2003, 300,000 of these
options were exercisable, 900,000 had been exercised and 300,000 options had
been forfeited.

In addition, the Company has entered into employment agreements with a
number of officers of the Company and its subsidiaries for original terms
ranging from 12 to 48 months. These agreements specify, among other things, the
term and duties of employment, compensation and benefits, termination of
employment (including for cause, which would reduce the Company's total
obligation under these agree-

70

ments), severance payments and non-disclosing and non-compete restrictions. The
aggregate commitment for future base compensation at January 31, 2003 was
approximately $9,946,000.

OPERATING LEASE COMMITMENTS

The Company leases certain property and equipment under non-cancelable
operating lease agreements. Property and equipment covered by such operating
lease agreements include the Company's main corporate office and warehousing
facility, offices and warehousing facilities at subsidiary locations, satellite
transponder and certain tower site locations.

Future minimum lease payments at January 31, 2003 were as follows:

Total rent expense under such agreements was approximately $4,817,000 in
fiscal 2002, $4,465,000 in fiscal 2001 and $3,924,000 in fiscal 2000.

CAPITAL LEASE COMMITMENTS

The Company leases certain computer equipment and warehouse space under
noncancelable capital leases and includes these assets in property and equipment
in the accompanying consolidated balance sheet. At January 31, 2003 and 2002,
the capitalized cost of leased assets were approximately $2,518,000 and
$747,000, respectively.

Future minimum lease payments for assets under capital leases at January
31, 2003 are as follows:

RETIREMENT AND SAVINGS PLAN

The Company maintains a qualified 401(k) retirement savings plan covering
substantially all employees. The plan allows the Company's employees to make
voluntary contributions to the plan. The Company's contribution, if any, is
determined annually at the discretion of the Board of Directors. Starting in
January 1999, the Company has elected to make matching contributions to the
plan. The Company will match $.25 for every $1.00 contributed by eligible
participants up to a maximum of 6% of eligible compensation. The Company made
plan contributions totaling approximately $226,000, $140,000 and $78,000 during
fiscal 2002, 2001 and 2000, respectively.

71

9. LITIGATION:

The Company is involved from time to time in various claims and lawsuits in
the ordinary course of business. In the opinion of management, the claims and
suits individually and in the aggregate will not have a material adverse effect
on the Company's operations or consolidated financial statements.

In August 2001, the Company entered into a Consent Agreement and Order with
the Federal Trade Commission ("FTC") regarding the substantiation of certain
claims for health and beauty products made on-air during the Company's TV
programming and on the Company's Internet web site. To ensure that it remains in
compliance with the Consent Agreement and Order and with generally applicable
FTC advertising standards, the Company has implemented a Compliance Program
applicable to health and beauty products offered through ShopNBC. Under the
terms of the Consent Order, the Company must ensure that it has scientific
evidence to back up any claims it might make regarding the health benefits of
any food, drug, dietary supplement, cellulite-treatment product or weight-loss
program in connection with the advertisement or sale of such products. In the
event of noncompliance with the Consent Order, the Company could be subject to
civil penalties. The Company's execution of the Consent Agreement and Order with
the FTC did not have a material impact on the Company's operations or
consolidated financial statements. During fiscal year 2002, the FTC made
inquiries of the Company regarding certain statements made while a guest on-air
spokesperson was appearing for a multi-vitamin product called Physicians RX. The
FTC alleged that claims did not meet the applicable requirements set forth in
the Consent Agreement and Order, which was disputed by the Company. The Company,
without any admission of wrongdoing, entered into a Consent Decree on April 17,
2003 and agreed to pay a penalty of $215,000. The Company has the right to
indemnification from the vendor who provided the product and the on-air
spokesman. The Consent Decree and penalty will not have a material effect on the
Company's operations or consolidated financial statements.

