VALUEVISION MEDIA INC - 10-K Annual Report

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UNITED STATES 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, 2005

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 7, 2005, 36,966,099 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 July 30, 2004, based upon the closing sale
price for the registrant's common stock as reported by the Nasdaq Stock Market
on July 30, 2004 was approximately $206,808,063. 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, 2005
are incorporated by reference in Part III of this annual report on Form 10-K.

VALUEVISION MEDIA, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
JANUARY 31, 2005

TABLE OF CONTENTS

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This annual report on Form 10-K, as well as other materials filed by the
registrant with the Securities and Exchange Commission ("SEC"), and information
included in oral statements or other written statements made or to be made by
the registrant, contains forward-looking statements regarding the registrant,
its business prospects and its results of operations that are subject to certain
risks and uncertainties posed by many factors and events that could cause the
registrant's actual business, prospects and results of operations to differ
materially from those that may be anticipated by the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those described in the "Risk Factors" section of this annual report
on Form 10-K, as well as risks relating to consumer spending and debt levels;
interest rates; competitive pressures on sales; pricing and gross profit
margins; the level of cable and satellite distribution for the registrant's
programming and associated fees; the success of the registrant's e-commerce and
branding initiatives; the success of the registrant's strategic alliances and
relationships; the ability of the registrant to manage its operating expenses
successfully; risks associated with acquisitions; changes in governmental or
regulatory requirements; litigation or governmental proceedings affecting the
registrant's operations; and the ability of the registrant to obtain and retain
key executives and employees.

PART I

ITEM 1. BUSINESS

A. GENERAL

ValueVision Media, Inc., together with its subsidiaries (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. The Company's principal electronic media activity is its
television home shopping business, which sells 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 lease agreements of cable and
broadcast television time. In February 2003, the Company sold ten of its eleven
low power television stations leaving only one remaining low power television
station under its control. Beginning in April 2003, the Company's programming
became available full-time to homes in the Boston, Massachusetts market over the
air through a full-power television broadcast station that the Company 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. The Company also sells blocks of its programming airtime to
third-party vendors on a limited and selective basis through its vendor
programming sales program.

On November 16, 2000, the Company entered into an exclusive license
agreement with National Broadcasting Company, Inc., now known as NBC Universal,
Inc. ("NBC"), pursuant to which NBC granted the Company worldwide use of an
NBC-branded name and the peacock image for a ten-year period. The Company
rebranded its television home shopping network and companion Internet shopping
website as ShopNBC and ShopNBC.com, respectively, in fiscal 2001. This
rebranding was intended to position the Company 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.

The Company, through its wholly owned subsidiary, ValueVision Interactive,
Inc. maintains the ShopNBC.com website and manages the Company's 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"), the NBC Experience Store in New
York City and direct to consumer products sold on NBC's website, fulfillment of
non-jewelry merchandise sold on the Company's television home shopping program
and Internet website and fulfillment to its FanBuzz, Inc. ("FanBuzz")
subsidiary. Through FanBuzz, the Company also provides e-commerce and
fulfillment solutions to some of the most recognized sports, media and
entertainment and retail companies.

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 located 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 fiscal
year ended January 31, 2005 is designated fiscal 2004, the fiscal year ended
January 31, 2004 is designated fiscal 2003 and the fiscal year ended January 31,
2003 is designated fiscal 2002. The fiscal year ending January 31, 2006 is
designated fiscal 2005.

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 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 $614,884,000 and
$581,999,000, representing 95% and 94% of net sales, for fiscal 2004 and 2003,
respectively. Products are presented by on-air television home shopping
personalities and guests; viewers

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may then call a toll-free telephone number and place orders directly with the
Company or enter an order on the ShopNBC.com website. The Company's television
programming is produced at its Eden Prairie, Minnesota facility and is
transmitted nationally via satellite to cable system operators, satellite dish
owners and to the Company's full power broadcast television station WWDP TV-46
in Boston, Massachusetts.

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. Jewelry represents the network's largest single category of
merchandise, representing 61% of television home shopping net sales in fiscal
2004, 65% in fiscal 2003 and 69% in fiscal 2002. After jewelry, the second
largest product category of merchandise sold is computers and electronics,
representing 17% of television home shopping and Internet net sales in fiscal
2004, 16% in fiscal 2003 and 18% in fiscal 2002. The Company's home products
category represented 12% of television home shopping and Internet net sales in
fiscal 2004, 12% in fiscal 2003 and 11% in fiscal 2002. None of the Company's
other products accounted for more than 10% of total net television and Internet
sales in any of the last three fiscal years. Product diversification is
important to growing the Company's business. In particular, the Company will
continue to develop product offerings in the home, apparel, cosmetics and
consumer electronics categories. The Company's on-going product strategy will
focus on (i) jewelry and gems for core customers; (ii) value products, including
closeouts and opportunistic buys; (iii) highly demonstratable products that
leverage the television medium; and (iv) unique offers that cannot be found
elsewhere.

Program Distribution. As of January 2005, there were approximately 110
million homes in the United States with a television set. Of those homes, there
were approximately 74 million basic cable television subscribers, approximately
24 million direct-to-home satellite subscribers and approximately 300,000 homes
with satellite dish receivers. Homes that receive the Company's television home
shopping programming 24 hours per day are each counted as one full-time
equivalent ("FTE") 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 that programming is received. The Company has continued to
experience growth in the number of FTE subscriber homes that receive its
programming. As of January 31, 2005, the Company served a total of 63.9 million
subscriber homes, or 60.1 million FTEs, compared with a total of 61.9 million
subscriber homes, or 55.6 million FTEs as of January 31, 2004. Approximately
54.2 million, 49.0 million and 44.1 million subscriber homes at January 31,
2005, 2004 and 2003, respectively, received the Company's television home
shopping programming on a full-time basis. As of January 31, 2005, the Company's
television home shopping programming was carried by 1,181 broadcasting systems
on a full-time basis, compared to 1,011 broadcasting systems on January 31,
2004, and 70 broadcasting systems on a part-time basis, compared to 121
broadcasting systems on January 31, 2004. The total number of cable homes that
presently receive the Company's television home shopping programming represents
approximately 56% of the total number of cable subscribers in the United States.
NBC has the exclusive right to negotiate on behalf of the Company for the
distribution of its television home shopping service pursuant to the terms of
the strategic alliance between the Company, NBC and GE Capital Equity
Investments, Inc. entered into in March 1999. See "NBC and GE Strategic
Alliance" discussed below.

Satellite Delivery of Company Programming. 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. 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. On January 31, 2005, the Company entered into a new
long-term satellite lease agreement with the Company's present provider of
satellite services. Pursuant to the terms of this new agreement, the Company
will distribute its programming on a satellite to be launched in autumn 2005.
Until that time, the Company's programming will continue to be carried on its
present satellite transponder. The new agreement is expected to reduce the
Company's cost of satellite service and provide the Company with a
state-of-the-art satellite transponder that uses new technology to transmit a
stronger signal to a greater number of households. 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 service provider and service failure. The Company's
former agreement for satellite services and the new agreement both include a

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provision that gives the Company preemptable back-up satellite service in the
event of a services outage. The Company believes it could arrange for such
back-up service if satellite transmission is interrupted. However, there can be
no assurance that the Company will be able to maintain such arrangements, and in
such event 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 the
Company's core television home shopping business and complimentary website: (i)
leverage the strong brand recognition of the NBC name and associated peacock
symbol to achieve greater brand recognition with the ShopNBC television channel
and ShopNBC.com website; (ii) diversify the types of products offered for sale
outside of the historical categories of jewelry and computers; (iii) increase
program distribution in the United States through new or expanded broadcast
agreements with cable and satellite operators and other creative means for
reaching consumers such as webcasting on ShopNBC.com; (iv) increase average net
sales per home by increasing penetration within the existing audience base and
by attracting new customers through a broadening of its merchandise mix and
targeted marketing efforts; (v) continue to grow the Company's profitable
Internet business with innovative use of marketing and technology, such as
advanced search strategies, personalization, webcasting and unique auction
capabilities; (vi) upgrade the overall quality of the Company's network,
programming and customer support infrastructure consistent with expectations
associated with the NBC brand name; and (vii) leverage the service capabilities
implicit in the Company's existing distribution and customer care capabilities
to support strategic partners.

PROGRAMMING DISTRIBUTION

Cable Affiliation Agreements

As of January 31, 2005, the Company had entered into long-term affiliation
agreements with approximately 90 cable system operators that require each
operator to offer the Company's television home shopping programming
substantially on a full-time basis over their systems. The stated terms of the
affiliation agreements typically range from three to twelve years. Under certain
circumstances, the television operators may cancel the agreements prior to their
expiration. If these agreements are terminated, the termination may materially
or adversely affect the Company's business. Also, the Company may not be able to
successfully negotiate acceptable terms with respect to any renewal of these
contracts. 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 additional television operators providing for full or part-time
carriage of the Company's television home shopping programming.

A significant number of cable operators have started to offer cable
programming on a digital basis. The use of digital compression technology
provides cable companies with greater channel capacity. While greater channel
capacity increases the opportunity for the Company to be distributed and, in
some cases, reduces the subscriber fee paid by the Company, it also may
adversely impact the Company's ability to compete for television viewers to the
extent it results in higher channel position, placement of the Company's
programming in separate programming tiers, or the broadcast of additional
competitive and other channels.

Direct Satellite Service Agreements

The Company's programming is carried 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,
2005, the Company's programming reached approximately 23 million DTH homes on a
full-time basis.

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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
acquired. In the past the Company used a number of low power television stations
for similar purposes. In fiscal 2004 the Company's low power television stations
and "C"-Band 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 low power television stations for a total of $5.0
million. The sale of these stations did not have a significant impact on the
ongoing operations of the Company.

Internet Website

The Company's website, ShopNBC.com, 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 to bid and purchase items on
the auction portion of the website. The Internet site, using state-of-the-art
webcasting technology, provides consumers with the opportunity to view: (i) the
Company's television home shopping program on a real-time basis; (ii) an archive
of past programming; and (iii) new programming developed specifically for the
Internet. Internet sales for fiscal 2004 increased at a far greater percentage
than television home shopping sales over fiscal 2003. Sales from the Company's
Internet website business, inclusive of shipping and handling revenues, totaled
$126,692,000, $111,449,000 and $94,481,000 representing 20%, 18% and 17% of
consolidated net sales for fiscal 2004, 2003 and 2002, respectively. The Company
expects to see continuing growth in its Internet business and believes that its
e-commerce business both complements the Company's base television home shopping
business and provides an additional growth vehicle.

The Company's e-commerce activities are subject to a number of general
business regulations and laws regarding taxation and online commerce. Although
to date the Internet has been subject to minimal regulation, due to the
increasing popularity and use of the Internet and other online services, a
variety of laws and regulations have been or may be enacted that affect the
Internet and online services, covering such issues as advertising, pricing,
content, copyrights and trademarks, access by persons with disabilities,
distribution, taxation, characteristics and quality of products and services and
user privacy and security, including imposing the duty to notify customers of
security breaches and liability for security incidents to victims of identity
theft. Such laws and regulations could increase the costs and liabilities
associated with the Company's e-commerce activities. On December 3, 2004,
President Bush signed into law a three-year moratorium on Internet access taxes.
This law extends a ban on Internet taxes that expired on November 1, 2003. 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 a new 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. Adding sales tax to the Company's
Internet transactions could negatively impact consumer demand. The federal
Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003,
or the CAN-SPAM Act, was signed by President Bush on December 16, 2003 and went
into effect on January 1, 2004. The CAN-SPAM Act pre-empts similar laws passed
by over thirty states, some of which contain restrictions or requirements that
are viewed as stricter than the act. The CAN-SPAM Act is primarily an opt-out
type law, that is, prior permission to send an e-mail to a recipient is not
required unless a recipient has affirmatively opted out of such solicitations.
The CAN-SPAM Act requires commercial e-mails to contain a clear and conspicuous
identification that the message is an advertisement or solicitation for goods or
services, as well as a prominent "unsubscribe" function that allows recipients
to alert the sender that they do not desire to receive future e-mail messages.
In addition, the CAN-SPAM Act requires that all commercial e-mail messages
include a postal address unless the sender obtains "prior affirmative assent"
from the recipient.

Changes in consumer protection laws, such as the CAN-SPAM Act, 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
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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.

In addition, as the Company's website is available over the Internet in all
states, and as it sells to numerous consumers residing in these states, these
states may claim that the Company is required to qualify to do business as a
foreign corporation in each state, a requirement that could result in taxes and
penalties for the failure to qualify. Any 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 a material
adverse effect on the growth of the Company's business in this area.

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. The
Company subsequently selected the names ShopNBC and ShopNBC.com to rebrand its
marketing and sales effort. In connection with the License Agreement, the
Company issued to NBC five year warrants (the "License Warrants") to purchase
6,000,000 shares of the Company's common stock, with an exercise price of
$17.375 per share. As of January 31, 2005, all of the License Warrants were
vested. Additionally, in connection with the License Agreement, 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 between NBC and the Company discussed below.

The Company has also agreed under the License Agreement, among other
things, to (i) certain restrictions on using any trademarks, service marks,
domain names, logos or other source indicators owned or controlled by NBC, (ii)
the loss of its rights under 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) not own, operate, acquire or expand
its business to include certain businesses without NBC's prior consent, (iv)
comply with NBC's privacy policies and standards and practices, and (v) 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.

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 between April 1999 to June 1999 (the
"Preferred Stock"), and NBC was issued a warrant to acquire 1,450,000 shares of
the Company's common stock (the "Distribution Warrants"), with an exercise price
of $8.29 per share, 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). In addition, the Company issued 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%.
The Preferred Stock is convertible into an equal number of shares of the
Company's common stock, subject to anti-dilution adjustments, has a mandatory
redemption on the 10th anniversary of its issuance or upon a change of control
at $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

5

junior securities. 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. Following the exercise of the
Investment Warrant, the combined ownership of the Company by GE Equity and NBC
on a diluted basis was approximately 40%. In February 2005, GE Equity sold
2,000,000 shares of the Company's common stock. Following GE Equity's sale of
such common stock, GE Equity and NBC have a combined ownership in the Company of
approximately 37% on a diluted basis.

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) initially
provided that GE Equity and NBC would 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", as defined in the
Shareholder Agreement. 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 were
to 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).
Finally, the Company is prohibited from exceeding certain thresholds relating to
the issuance of voting securities 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", each as defined in the Shareholder Agreement, that 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.

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) that have been consented to by the
Company, (iii) pursuant to a 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, or (vii) in a private sale
or pursuant to Rule 144A of the Securities Act of 1933; provided, that in the
case of any transfer pursuant to clause (v) or (vii), the transfer does not
result in, to the

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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 that 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), or (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's diluted
outstanding stock, except pursuant to issuance or exercise of any warrants or
pursuant to a 100% tender offer for the Company.

On March 19, 2004, the Company, NBC and GE Equity agreed to amend the
Shareholder Agreement as follows: (i) to increase the authorized size of the
Company's board of directors to 9 from 7; (ii) to permit NBC and GE Equity to
appoint an aggregate of 3 directors instead of 2 to the Company's board of
directors; and (iii) to reflect that NBC and GE Equity would no longer have the
right to have its director-nominees on the Audit, Compensation or Nominating and
Governance Committees, in the event the committees must be comprised solely of
"independent" directors under applicable laws or Nasdaq regulations. Instead,
NBC and GE Equity would have the right to have an observer attend all of these
committee meetings, to the extent permitted by applicable law.