In July 2001, Vincent Buonomo ("Buonomo"), a Florida resident, commenced a
purported class action lawsuit against the Company in Hennepin County District
Court, Minneapolis, Minnesota, alleging that he purchased a computer system from
the Company in September 2000 in response to a television program broadcast by
the Company that promised that Internet access with certain terms would
accompany the computer system, and that such promise was broken. Buonomo asserts
claims for breach of contract, breach of warranty, and violation of fraud and
deceptive trade practices statutes. On his own behalf and on behalf of the
purported class, Buonomo seeks compensatory damages in an unspecified amount,
rescission and other equitable relief, and an award of attorneys' fees, costs,
and disbursements. The Company has denied all liability to the plaintiff and the
purported class and has raised various affirmative defenses.

10. RELATED PARTY TRANSACTIONS:

At January 31, 2003 the Company held a note receivable totaling $4,098,000,
including accrued interest (the "Note"), from an officer of the Company for a
loan made in 2000 in connection with loan provisions as stipulated in the
officer's employment agreement. The Note is reflected as a reduction of
shareholders' equity in the accompanying consolidated balance sheet as the Note
is collateralized by a security interest in vested stock options and in shares
of the Company's common stock to be acquired by the officer upon the exercise of
such vested stock options.

72

11. SUPPLEMENTAL CASH FLOW INFORMATION:

Supplemental cash flow information and noncash investing and financing
activities were as follows:

12. SEGMENT DISCLOSURES AND RELATED INFORMATION:

Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), requires
the disclosure of certain information about operating segments in financial
statements. The Company's reportable segments are based on the Company's method
of internal reporting. The Company's primary business segment is its electronic
media segment, which consists primarily of the Company's television home
shopping business and Internet shopping website business. Management has
reviewed the provisions of SFAS No. 131 and has determined that the Company's
television and internet home shopping businesses meet the aggregation criteria
as outlined in the Statement since these two business units have similar
customers, products, economic characteristics and sales processes. Products sold
through the Company's electronic media segment primarily include jewelry,
computers and other electronics, housewares, apparel, health and beauty aids,
seasonal items and other merchandise. The Company's segments operate exclusively
in the United States and no one customer represents more than 5% of the
Company's overall revenue. The accounting policies of the Company's segments are
the same as those described in the summary of significant accounting policies in
Note 2. There are no intersegment sales.

73

Segment information included in the accompanying consolidated balance sheets as
of January 31 and included in the consolidated statements of operations for the
years then ended is as follows:

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

(a) Revenue from segments below quantitative thresholds are attributable to
FanBuzz, Inc. in fiscal 2002, which provides e-commerce and fulfillment
solutions to sports, media and entertainment companies and VVIFC in fiscal
2002, 2001 and 2000, which provides fulfillment, warehousing and
telemarketing services primarily to RLM.

(b) Corporate assets consist of long-term investments not directly assignable to
a business segment.

13. NBC AND GE EQUITY STRATEGIC ALLIANCE:

In March 1999, the Company entered into a strategic alliance with NBC and
GE Capital Equity Investments, Inc. ("GE Equity"). Pursuant to the terms of the
transaction, NBC and GE Equity acquired 5,339,500 shares of the Company's Series
A Redeemable Convertible Preferred Stock (the "Preferred Stock"), and NBC was
issued a warrant to acquire 1,450,000 shares of the Company's Common Stock (the
"Distribution Warrants") under a Distribution and Marketing Agreement discussed
below. The Preferred

74

Stock was sold for aggregate consideration of $44,265,000 (or approximately
$8.29 per share) and the Company will receive an additional payment of
approximately $12.0 million upon exercise of the Distribution Warrants. In
addition, the Company agreed to issue to GE Equity a warrant (the "Investment
Warrant") to increase its potential aggregate equity stake (together with its
affiliates, including NBC) at the time of exercise to 39.9%. NBC also has the
exclusive right to negotiate on behalf of the Company for the distribution of
its television home shopping service. The sale of 3,739,500 shares of the
Preferred Stock was completed on April 15, 1999. Final consummation of the
transaction regarding the sale of the remaining 1,600,000 Preferred Stock shares
was completed on June 2, 1999. The Preferred Stock was recorded at fair value on
the date of issuance less issuance costs of $2,850,000. The Preferred Stock is
convertible into an equal number of shares of the Company's Common Stock,
subject to customary anti-dilution adjustments, has a mandatory redemption on
the 10th anniversary of its issuance or upon a "change of control" at its stated
value ($8.29 per share), participates in dividends on the same basis as the
Common Stock and has a liquidation preference over the Common Stock and any
other junior securities. The excess of the redemption value over the carrying
value is being accreted by periodic charges to retained earnings over the
ten-year redemption period. On July 6, 1999, GE Equity exercised the Investment
Warrant and acquired an additional 10,674,000 shares of the Company's Common
Stock for an aggregate of $178,370,000, or $16.71 per share, representing the
45-day average closing price of the underlying Common Stock ending on the
trading day prior to exercise. Following the exercise of the Investment Warrant,
the combined ownership of the Company by GE Equity and NBC on a fully diluted
basis was and is currently approximately 40%.