Registration Rights Agreement

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

Distribution and Marketing Agreement

NBC and the Company entered into a Distribution and Marketing Agreement
dated March 8, 1999 (the "Distribution Agreement") that 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. As
compensation for these services, the Company currently pays NBC an annual fee of
approximately $1.6 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 fully accelerate the vesting of the
remaining unvested Distribution Warrants. The Distribution Warrants are
exercisable for five years after vesting. Because NBC successfully delivered to
the Company 10 million FTE homes pursuant to the Distribution Agreement, NBC was
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. NBC may terminate the
Distribution Agreement if the Company enters into certain "significant
affiliation" agreements or a transaction resulting in a "change of control." On
April 7, 2004, NBC exercised a portion of the Distribution Warrants in a
cashless exercise acquiring 101,509 shares of the Company's common stock.

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. RLM is currently owned

7

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, NBCi agreed to contribute $40 million in online distribution and
promotion and the Company agreed to contribute up to $50 million, all of which
had been funded as of January 31, 2003. RLM's premier initiative is Polo.com.
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. In the fourth
quarter of fiscal 2002, the Company wrote off its investment in RLM because it
determined that the decline in the value of its investment was other than
temporary. The Company still retains its 12.5% ownership interest in RLM.

Agreement for Services

As part of the strategic alliance with RLM, 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 original term of this agreement
continued until June 30, 2010.

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 related to the underutilization of the fulfillment center
used 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 is permitted to negotiate with other parties
to provide it with customer care and fulfillment services. On May 18, 2004, RLM
and VVIFC entered into a new agreement for services pursuant to which VVIFC
agreed to continue to provide certain telemarketing, customer support and
fulfillment services to RLM until May 31, 2006.

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. 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, quality of merchandise and
promotional offerings including financing. The Company believes that its
customers are primarily women between the ages of 35 and 55, with annual
household income of approximately $50,000 to $75,000. The Company schedules
special programming at different times of the day and week to appeal to specific
viewer and customer profiles. The Company features frequently announced and
occasionally unannounced promotions to drive interest and incremental sales,
including the 2004 fall launch of "Our Top Value," a sales program that features
one special offer every day, with pricing for that day only; plus, other major
and special promotional events, along with bargain, discount and
inventory-clearance sales in order to, among other reasons, encourage customer
loyalty or add new customers.

The Company's television home shopping merchandise is generally offered at
or below comparable retail prices. Jewelry accounted for approximately 61% of
the Company's television home shopping net sales in fiscal 2004, 65% in fiscal
2003 and 69% in fiscal 2002. Electronics (primarily computers), home decor,
apparel, health and beauty aids, housewares, fitness products, seasonal items
and other merchandise comprise the remaining product sales. The Company
continually introduces new products on its home shopping program. Inventory
sources include manufacturers, wholesalers, distributors, and importers. The
Company intends to continue to promote private label merchandise, which
generally has higher than average margins.

8

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 customers, including
providing a discount upon first use of their ShopNBC card, deferred billing
options and other special offers. During fiscal 2004, the Company issued its
300,000th ShopNBC credit card and customer use of the ShopNBC card accounted for
approximately 19% of the Company's sales in fiscal 2004. The Company believes
that the use of the ShopNBC credit card furthers customer loyalty and reduces
the Company's overall bad debt exposure since the credit card issuer bears the
risk of bad debt on ShopNBC credit card transactions.

Favorable Purchasing Terms

The Company obtains products for its 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 products purchased or sold.
Many of the Company's purchasing arrangements with its television home shopping
vendors include inventory terms that allow for return privileges for a portion
of the order or stock balancing. The Company generally does not have long-term
commitments with its vendors and a variety of sources are available for each
category of merchandise sold. In fiscal 2004, products purchased from one vendor
accounted for approximately 15% of the Company's consolidated net sales. The
Company believes that it could find alternative sources for this vendor's
products if this vendor ceased supplying merchandise, however, the unanticipated
loss of any large supplier could impact the Company's sales and earnings on a
temporary basis.

E. ORDER ENTRY, FULFILLMENT AND CUSTOMER SERVICE

The Company's products are available for purchase via toll-free telephone
numbers. Since 1999, the Company has maintained an agreement with West
Teleservices Corporation to provide the Company with telephone order entry
operators for taking of home shopping customer orders. West Teleservices
provides teleservices to the Company from a service site located in Baton Rouge,
Louisiana as well as through home agents.

The Company owns a 262,000 square foot distribution facility in Bowling
Green, Kentucky, which the Company uses to fulfill its obligations under the
services agreement 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 from this facility. In addition to supporting RLM and the NBC store, the
Bowling Green facility provides fulfillment support for NBC and Telemundo direct
response broadcast campaigns. The 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 FanBuzz. The Company distributes jewelry and other smaller
merchandise from its Eden Prairie, Minnesota fulfillment center.

The majority of customer purchases are paid by credit card and debit cards.
As discussed above, in fiscal 2001 the Company launched a private label credit
card program using the ShopNBC name. Purchases made with the ShopNBC credit card
are non-recourse to the Company. The Company also utilizes an installment
payment program called ValuePay (not currently available on the ShopNBC card),
which entitles television and Internet home shopping customers to pay by 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.

The Company maintains a product inventory, which consists primarily of
consumer merchandise held for resale. The product inventory is valued
principally at the lower of average cost or realizable value, and the Company
reduces its balance by an allowance for excess and obsolete merchandise. As of
January 31, 2005 and 2004, the Company had inventory balances of $54,903,000 and
$67,620,000, respectively.

9

Merchandise is shipped to customers by the United States Postal Service and
Federal Express or other recognized carriers. The Company also has arrangements
with certain vendors who ship merchandise directly to its customers after an
approved customer order is processed.

In October 2002, the Company consolidated all of its in-house customer
service functions to its Brooklyn Center, Minnesota facility, a move that
increased customer service capabilities.

The Company's television home shopping and Internet 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 part to the fact that it generally maintained
higher than average selling price points of $179 in fiscal 2004 and over $200 in
fiscal 2003 and fiscal 2002 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 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 selling
comparable products over the Internet is large. 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, Shop at Home, Inc. ("SATH") and the American Collectibles Network,
a/k/a The Jewelry Network ("ACN"). The Company currently competes for viewership
and sales with QVC, HSN, SATH and ACN in virtually all of its markets. The
Company is at a competitive disadvantage to QVC and HSN 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 owned by Liberty
Media Corp. HSN is a wholly owned subsidiary of InterActiveCorp. Liberty Media,
Scripps and InterActiveCorp 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
10

shopping industry is dependent upon several key factors, the most significant of
which is obtaining carriage on additional cable systems. The Company believes
that it is positioned to compete because of its established relationships with
cable operators. No assurance can be given, however, that the Company will be
able to acquire additional cable carriage at prices favorable to the Company or
maintain its current cable carriage. 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; further industry consolidation that might result from such
legal decisions could adversely impact the Company's ability to obtain carriage
by cable providers. The FCC and Congress have recently enacted new rules and
laws concerning media ownership (See Section G "Federal Regulation"). In
addition, continued consolidation in the cable and satellite industry may lead
to higher costs for the Company's programming over time.

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 other laws and FCC rules or policies that may
affect the operations of the Company.

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.

Must Carry. In general, the FCC's "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
broadcast area provided that the signal is of adequate strength, and the cable
system has must carry designated channels available. 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 extent to which cable providers may or
may not be required to provide must carry rights to full power television
stations after the close of the transition to digital television is discussed
below in "Advanced Television Systems". In addition, certain aspects of the must
carry rights of stations transmitting digital television signals now, as well as
after the transmission to digital television, remains subject to pending FCC
proceedings.

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 the station's lack of service to the
community, its previous noncarriage or other factors. 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, adopt regulations to carry out
the provisions of the Communications Act and impose penalties for violation of
such regulations. In addition, FCC rules prohibit foreign governments,
representatives of foreign governments, aliens, representatives of aliens and
corporations and partnerships organized under the laws of a foreign nation from
holding broadcast licenses. Aliens may own

11

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.

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. 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 November 2004, the Company filed an
application seeking renewal of its only remaining low power television station,
located in Atlanta, Georgia, for a new eight-year license term. The request is
pending.

Broadcast Multiple Ownership Limits. 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. In
January 2004, Congress passed legislation that would allow a television
broadcaster to own local TV stations reaching 39% of the nation's households, up
from the current 35% limit. Other 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. In June 2003, the FCC adopted new rules
that significantly relax the limits and restrictions on media ownership. Among
other changes, the FCC relaxed its rules governing the common ownership of more
than one television station in any given market. In June 2004, the U.S. Court of
Appeals for the Third Circuit invalidated these revised media ownership rules on
the ground that the FCC had failed to provide a sufficient justification for the
relaxed ownership limitations and restrictions. Several larger media companies
have sought review of the Third Circuit's decision by the U.S. Supreme Court.

Alternative Technologies

Alternative technologies could increase the types of systems on which the
Company may seek carriage. Four direct broadcast satellite systems ("DBS")
currently provide service to the public and the number of DBS subscribers has
increased to more than 23.2 million households as of June 2004. Congress has
enacted legislation designed to facilitate the delivery of local broadcast
signals by DBS operators and thereby to promote DBS competition with cable
systems.

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, that is television services using digital or other advanced
technologies. The FCC in late 1996 approved a digital television ("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.

As part of the nationwide transition from analog to digital broadcasting,
each full power television station has been granted a second channel by the FCC
on which to initiate digital operations. A federal statute requires that, after
December 31, 2006, or the date on which 85% of television households in a
television market are capable of receiving digital services, broadcasters must
surrender analog signals and broadcast only on their allotted digital frequency.
Congress is expected to consider making this December 31, 2006, deadline more
definite. The Company commenced operations on its digital channel in May 2003.
While broadcasters currently 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
12

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. It is not yet clear whether and how television
broadcast stations will be able to profit by the transition to DTV or how
quickly the viewing public will embrace the cost of new digital television sets
and monitors. In addition, it is unclear what rights television broadcast
stations will have to obtain carriage of their digital signals on local cable
systems.

As noted above, the FCC's must carry rules generally entitle analog full
power television stations to mandatory cable carriage of their signals, at no
charge, to all cable homes located within each stations' area of dominant
influence or "ADI". Although FCC rules currently extend similar cable must carry
rights to existing television stations that return their analog spectrum and
convert to digital operations, in February 2005, the FCC affirmed its prior
decision not to require cable operators to simultaneously carry broadcasters'
analog and digital signals during the transition. In addition, the FCC confirmed
that cable operators are only obligated to carry the primary video and
programming-related material of digital television station's signals and are not
required to carry any of the stations' additional programming streams. In
addition, as noted above, a number of issues relating to the rights television
broadcast stations will have to obtain carriage of their digital signals on
local cable systems both during and after the close of the transition to digital
television remain subject to pending FCC proceedings.

As part of this transition to digital television, the spectrum currently
used by broadcasters transmitting on channels 52-69 will be transitioned to use
by new wireless and public safety operators. Some broadcast stations, including
the Company's station in the Boston, Massachusetts marketplace, have been given
a digital channel allocation within this spectrum. Under FCC rules, although
stations awarded digital channels between channels 52 and 69 may use those
channels until the close of the DTV transition, they must either seek an
alternative digital channel below channel 52 on which to transmit their digital
signal, or transition their digital operations to their analog channel. The FCC
has established a timetable within which broadcast stations must elect the
channel on which they will transmit their digital signal after the close of the
DTV transition. Under that timetable, later this year the Company will be
required to select an alternate channel below channel 52 on which to conduct its
digital operations after the transition. There can be no guarantee that the
Company will be able to locate a suitable channel below channel 52 on which to
provide digital transmissions after the close of 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
Company cannot predict how many telephone companies will begin operation of open
video systems ("OVS") 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 on 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 addition, a number of local carriers are
planning to provide or are providing video services through fiber to the home or
fiber to the neighborhood technologies, while other local exchange carriers are
using VDSL (video digital subscriber loop) technology to deliver video
programming, high-speed Internet access, and telephone service over existing
copper telephone lines.

Regulations Affecting Multiple Payment Transactions

The announced antitrust settlement between MasterCard, VISA and
approximately 8 million retail merchants raises certain issues for retailers who
accept telephonic orders that involve consumer use of debit cards for multiple
or continuity payments. A condition of the settlement agreement provides that
the code numbers or other means of distinguishing between debit and credit cards
be made available to merchants by VISA and MasterCard. Under certain Federal
Reserve Board regulations, this may require merchants to obtain consumers'
written consent for preauthorized transfers where the merchant is aware that the
method of payment is a debit card as opposed to a credit card. The Company
believes that debit cards are currently being
13

offered as the payment vehicle in approximately 25% of VISA and MasterCard
transactions with the Company. In September 2004, the Federal Reserve published
its Notice of Proposed Rulemaking with respect to Regulation E. In this notice
the Federal Reserve proposed to withdraw language in the Official Commentary to
Regulation E that precluded merchants from taping oral authorizations as the
writing required by Regulation E for recurring debit card payments. In this
notice the Federal Reserve emphasized that the authorization must be readily
identifiable as an authorization, and the terms of the preauthorized debits to
be authorized must be clear and readily understandable. While the Company is
working with industry associations and counsel to seek clarification on the
notice and develop appropriate procedures to comply with the notice, there can
be no assurance that (i) the notice will be adopted in a final form that is
acceptable to the Company, (ii) that procedures to comply with the notice, if
developed, would not negatively impact the customer experience, or (iii) that
the Company's compliance with the notice will not adversely affect sales.

H. SEASONALITY AND ECONOMIC SENSITIVITY

The Company's businesses are subject to seasonal fluctuation, with the
highest sales activity normally occurring during the Company's fourth fiscal
quarter of the year, November through January. Seasonal fluctuation in demand is
generally associated with fourth quarter seasonal holidays. The Company's
businesses are also 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 or domestic events, which divert audience attention away from the
Company's programming.

I. EMPLOYEES

At January 31, 2005, the Company, including its wholly owned subsidiaries,
had approximately 1,100 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 of the persons serving as
executive officers of the Company.

William J. Lansing joined the Company as President and Chief Executive
Officer in December 2003 and is also a member of the Company's Board of
Directors. Mr. Lansing has more than fifteen years of senior management
experience, including positions as president and CEO at public companies in the
consumer direct marketing and Internet commerce arenas. Mr. Lansing joined the
Company from General Atlantic Partners, a global private equity firm, where he
was a partner from September 2001 to December 2003. Prior to joining General
Atlantic Partners, Mr. Lansing served as CEO of NBC Internet, a Nasdaq-listed
company, from March 2000 to August 2001 and served as President and later as CEO
of Fingerhut Companies, then the nation's second largest catalog retailer and a
NYSE-listed company, from May 1998 to March 2000. Prior to joining Fingerhut,
from October 1996 to April 1998, Mr. Lansing was at General Electric, where he
served as Vice President of Business Development, reporting to Chairman Jack
Welch. From January 1996 to October 1996, Mr. Lansing was Chief Operating
Officer of Prodigy, Inc., where he launched the company's flagship

14

Prodigy Internet offering. Earlier in his career, Mr. Lansing was a partner at
McKinsey and Company. Mr. Lansing currently serves on the board of directors of
Digital River, Inc. and Right Now Technologies. Inc.