SHAREHOLDER AGREEMENT

Pursuant to the Investment Agreement, the Company and GE Equity entered
into a Shareholder Agreement (the "Shareholder Agreement"), which provides for
certain corporate governance and standstill matters. The Shareholder Agreement
(together with the Certificate of Designation of the Preferred Stock) provides
that GE Equity and NBC will be entitled to designate nominees for an aggregate
of 2 out of 7 board seats so long as their aggregate beneficial ownership is at
least equal to 50% of their initial beneficial ownership, and 1 out of 7 board
seats so long as their aggregate beneficial ownership is at least 10% of the
"adjusted outstanding shares of Common Stock." GE Equity and NBC have also
agreed to vote their shares of Common Stock in favor of the Company's nominees
to the Board in certain circumstances. Subject to certain exceptions, all
committees of the Board will include a proportional number of directors
nominated by GE Equity and NBC. The Shareholder Agreement also requires the
consent of GE Equity prior to the Company entering into any substantial
agreements with certain restricted parties (broadcast networks and internet
portals in certain limited circumstances, as defined), as well as taking any
actions over certain thresholds, as detailed in the agreement, regarding the
issuance of voting shares over a 12-month period, the payment of quarterly
dividends, the repurchase of Common Stock, acquisitions (including investments
and joint ventures) or dispositions, and the incurrence of debt greater than
$40.0 million or 30% of the Company's total capitalization. The Company is also
prohibited from taking any action that would cause any ownership interest of
certain FCC regulated entities from being attributable to GE Equity, NBC or
their affiliates.

The Shareholder Agreement provides that during the Standstill Period (as
defined in the Shareholder Agreement), and subject to certain limited
exceptions, GE Equity and NBC are prohibited from: (i) any asset/business
purchases from the Company in excess of 10% of the total fair market value of
the Company's assets, (ii) increasing their beneficial ownership above 39.9% of
the Company's shares, (iii) making or in any way participating in any
solicitation of proxies, (iv) depositing any securities of the Company in a
voting trust, (v) forming, joining, or in any way becoming a member of a "13D
Group" with respect to any voting securities of the Company, (vi) arranging any
financing for, or providing any financing commitment specifically for, the
purchase of any voting securities of the Company, (vii) otherwise acting,
whether alone or in concert with others, to seek to propose to the Company any
tender or exchange offer, merger, business combination, restructuring,
liquidation, recapitalization or similar transaction involving the Company, or
nominating any person as a director of the Company who is not nominated by the
then incumbent directors, or proposing any matter to be voted upon by the
shareholders of the Company. If during the Standstill Period any inquiry has
been made regarding a "takeover transaction" or "change in control" which has
not been rejected by the Board, or the Board pursues such a transaction, or
engages in negotiations or provides information to a

75

third party and the Board has not resolved to terminate such discussions, then
GE Equity or NBC may propose to the Company a tender offer or business
combination proposal.

In addition, unless GE Equity and NBC beneficially own less than 5% or more
than 90% of the adjusted outstanding shares of Common Stock, GE Equity and NBC
shall not sell, transfer or otherwise dispose of any securities of the Company
except for transfers: (i) to certain affiliates who agree to be bound by the
provisions of the Shareholder Agreement, (ii) which have been consented to by
the Company, (iii) pursuant to a third party tender offer, provided that no
shares of Common Stock may be transferred pursuant to this clause (iii) to the
extent such shares were acquired upon exercise of the Investment Warrant on or
after the date of commencement of such third party tender offer or the public
announcement by the offeror thereof or that such offeror intends to commence
such third party tender offer, (iv) pursuant to a merger, consolidation or
reorganization to which the Company is a party, (v) in a bona fide public
distribution or bona fide underwritten public offering, (vi) pursuant to Rule
144 of the Securities Act of 1933, as amended (the "Securities Act"), or (vii)
in a private sale or pursuant to Rule 144A of the Securities Act; provided that,
in the case of any transfer pursuant to clause (v) or (vii), such transfer does
not result in, to the knowledge of the transferor after reasonable inquiry, any
other person acquiring, after giving effect to such transfer, beneficial
ownership, individually or in the aggregate with such person's affiliates, of
more than 10% of the adjusted outstanding shares of the Common Stock.

The Standstill Period will terminate on the earliest to occur of (i) the 10
year anniversary of the Shareholder Agreement, (ii) the entering into by the
Company of an agreement that would result in a "change in control" (subject to
reinstatement), (iii) an actual "change in control," (iv) a third party tender
offer (subject to reinstatement), and (v) six months after GE Equity and NBC can
no longer designate any nominees to the Board. Following the expiration of the
Standstill Period pursuant to clause (i) or (v) above (indefinitely in the case
of clause (i) and two years in the case of clause (v)), GE Equity and NBC's
beneficial ownership position may not exceed 39.9% of the Company on
fully-diluted outstanding stock, except pursuant to issuance or exercise of any
warrants or pursuant to a 100% tender offer for the Company.

REGISTRATION RIGHTS AGREEMENT

Pursuant to the Investment Agreement, ValueVision and GE Equity entered
into a Registration Rights Agreement providing GE Equity, NBC and their
affiliates and any transferees and assigns, an aggregate of four demand
registrations and unlimited piggy-back registration rights.

DISTRIBUTION AND MARKETING AGREEMENT

NBC and the Company entered into the Distribution and Marketing Agreement
dated March 8, 1999 (the "Distribution Agreement") which provides that NBC shall
have the exclusive right to negotiate on behalf of the Company for the
distribution of its home shopping television programming service. The agreement
has a 10-year term and NBC committed to delivering an additional 10 million FTE
subscribers over the first 42 months of the term. In compensation for such
services, the Company pays NBC an annual fee of $1.5 million (increasing no more
than 5% annually) and issued NBC the Distribution Warrants. The exercise price
of the Distribution Warrants is $8.29 per share. Of the aggregate 1,450,000
shares subject to the Distribution Warrants, 200,000 shares vested immediately,
with the remainder vesting 125,000 shares annually over the 10-year term of the
Distribution Agreement. In conjunction with the Company's November 2000
execution of the Trademark License Agreement with NBC, the Company agreed to
accelerate the vesting of the remaining unvested Distribution Warrants. The
Distribution Warrants is exercisable for five years after vesting. The value
assigned to the Distribution Agreement and Distribution Warrants of $6,931,000
was determined pursuant to an independent appraisal and is being amortized on a
straight-line basis over the term of the agreement. Assuming certain performance
criteria above the delivery by NBC to the Company of 10 million FTE homes are
met, NBC will be entitled to additional warrants to acquire Common Stock at the
then current market price. In fiscal 2001, the Company issued to NBC additional
warrants to purchase 343,725 shares of the Company's Common Stock at an exercise
price of $23.07. In the fourth quarter of fiscal 2002, the Company issued to NBC
additional warrants to purchase 36,858 shares of the Company's Common Stock at
an exercise price of $15.74. These additional warrants were issued as a result
of NBC meeting its

76

original performance target. The Company had a right to terminate the
Distribution Agreement after the twenty-fourth, thirty-sixth and forty-second
month anniversary if NBC was unable to meet the performance targets. In
addition, the Company would have been entitled to a $2.5 million payment from
NBC if the Company terminated the Distribution Agreement as a result of NBC's
failure to meet the 24-month performance target. NBC may terminate the
Distribution Agreement if the Company enters into certain "significant
affiliation" agreements or a transaction resulting in a "change of control."