Frank P. Elsenbast served as Vice President of Financial Planning and
Analysis of the Company from September 2003 to October 2004, when he became Vice
President and Chief Financial Officer. Mr. Elsenbast has over 15 years of
corporate finance, operations analysis and public accounting experience. From
May 2001 to September 2003, he served as Finance Director and from May 2000 to
May 2001 he served as Finance Manager at the Company. Prior to joining the
Company, Mr. Elsenbast served in various analytical and operational roles with
The Pillsbury Company from May 1995 through May 2000. Mr. Elsenbast is a CPA and
began his career with Arthur Andersen, LLP.

Brenda Boehler joined the Company as Executive Vice President of
Merchandising in February 2004. Ms. Boehler has more than 16 years of
merchandising, direct marketing and e-commerce experience. From July 2003 to
February 2004, Ms. Boehler was in product development and design at Target
Corporation, responsible for developing a comprehensive branding strategy for
the retailer's home business. From January 1990 to August 2002, she served in a
number of senior and executive positions at Fingerhut Companies, a leading
catalog and Internet retailer, serving most recently as Senior Vice President of
Merchandising from March 1999 to August 2002 and as Vice President of Home and
Apparel from February 1996 to March 1999. Ms. Boehler began her merchandising
career at CVN Companies in 1986, a television home shopping business that was
merged into QVC.

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 held other positions in the legal department at
Occidental. 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.

Bryan Venberg joined the Company as Vice President of Human Resources in
May 2004. Mr. Venberg has more than 14 years of experience in human resource
management. From October 1999 to May 2004, Mr. Venberg served as regional
director of human resources for the Target Corporation. From September 1990 to
October 1999, Mr. Venberg served in a number of human resource positions at
Target.

K. 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.

THE COMPANY HAS A HISTORY OF LOSSES AND MAY NOT BE ABLE TO ACHIEVE OR MAINTAIN
PROFITABLE OPERATIONS IN THE FUTURE.

The Company experienced operating losses of approximately $59.1 million,
$10.9 million and $10.5 million in fiscal 2004, 2003 and 2002, respectively. The
Company reported a net loss per diluted share of $1.57, $.32 and $1.06 in fiscal
2004, 2003 and 2002, respectively. Net losses included pre-tax investment
write-downs of approximately $1.7 million and $37.3 million in fiscal 2003 and
2002, respectively. There is no assurance that the Company will be able to
achieve or maintain profitable operations in future fiscal years.

THE COMPANY LICENSES THE SHOPNBC NAME AND CERTAIN LOGOS FROM NBC PURSUANT TO AN
AGREEMENT THAT IF TERMINATED WOULD CAUSE THE COMPANY TO PURSUE A NEW BRANDING
STRATEGY AT SIGNIFICANT EXPENSE.

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

15

television home shopping network, previously called ValueVision, and companion
Internet website was rebranded to ShopNBC and ShopNBC.com. 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 and certain
other related matters. In addition, the use of the NBC trademarks, service marks
and domain names are limited to the ten-year license term without automatic
renewal. The non renewal or 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 adverse effect on the
Company's sales and results of operations.

NBC, GE AND THEIR AFFILIATES, WHOSE INTERESTS MAY DIFFER FROM THOSE OF OTHER
SHAREHOLDERS, HAVE SIGNIFICANT INFLUENCE AND CONTROL OVER THE COMPANY.

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 has 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, because NBC has the exclusive right to negotiate for the
distribution of the Company's television home shopping programming, 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 and in any event,
must be redeemed upon the ten-year anniversary of its issuance. 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.

GOVERNMENT REGULATION OF THE INTERNET AND E-COMMERCE IS EVOLVING; UNFAVORABLE
CHANGES COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS.

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 20%,
18% and 17% of net sales during fiscal 2004, 2003 and fiscal 2002, respectively.
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. 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.

INTENSE COMPETITION IN THE GENERAL MERCHANDISE RETAILING INDUSTRY AND
PARTICULARLY LIVE HOME SHOPPING COULD LIMIT THE COMPANY'S GROWTH AND REDUCE ITS
PROFITABILITY.

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

16

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 competition to
the Company. The Company also competes with a wide variety of department,
discount and specialty stores that 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, SATH
and ACN for cable distribution in virtually all of its markets. The Company is
at a competitive disadvantage in attracting viewers due to the fact that its
programming is not carried full-time in all of its markets, and the Company may
have less desirable cable channels in many markets. QVC and HSN are
well-established and reach a significantly larger percentage of United States
television households than the Company's broadcast, while offering home shopping
programming similar to the Company through cable systems, owned or affiliated
full and low power television stations and directly to satellite dish owners.
The television home shopping industry is also experiencing vertical integration.
QVC, HSN and SATH are all affiliated with cable operators or cable networks
serving significant numbers of subscribers nationwide. While the Cable Act
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 2004, SATH and
Scripps announced the completion of a transaction that resulted in Scripps
obtaining a 100% ownership interest in the SATH television-retailing network.
Scripps is a media company with interests in newspaper publishing, broadcast
television, national cable television networks and interactive media. QVC is
owned by Liberty Media Corp. HSN is a wholly owned subsidiary of
InterActiveCorp. Liberty Media, Scripps and InterActiveCorp are larger, more
diversified and have greater financial, marketing and distribution resources
than the Company.

THE CONSOLIDATION OF CABLE AND SATELLITE TELEVISION SERVICE PROVIDERS COULD
LIMIT THE COMPANY'S PROGRAM DISTRIBUTION ALTERNATIVES AND RESTRICT THE COMPANY'S
ABILITY TO EXECUTE FAVORABLE CABLE AFFILIATION CONTRACTS IN THE FUTURE.

The television home shopping and cable television industries are undergoing
consolidation, with large, well-established enterprises acquiring less
well-established, less well-financed entities in the industry. The competitive
pressures arising as a result of this industry consolidation include greater
importance on increasing programming distributions and customer penetration. On
December 19, 2001, AT&T Corp. and Comcast Corporation announced the execution of
a definitive agreement to combine AT&T Broadband with Comcast. The new company,
called AT&T Comcast Corporation, has approximately 22 million subscribers. AT&T
Comcast's assets consist of both companies' cable TV systems, as well as AT&T's
interests in cable television joint ventures and its 25.5% interest in Time
Warner Entertainment, E! Entertainment, The Golf Channel and other entertainment
properties. The continued consolidation of the television home shopping, cable
television and broadcasting industries may result in fewer alternatives for the
Company's programming distribution and may also restrict the Company's
opportunity to execute economically favorable cable affiliation contracts in the
future.

A NUMBER OF THE COMPANY'S CABLE DISTRIBUTION AGREEMENTS MAY BE TERMINATED UPON
SHORT NOTICE OR NOT RENEWED UPON EXPIRATION, WHICH COULD ADVERSELY AFFECT SALES
GROWTH IN THE COMPANY'S HOME SHOPPING BUSINESS.

A number of the Company's cable television distribution 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 distribution agreements are
terminated or not renewed on acceptable terms.

17

THE COMPANY MAY NOT BE ABLE TO MAINTAIN ITS SATELLITE SERVICES IN CERTAIN
UNCONTROLLABLE SITUATIONS, WHICH MAY CAUSE THE COMPANY'S PROGRAMMING TO GO OFF
THE AIR FOR A PERIOD OF TIME AND INCUR SUBSTANTIAL ADDITIONAL COSTS TO THE
COMPANY.

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 service provider and service failure. On January 31, 2005 the
Company entered into a new long-term agreement with its present provider of
satellite services. Pursuant to the terms of the new agreement, the Company will
distribute the its programming on a satellite to be launched in autumn 2005.
Until that time, the Company's programming will continue to be carried on its
present satellite transponder. The new agreement provides the Company with
preemptable back-up service if satellite transmission is interrupted. However,
there can be no assurance if satellite transmission is so interrupted that the
Company will be able to utilize existing back-up transponder or satellite
capacity. In the event of any transmission interruption, the Company may incur
substantial additional costs to enter into new arrangements and be unable to
broadcast its signal for some period of time.