14. NBC INTERNET, INC. ELECTRONIC COMMERCE ALLIANCE:

In fiscal 1999, the Company entered into a strategic alliance with Snap!
LLC ("Snap") and Xoom.com, Inc. ("Xoom") whereby the parties entered into, among
other things, a rebranding trademark license agreement and an interactive
promotion agreement, spanning television home shopping, Internet shopping and
direct e-commerce initiatives. In November 1999, Xoom and Snap, along with
several Internet assets of NBC, were merged into NBCi. The Company's original
intent was to re-launch its television network and companion Internet website
under the SnapTV and SnapTV.com brand names, respectively, in conjunction with
NBCi. In June 2000, NBCi announced a strategy to integrate all of its consumer
properties under the single NBCi.com brand, effectively abandoning the Snap
name. As a result, in June 2000, the Company effectively terminated the Snap
trademark license and interactive promotion agreements.

15. RALPH LAUREN MEDIA, LLC ELECTRONIC COMMERCE ALLIANCE:

In February 2000, the Company entered into an electronic commerce strategic
alliance with Polo Ralph Lauren Corporation ("Polo Ralph Lauren"), NBC, NBCi and
CNBC.com LLC ("CNBC") whereby the parties created Ralph Lauren Media, LLC
("RLM"), a joint venture formed for the purpose of bringing the Polo Ralph
Lauren American lifestyle experience to consumers via multiple media platforms,
including the Internet, broadcast, cable and print. RLM is currently owned 50%
by Polo Ralph Lauren, 37.5% by NBC and its affiliates and 12.5% by the Company.
In exchange for their ownership interest in RLM, NBC agreed to contribute $110
million of television and online advertising on NBC and CNBC properties, which
has subsequently been amended, NBCi agreed to contribute $40 million in online
distribution and promotion and the Company has contributed a cash funding
commitment of up to $50 million, of which all of the Company's commitment has
been funded through January 31, 2003. RLM's premier initiative is Polo.com, an
Internet website dedicated to the American lifestyle that includes original
content, commerce and a strong community component. Polo.com officially launched
in November 2000 and includes an assortment of men's, women's and children's
products across the Ralph Lauren family of brands as well as unique gift items.
As discussed in Note 2, the Company recorded a $31,078,000 write down of its
remaining RLM investment in the fourth quarter of fiscal 2002. In connection
with the formation of RLM, the Company entered into various agreements setting
forth the manner in which certain aspects of the business of RLM are to be
managed and certain of the members' rights, duties and obligations with respect
to RLM, including the following:

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF RALPH LAUREN MEDIA

Each of Polo Ralph Lauren, NBC, NBCi, CNBC and the Company executed the
Amended and Restated Limited Liability Company Agreement (the "LLC Agreement"),
pursuant to which certain terms and conditions regarding operations of RLM and
certain rights and obligations of its members are set forth, including but not
limited to: (a) customary demand and piggyback registration rights with respect
to equity of RLM held by the members after its initial public offering, if any;
(b) procedures for resolving deadlocks among managers or members of RLM; (c)
rights of each of Polo Ralph Lauren on the one hand and NBC, the Company, NBCi
and CNBC, on the other hand, to purchase or sell, as the case may be, all of
their membership interests in RLM to the other in the event of certain material
deadlocks and certain changes of control of either Polo Ralph Lauren and/or its
affiliates or NBC or certain of its affiliates, at a price and on terms and
conditions set forth in the agreement; (d) rights of Polo Ralph Lauren to
purchase all of the outstanding membership interests of RLM from and after its
12th anniversary, at a price and on terms and conditions set forth in the
agreement; (e) rights of certain of the members to require RLM to consummate an
initial public offering of securities; (f) restrictions on Polo Ralph Lauren
from participating in the business of

77

RLM under certain circumstances; (g) number and composition of the management
committee of RLM, and certain voting requirements; (h) composition and duties of
officers of RLM; (i) requirements regarding meetings of members and voting
requirements; (j) management of capital contributions and capital accounts; (k)
provisions governing allocations of profits and losses and distributions to
members; (l) tax matters; (m) restrictions on transfers of membership interests;
(n) rights and responsibilities of the members in connection with the
dissolution, liquidation or winding up of RLM; and (o) certain other customary
miscellaneous provisions.

AGREEMENT FOR SERVICES

RLM and VVIFC entered into an Agreement for Services under which VVIFC
agreed to provide to RLM, on a cost plus basis, certain telemarketing services,
order and record services, and fulfillment and warehouse services. The
telemarketing services to be provided by VVIFC consist of receiving and
processing telephone orders and telephone inquiries regarding merchandise, and
developing and maintaining a related telemarketing system. The order and record
services to be provided by VVIFC consist of receiving and processing orders for
merchandise by telephone, mail, facsimile and electronic mail, providing records
of such orders and related customer-service functions, and developing and
maintaining a records system for such purposes. The merchandise and warehouse
services consist of receiving and shipping merchandise, providing warehousing
functions and fulfillment functions and developing a system for such purposes.
The original term of this agreement continued until June 30, 2010, subject to
one-year renewal periods, under certain conditions. In the fourth quarter of
fiscal 2002, VVIFC agreed to amend its existing customer care and fulfillment
services agreement with RLM in exchange for an $11 million cash payment. The
cash payment was made in consideration for VVIFC's fixed asset impairment
incurred by the overbuild of the fulfillment center utilized by VVIFC to provide
services to RLM, for early termination of its original long term services
agreement and for the change in terms of the agreement through the end of the
period in which services are to be provided. In accordance with this amendment,
RLM will be permitted to negotiate with other parties to provide it with
customer care and fulfillment services. The Company will continue to provide the
services it currently provides to RLM through December 31, 2003, at a flat cost
per order and will have the right to match any bona fide third party offer
received by RLM for customer care and fulfillment services thereafter.

16. NBC TRADEMARK LICENSE AGREEMENT:

On November 16, 2000, the Company entered into a Trademark License
Agreement (the "License Agreement") with NBC pursuant to which NBC granted the
Company an exclusive, worldwide license (the "License") for a term of 10 years
to use certain NBC trademarks, service marks and domain names to rebrand the
Company's business and corporate name and companion Internet website on the
terms and conditions set forth in the License Agreement. The Company
subsequently selected the names "ShopNBC" and "ShopNBC.com," with the
concurrence of NBC. The new names are being promoted as part of a marketing
campaign that the Company launched in the second half of 2001. In connection
with the License Agreement, the Company issued to NBC warrants (the "License
Warrants") to purchase 6,000,000 shares of the Company's Common Stock, par value
$.01 per share, with an exercise price of $17.375 per share, the closing price
of a share of Common Stock on the Nasdaq National Market on November 16, 2000.
The agreement also includes a provision for a potential cashless exercise of the
License Warrants under certain circumstances. The License Warrants have a five
year term from the date of vesting and vest in one-third increments, with
one-third exercisable commencing November 16, 2000, and the remaining License
Warrants vesting in equal amounts on each of the first two anniversaries of the
License Agreement. As of January 31, 2003, all of the License Warrants have
vested. Additionally, the Company agreed to accelerate the vesting of warrants
to purchase 1,450,000 shares of Common Stock granted to NBC in connection with
the Distribution and Marketing Agreement dated March 1999 between NBC and the
Company.

The Company has also agreed under the License Agreement to (i) restrictions
on using (including sublicensing) any trademarks, service marks, domain names,
logos or other source indicators owned or controlled by NBC or its affiliates in
connection with certain permitted businesses (the "Permitted Businesses"), as
defined in the License Agreement, before the agreement of NBC to such use, (ii)
the loss of