THE COMPANY MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS FOR ON AIR
MISREPRESENTATIONS OR IF PEOPLE OR PROPERTIES ARE HARMED BY PRODUCTS SOLD BY THE
COMPANY.

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 Company
has generally required the manufacturers and vendors of these products to carry
product liability and errors and omissions insurance, although in certain
instances the vendor may not be formally required to carry product liability
insurance. There can be no assurance that these parties will continue to
maintain this insurance or that this coverage will be adequate or even available
with respect to any particular claims. 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 or even be available with respect to any particular claim.
Product liability claims could result in a material adverse impact on the
Company's financial performance.

THE COMPANY'S VALUEPAY INSTALLMENT PAYMENT PROGRAM COULD LEAD TO SIGNIFICANT
UNPLANNED CREDIT LOSSES IF THE COMPANY'S CREDIT LOSS RATE WAS TO DETERIORATE.

The Company utilizes an installment payment program called ValuePay that
entitles customers to purchase merchandise and generally pay for the merchandise
in two to six equal monthly installments. As of January 31, 2005 and 2004, the
Company had approximately $61,894,000 and $56,339,000, 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.

THE COMPANY PLACES A SIGNIFICANT RELIANCE ON TECHNOLOGY AND INFORMATION
MANAGEMENT TOOLS TO RUN ITS EXISTING BUSINESSES, THE FAILURE OF WHICH COULD
ADVERSELY IMPACT THE COMPANY'S OPERATIONS.

The Company's businesses are dependent, in part, on the use of
sophisticated technology, some of which is provided to the Company by third
parties. Such technologies include, but are not necessarily limited to,
satellite based transmission of the Company's programming, use of the Internet
in relation to the Company's on-line business, new digital technology used to
manage and supplement the Company's television broadcast
18

operations and a network of complex computer hardware and software to manage an
ever increasing need for information and information management tools. The
failure of any of these technologies, or the Company's ability to have this
technology supported, updated, expanded or integrated into other technologies,
could adversely impact the operations of the Company. Although the Company has,
when possible, developed alternative sources of technology and built redundancy
into its computer networks and tools, there can be no assurance that the
Company's effort to date would protect the Company against all potential issues
or disaster occurrences related to the loss of any such technologies or their
use.

THE EXPANSION OF DIGITAL CABLE COMPRESSION TECHNOLOGY MAY ADVERSELY IMPACT THE
COMPANY'S ABILITY TO COMPETE FOR TELEVISION VIEWERS.

A significant number of cable operators have started to offer cable
programming on a digital basis. The use of digital compression technology
provides cable companies with greater channel capacity. While greater channel
capacity increases the opportunity for the Company to be more widely
distributed, it also may adversely impact the Company's ability to compete for
television viewers to the extent it results in (i) higher channel position; (ii)
placement of the Company's programming in separate programming tiers, or (iii)
an expanding universe of programming choices all competing for the same audience
viewership.

THE INCREASED USE OF DIGITAL VIDEO RECORDERS AND VIDEO ON DEMAND COULD LIMIT THE
COMPANY'S VIEWERSHIP, WHICH WOULD HARM THE COMPANY'S PROFITABILITY.

The advent of digital video recorders or "DVRs", such as TiVo, and the ever
increasing availability of programming on an on-demand basis from cable and
satellite television operators, often referred to as video on demand or "VOD",
could change the way that viewers watch television based programming. Instead of
watching programming on the schedule mandated by the content provider or
"channel surfing," DVRs and VOD allow viewers to watch television programming on
their schedule. While the impact of DVRs and VOD on television viewing habits
and television home shopping is not yet known, the further adoption of DVRs and
the ever greater variety and amount of VOD programming could create different
television viewing habits and/or offer additional content that competes with the
programming offered by television home shopping channels. This could decrease
the number of viewers of the Company's television programming, which would have
a material adverse effect on the Company's growth and profitability.

THE UNANTICIPATED LOSS OF ONE OF THE COMPANY'S LARGER VENDORS COULD IMPACT THE
COMPANY'S SALES ON A TEMPORARY BASIS.

The Company obtains products from domestic and foreign manufacturers and
suppliers and is often able to make purchases on favorable terms based on the
volume of its transactions. Many of the Company's purchasing arrangements with
its vendors include inventory terms that allow for return privileges of a
portion of the order or stock balancing. The Company has not historically
entered into long term supply arrangements that would require vendors to provide
products on an ongoing basis. In fiscal 2004, products purchased from one vendor
accounted for approximately 15% of the Company's consolidated net sales. The
Company believes that it could find alternative sources for this vendor's
products if this vendor ceased supplying merchandise; however, the unanticipated
loss of any large supplier could impact the Company's sales on a temporary
basis. In addition, certain general economic conditions, such as those
experienced in fiscal 2003 and the first half of fiscal 2004, may have a
material adverse effect on the financial strength of the Company's vendors and
suppliers, some of whom are focused on a limited range of product categories or
are dependent on home shopping as a primary outlet for their merchandise sales.
The Company is dependent, in part, on vendors outside of the United States and
distributors that source merchandise from outside the United States. In light of
the Company's continued use of these overseas vendors and merchandise sourced
from these distributors, changes in the business, logistical, financial or
regulatory conditions in countries outside the United States could directly or
indirectly affect the Company's ability to procure merchandise on a timely or
cost effective basis.

19

THE COMPANY'S INABILITY TO RECRUIT AND RETAIN KEY EMPLOYEES MAY ADVERSELY IMPACT
THE COMPANY'S ABILITY TO SUSTAIN GROWTH.

The Company's continued growth is contingent, in part, on its ability to
retain and recruit employees that have the unique skills necessary for a
business that demands knowledge of the general retail industry, television
production, direct-to-consumer marketing and fulfillment and the Internet. The
marketplace for such employees is very competitive and limited, particularly for
on-air hosts. The Company's growth may be adversely impacted if the Company is
unable to attract and retain these key employees. During fiscal 2004, the
Company experienced the loss of a number of experienced television hosts.

THE COMPANY'S GROWTH AND PROFITABILITY COULD BE ADVERSELY AFFECTED IF ITS SALES
VOLUME DOES NOT MEET EXPECTATIONS TO COVER THE COMPANY'S HIGH FIXED COST
INFRASTRUCTURE.

The Company's television home shopping business operates with a high fixed
cost base, which is primarily driven by fixed contractual fees paid to cable and
satellite operators to carry the Company's programming. In addition, in fiscal
2004 the Company embarked on a series of new investment initiatives that
required significant up-front investment. These new initiatives included:
increased marketing support, improved customer experience, enhanced on-air
quality and improved business intelligence. In order to attain profitability,
the Company must achieve sufficient sales volume by acquiring new customers and
retaining existing customers to cover these high fixed costs and new spending
initiatives. The Company's growth and profitability could be adversely impacted
if sales volume does not meet expectations, as the Company will have limited
immediate capability to reduce its fixed operating expenses to mitigate any
potential sales shortfall.

THE COMPANY'S TELEVISION HOME SHOPPING AND INTERNET BUSINESSES ARE SENSITIVE TO
ECONOMIC CONDITIONS AND MAJOR NEWS EVENTS, WHICH COULD ADVERSELY AFFECT
VIEWERSHIP AND CONSUMER CONFIDENCE AND ULTIMATELY NET SALES.

The Company's businesses are sensitive to general economic conditions and
business conditions affecting consumer spending. The Company's two major
categories of sales merchandise are jewelry and computers, which due to their
nature and relatively higher price points are more economically sensitive to
consumer demand than other product categories. The general deterioration in
economic conditions in the United States in fiscal 2003 and the first half of
fiscal 2004 and uncertainties associated with global events has led to reduced
consumer confidence, reduced disposable 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 currently
offers on its television programming and over the Internet. Although the
Company's current plan and effort is to further diversify its product mix away
from primarily jewelry and computers, future revenue growth could be adversely
affected if overall consumer spending or the demand for jewelry and computers
decline. Additionally, the Company's television audience and sales revenue can
be significantly impacted by major world or domestic 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.