78

its rights under the grant of the License with respect to specific territories
outside of the United States in the event the Company fails to achieve and
maintain certain performance targets, (iii) amend and restate the current
Registration Rights Agreement dated as of April 15, 1999 among the Company, NBC
and GE Equity so as to increase the demand rights held by NBC and GE Equity from
four to five, among other things, (iv) not, either directly or indirectly, own,
operate, acquire or expand its business to include any businesses other than the
Permitted Businesses without NBC's prior consent for so long as the Company's
corporate name includes the trademarks or service marks owned or controlled by
NBC, (v) strictly comply with NBC's privacy policies and standards and
practices, and (vi) until the earlier of the termination of the License
Agreement or the lapse of certain contractual restrictions on NBC, either
directly or indirectly, not own, operate, acquire or expand the Company's
business such that one third or more of the Company's revenues or its aggregate
value is attributable to certain services provided over the Internet. The
License Agreement also grants to NBC the right to terminate the License
Agreement at any time upon certain changes of control of the Company, the
failure by NBC to own a certain minimum percentage of the outstanding capital
stock of the Company on a fully-diluted basis, the failure of NBC and the
Company to agree on new trademarks, service marks or related intellectual
property rights, and certain other related matters. In certain events, the
termination by NBC of the License Agreement may result in the acceleration of
vesting of the License Warrants.

17. SUBSEQUENT EVENTS:

On January 15, 2003, the Company announced that it entered into an
agreement with Norwell Television LLC to acquire full power television station
WWDP TV-46 in Boston, which reaches approximately 1.8 million cable households
for approximately $32.5 million. The deal closed in the first quarter of fiscal
2003 on April 1, following FCC approval. The purchase price of the acquisition
will be accounted for using the purchase method of accounting as stipulated by
SFAS No. 141.

In February 2003, the Company entered into agreement to purchase property
and two commercial buildings occupying approximately 209,000 square feet in Eden
Prairie, Minnesota for approximately $11.2 million. One building purchased is
where the Company currently maintains its corporate administrative, television
production and jewelry distribution operations. Included, as part of the
acquisition, was a second building of approximately 70,000 square feet of
commercial rental space, which the Company will lease out to third parties. As a
result of this acquisition, the Company's long-term property lease has been
effectively terminated.

In February 2003, the Company completed the sale of ten of its eleven LPTV
stations for a total of $5 million. The Company expects to record a pre-tax gain
on the sale of these LPTV stations of approximately $4.4 million in the first
quarter of fiscal 2003. Management believes that the sale of these stations will
not have a significant impact on the ongoing operations of the Company.

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

On April 24, 2002, the Board of Directors of the Company adopted
resolutions that formally dismissed Arthur Andersen LLP as its independent
auditor and formally engaged Deloitte & Touche LLP as its new independent
auditors. The Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission on May 16, 2002 disclosing the information required by this
Item 9.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information in response to this Item with respect to certain information
relating to the Company's executive officers is contained in paragraph J of Item
I and with respect to other information relating to the Company's executive
officers and its directors is incorporated herein by reference to the Company's
definitive proxy statement to be filed pursuant to Regulation 14A within 120
days after the end of the fiscal year covered by this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Information in response to this Item is incorporated herein by reference to
the Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the fiscal year covered by this Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS

Information in response to this Item is incorporated herein by reference to
the Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the fiscal year covered by this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information in response to this Item is incorporated herein by reference to
the Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the fiscal year covered by this Form 10-K.

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

The Company's Chief Executive Officer, Gene McCaffery, and Chief Financial
Officer, Richard D. Barnes, have reviewed the Company's disclosure controls and
procedures within 90 days prior to the filing of this report. Based upon this
review, these officers believe that the Company's disclosure controls and
procedures are effective in ensuring that material information related to the
Company is made known to them by others within the Company.

(b) Changes in Internal Controls.

There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

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PART IV

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

(a) Exhibits

EXHIBIT INDEX

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

(A) Incorporated herein by reference to Quantum Direct Corporation's
Registration Statement on Form S-4, filed on March 13, 1998, File No.
333-47979.

(B) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended August 31, 1994, filed on September 13,
1994, File No. 0-20243.

83

(C) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-3 filed on October 13, 1993, as amended, File No. 33-70256.

(D) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1996, filed April 29, 1996, as
amended, File No. 0-20243.

(E) Incorporated herein by reference to the Registrant's Proxy Statement in
connection with its annual meeting of shareholders held on August 17, 1994,
filed on July 19, 1994, File No. 0-20243.