L. 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 if applicable are
available, without charge on the Company's website, as soon as reasonably
practicable after they are filed electronically with the Securities and Exchange
Commission. Copies are available, without charge, by contacting the General
Counsel, ValueVision Media, Inc., 6740 Shady Oak Road, Eden Prairie, Minnesota
55344-3433.

Our Internet address is www.shopnbc.com.

20

ITEM 2. PROPERTIES

In February 2003, the Company purchased 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 the corporate
administrative, television production and jewelry distribution operations of the
Company. The second building has approximately 70,000 square feet of commercial
rental space, which the Company utilizes for additional office space. The
Company owns a 262,000 square foot distribution facility on a 34-acre parcel of
land and leases approximately 72,000 square feet of warehouse space in Bowling
Green, Kentucky. The Company also 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 Boston, Massachusetts for its full power 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 July 2001, a customer, Vincent Bounomo, a Florida resident, commenced a
purported class action against the Company in Hennepin County District Court in
Minneapolis, Minnesota, alleging that he had purchased a computer system from
the Company following a broadcast that had promised him free lifetime access to
the Internet as part of the computer system. The customer alleged that the
Company had breached its alleged promise to provide him free lifetime access to
the Internet, breached certain warranties, and violated state consumer
protection statutes. The Company denied all liability. Following discovery, the
amendment of pleadings, and certain motion practice, the Company agreed to
settle this action on a classwide basis. Under the terms of the settlement, the
Company will: (i) provide 15 months of free dial-up access to the Internet to
customers who purchased the computer systems at issue and who file timely and
complete claim forms; (ii) pay plaintiffs' attorneys' fees, class
representatives fees, costs, expenses, and disbursements as awarded by the
court, up to a maximum total amount of $950,000; and (iii) pay the costs of
notifying class members and administering the settlement. The court granted
final approval to the proposed settlement following a fairness hearing on March
30, 2004, and ordered that the action, and all claims that were or could have
been asserted therein, be dismissed with prejudice. The Company's insurer and
the vendor of the computer systems have agreed to both pay a portion of the
remaining cost of the settlement, after application of insurance proceeds. The
settlement costs, the Company's portion of which was estimated at approximately
$470,000, did not have a material adverse effect on the Company or its
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
21

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 Consent Decree and penalty did not have a material effect on the
Company's operations or consolidated financial statements.

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, 2005.

PART II

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

MARKET INFORMATION FOR COMMON STOCK

The Company's common stock is traded on the Nasdaq Stock Market under the
symbol "VVTV". 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 4, 2005 the Company had approximately 500 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 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 of directors 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 of directors.

ISSUER PURCHASES OF EQUITY SECURITIES

The Company did not repurchase any shares of common stock during the fourth
quarter of fiscal 2004 under its common stock repurchase program.

22

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data for the five years ended January 31, 2005 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."

23

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

(a) Results of operations for the year ended January 31, 2005 includes a
non-cash charge of $11.3 million related to asset impairments associated
with FanBuzz and a $1.9 million deferred advertising credit write-down. See
Note 16 to the consolidated financial statements.

(b) Results of operations for the year ended January 31, 2004 include the
operations of television station WWDP TV-46 from the effective date of its
acquisition, April 1, 2003. Results of operations for the year ended
January 31, 2004 also include a charge of $4.6 million related to costs
associated with the Company's chief executive officer transition and a $4.4
million gain on the sale of television stations. See Notes 3 and 4 to the
consolidated financial statements.

(c) Results of operations for the year ended January 31, 2003 include the
operations of FanBuzz, Inc. from the effective date of its acquisition,
March 8, 2002. See Note 4 to the consolidated financial statements.

(d) 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.

(e) Net loss includes a net pre-tax loss of $1.7 million from the sale and
holdings of investments and other assets in fiscal 2003, 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 and a net pre-tax
loss of $59.0 million from the sale and holdings of investments and other
assets in fiscal 2000.

(f) EBITDA represents net loss for the respective periods excluding
depreciation and amortization expense, interest income (expense) and income
taxes. 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 loss or to cash
flows from operating activities (as determined in accordance with generally
accepted accounting principles) and should not be construed as a measure of
liquidity. EBITDA, as presented, may not be comparable to similarly
entitled measures reported by other companies. Management uses EBITDA to
evaluate operating performance and as a measure of performance for
incentive compensation purposes.

A reconciliation of EBITDA to its comparable GAAP measurement, net loss,
follows:

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.

24

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): consumer spending and debt levels; interest rates; competitive
pressures on sales; pricing and gross profit margins; the level of cable and
satellite distribution for the Company's programming and the associated fees;
the success of the Company's e-commerce and branding 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; the risks
identified under "Business Risk Factors"; 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.

OVERVIEW

Company Description

ValueVision Media, Inc. is an integrated direct marketing company that
markets its products directly to consumers through various forms of electronic
media. The Company's principal lines of business are television home shopping,
Internet e-commerce, vendor programming sales and fulfillment services and
outsourced e-commerce and fulfillment solutions. The Company's principal
electronic media activity is its television home shopping business, ShopNBC, and
companion Internet shopping, website ShopNBC.com, which sells 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.

Products and Customers

Products sold on the Company's television home shopping network and
Internet shopping website include jewelry, computers and other electronics,
housewares, apparel, cosmetics, fitness products, giftware, collectibles,
seasonal items and other merchandise. Jewelry represents the Company's largest
single category of merchandise, representing 61% of television home shopping and
Internet net sales in fiscal 2004, 65% in fiscal 2003 and 69% in fiscal 2002.
After jewelry, the second largest product category of merchandise sold is
computers and electronics, representing 17% of television home shopping and
Internet net sales in fiscal 2004, 16% in fiscal 2003 and 18% in fiscal 2002.
The Company believes that product diversification will appeal to a broader
segment of potential customers and is important to growing the Company's
business. The Company's product diversification strategy is to continue to
develop new product offerings primarily in the home, apparel and accessories,
cosmetics, fitness and consumer electronic categories to supplement the existing
jewelry and computer and electronics business. The Company continued to make
progress on its strategic objective of diversifying the merchandise mix offered
to consumers during fiscal 2004, growing product categories outside of jewelry
and computers and electronics from 19% to 22% of total television home shopping
and Internet sales from fiscal 2002 to fiscal 2004. The Company believes that
its customers are primarily women between the ages of 35 and 55 with annual
household incomes between $50,000 and $75,000 and believes its customers make
purchases based primarily on convenience, unique product offerings, value and
quality of merchandise.

25

Company 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 business strategies are intended to continue the
growth of the Company's core television home shopping business and complementary
website: (i) leverage the strong brand equity implicit in the NBC name and
associated peacock symbol to achieve greater brand recognition with the ShopNBC
television channel and ShopNBC.com website; (ii) diversify the types of products
offered for sale outside of the historical categories of jewelry and computers;
(iii) increase program distribution in the United States through new or expanded
broadcast agreements with cable and satellite operators and other creative means
for reaching consumers such as webcasting on ShopNBC.com; (iv) increase average
net sales per home by increasing penetration within the existing audience base
and by attracting new customers through a broadening of its merchandise mix and
targeted marketing efforts; (v) continue to grow the Company's profitable
Internet business with innovative use of marketing and technology, such as
advanced search strategies, personalization, webcasting and unique auction
capabilities; (vi) upgrade the overall quality of the Company's network,
programming and customer support infrastructure consistent with expectations
associated with the NBC brand name; and (vii) leverage the service expertise
implicit in the Company's existing distribution and customer care capacities to
support its strategic partners.