(F) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1998, filed on April 30, 1998,
File No. 0-20243.

(G) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated March 8, 1999, filed on March 18, 1999, File No. 0-20243.

(H) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated April 15, 1999, filed on April 29, 1999, File No. 0-20243.

(I) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed on September 25, 2000, File No. 333-46572.

(J) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated October 12, 1999, filed on October 12, 1999, File No. 0-20243.

(K) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated May 3, 1999, filed on May 3, 1999, File No. 0-20243.

(L) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1999, filed on September 14, 1999,
File No. 0-20243.

(M) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended October 31, 1999, filed on December 15,
1999, File No. 0-20243.

(N) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 2000, File No. 0-20243.

(O) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed on September 25, 2000, File No. 333-46576.

(P) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended October 31, 2000, filed on December 14,
2000, File No. 0-20243.

(Q) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 2001, File No. 0-20243.

(R) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8 filed on January 25, 2002, File No. 333-81438.

(S) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended April 30, 2001, filed on June 14, 2001, File
No. 0-20243.

(T) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 2002, File No. 0-20243.

(U) Incorporated herein by reference to the Registrant's Proxy Statement in
connection with its annual meeting of shareholders held on June 20, 2002,
filed on May 23, 2002, File No. 0-20243.

(V) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended April 30, 2002, filed on June 14, 2002, File
No. 0-20243.

(W) Incorporated herein by reference to the Registrant's Current Report on Form
8-K Dated May 16, 2002, filed on May 17, 2002, File No. 0-20243.

(X) Filed herewith.

+ Management compensatory plan/arrangement

84

(b) Financial statement schedules

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

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

(1) Write off of uncollectible receivables, net of recoveries.

(2) Refunds or credits on products returned.

(3) Increased through acquisition of FanBuzz, Inc.

(c) Reports on Form 8-K

(i) The Registrant filed a Current Report on Form 8-K on August 30,
2002 reporting under Item 5, that the Registrant commenced a lawsuit
against one of its vendors, D.G. Jewelry, Inc of Canada and two of its
executives.

(ii) The Registrant filed a Current Report on Form 8-K on January 15,
2003 reporting under Item 5, its January 15, 2003 press release announcing
its agreement with Norwell Television LLC to acquire full power television
station WWDP TV-46 in Boston, Massachusetts.

(iii) The Registrant filed a Current Report on Form 8-K on March 19,
2003 reporting under Item 5, that the Registrant intends to commence
repurchases of its common stock on March 20, 2003 under previously
authorized share buyback programs.

(iv) The Registrant filed a Current Report on Form 8-K on March 24,
2003 reporting under Item 5, that the Registrant issued a press release
dated March 17, 2003 disclosing its fourth quarter and annual fiscal 2002
earnings.

85

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, on April 29, 2003.

VALUEVISION MEDIA, INC.
(Registrant)

By: /s/ GENE MCCAFFERY
------------------------------------
Gene McCaffery
Chief Executive Officer and
President

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 indicated on April 29, 2003.

86

CERTIFICATIONS

I, Gene McCaffery, certify that:

1. I have reviewed this annual report on Form 10-K of ValueVision
Media, Inc.;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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
annual report;

4. The registrant's other certifying officer 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 annual 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 annual report (the "Evaluation Date"); and

(c) presented in this annual 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 officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of the 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 officer and I have indicated in
this annual 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.

/s/ GENE MCCAFFERY
--------------------------------------
Gene McCaffery
Chairman of the Board, Chief
Executive Officer and President

April 29, 2003

87

CERTIFICATIONS

I, Richard D. Barnes, certify that:

1. I have reviewed this annual report on Form 10-K of ValueVision
Media, Inc.;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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
annual report;

4. The registrant's other certifying officer 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 annual 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 annual report (the "Evaluation Date"); and

(c) presented in this annual 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 officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of the 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 officer and I have indicated in
this annual 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.

/s/ RICHARD D. BARNES
--------------------------------------
Richard D. Barnes
Executive Vice President, Chief
Financial
Officer, Chief Operating Officer

April 29, 2003

88