Challenge

The Company's television home shopping business operates with a high fixed
cost base, which is primarily due to fixed contractual fees paid to cable and
satellite operators to carry the Company's programming. In addition, the Company
has invested in new initiatives intended to achieve double-digit sales growth
that has required significant up-front investment. These new initiatives include
increased marketing support, improved customer experience, enhanced on-air
quality and improved business intelligence. In order to attain profitability,
the Company must achieve sufficient sales volume through the acquisition of new
customers and the increased retention of existing customers to cover its high
fixed costs and these new initiatives. The Company's growth and profitability
could be adversely impacted if sales volume does not meet expectations, as the
Company will have limited immediate capability to reduce its fixed cable and
satellite distribution operating expenses to mitigate any potential sales
shortfall.

Company's Competition

The direct marketing and retail businesses are highly competitive. In its
television home shopping and Internet 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 television home shopping
industry is also highly competitive and is dominated by two companies, QVC
Network, Inc. and HSN, Inc., both of which are larger, more diversified and have
greater financial marketing and distribution resources than the Company. In
2002, Shop at Home, Inc. ("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 network, which also directly competes with the
Company. In addition, the American Collectibles Network ("ACN"), which
broadcasts the Jewelry Television home shopping channel, competes with the
Company in the jewelry sector of the television home shopping industry.
Additionally, there are a number of other small niche players and start-ups
competing in the television home shopping industry. The Company also competes
with retailers who sell and market their products through the highly competitive
Internet medium. Many companies sell products over the Internet that compete
with the Company's products. 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 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

26

providers of e-commerce and direct marketing solutions, will also result in
increased competition. The Company also competes to lease cable television time
and enter into cable affiliation agreements. The Company believes that its
ultimate success in the television home shopping industry is dependent upon
several key factors, one of which is obtaining carriage on additional cable
systems. The Company believes that it is positioned to compete effectively
because of its established relationships with cable operators and its strategic
relationship with NBC and GE Equity.

Results for Fiscal 2004

Consolidated net sales in fiscal 2004 were $649,416,000 compared to
$616,795,000 in fiscal 2003, a 5% increase. 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. Net
sales attributed to the Company's television and Internet operations increased
6% to $614,884,000 in fiscal 2004 from $581,999,000 in fiscal 2003. Consolidated
gross margins were 33.0% in fiscal 2004 compared to 35.9% in fiscal 2003. The
Company reported an operating loss of $59,084,000 and a net loss of $57,601,000
in fiscal 2004 compared to an operating loss of $10,924,000 and a net loss of
$11,392,000 in fiscal 2003. Operating expenses in fiscal 2004 included
$13,202,000 of asset impairment charges and an additional charge of $3,964,000
related to employee terminations. Operating expenses in fiscal 2003 included a
$4,625,000 charge relating to the Company's chief executive officer transition,
an additional $2,000,000 charge for severance costs associated with senior
management organizational changes and a $4,417,000 gain on the sale of
television stations. Net loss included a $2,011,000 write down of a historical
Internet investment in fiscal 2003.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company'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 that entitles customers to purchase merchandise and
generally pay for the merchandise in two to six equal monthly credit card
installments which the Company bears the risk for uncollectibility. As of
January 31, 2005 and 2004, the Company had approximately $61,894,000 and
$56,339,000 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 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.
Provision for doubtful accounts receivable (primarily related to the
Company's ValuePay program) for fiscal years 2004, 2003 and 2002 were
$4,303,000, $4,556,000 and $6,704,000, respectively. Based on the
27

Company's fiscal 2004 bad debt experience, a one-half point increase or decrease
in the Company's bad debt experience as a percentage of total television home
shopping and Internet sales would have an impact of approximately $3.1 million
on consolidated distribution and selling expense.

- Inventory. The Company values its inventory, which consists primarily of
consumer merchandise held for resale, principally 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, 2005 and 2004, the
Company had inventory balances of $54,903,000 and $67,620,000,
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. Provision for excess and
obsolete inventory for fiscal 2004, 2003 and 2002 were $2,529,000,
$1,967,000 and $1,417,000, respectively. Based on the Company's fiscal
2004 inventory write down experience, a 10% increase or decrease in
inventory write downs would have had an impact of approximately $253,000
on consolidated gross profit.

- 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. Reserves for product returns for fiscal years 2004, 2003 and
2002 were $7,290,000, $8,780,000 and $7,954,000, respectively. Based on
the Company's fiscal 2004 sales returns, a one point increase or decrease
in the Company's television and Internet sales returns rate would have
had an impact of approximately $3.6 million on consolidated gross profit.

- Long-term investments. As of January 31, 2005 and 2004, the Company no
longer had any long-term equity investment securities. The Company
records an investment impairment charge when it believes an investment
has experienced a decline in value that is deemed to be 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 long-term investments that may not be reflected in an
investment's current carrying value, thereby possibly requiring an
impairment charge in the future. During fiscal 2003, the Company recorded
a pre-tax investment loss of $2,011,000 relating to an investment in an
Internet retailer whose decline in fair value was determined by the
Company to be other than temporary. The decline in fair value of the
Internet retailer was driven by their continued reported operating
losses, large accumulated deficit and the inability of the company to
make its original target plan for revenue, gross profit and earnings.
During fiscal 2002, the Company evaluated the carrying value of its RLM
investment and believed that based on RLM's historic performance, future
earnings and cash flow outlook, the fiscal 2002 services agreement
amendment and valuation analysis, an impairment had occurred and the
decline in value was 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 investments were reasonable,
different assumptions could have materially affected the Company's
evaluations.

- Goodwill and FCC broadcasting license asset. As of January 31, 2005 and
2004, the Company had recorded goodwill totaling $-0- and $9,442,000,
respectively, as a result of its acquisition of FanBuzz in fiscal 2002.
As of January 31, 2005 and 2004, the Company has recorded an intangible
FCC
28

broadcasting license asset totaling $31,943,000 as a result of its
acquisition of Boston television station WWDP TV-46 in fiscal 2003.
Effective February 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets".
Under this standard, goodwill and indefinite life intangible assets are
no longer amortized, but must be tested for impairment at least annually
or more frequently when factors indicating impairment are present. In
assessing the recoverability of its goodwill and FCC broadcasting license
asset, which the Company determined to have an indefinite life, the
Company must make assumptions regarding estimated projected cash flows
and other factors to determine the fair value of the respective asset or
related reporting unit. During the third quarter of fiscal 2004 the
Company wrote off all of the goodwill attributable to the FanBuzz
acquisition as the Company had determined that the goodwill was
significantly impaired following FanBuzz's loss of its National Hockey
League contract in September 2004. The Company performed an impairment
test with respect to its FCC broadcasting license in the fourth quarter
of fiscal 2004 and determined that an impairment of its intangible
license asset had not occurred. With respect to the FCC broadcasting
license asset, the fair value of the 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 its indefinite life intangibles in future
periods. While the Company believes that its estimates and assumptions
regarding the valuation of its reporting unit are reasonable, different
assumptions or future events could materially affect the Company's
evaluations.

- Intangible assets. As of January 31, 2005 and 2004, the Company had
amortizable intangible assets totaling $22,305,000 and $27,020,000
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.
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. During fiscal 2004, the
Company wrote off approximately $160,000 of intangible assets in
connection with the FanBuzz impairment. See Note 16 to the consolidated
financial statements.

- Stock-based compensation. The Company accounts for stock-based
compensation issued to employees in accordance with Accounting Principles
Board 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 by the Company 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 2004, 2003 and 2002. In December 2004, the Financial Accounting
Standards Board issued a revision to Statement of Financial Accounting
Standards No. 123, "Share-Based Payment" ("SFAS No. 123(R)"). The
revision requires all entities to recognize compensation expense in an
amount equal to the fair value of share-based payments granted to
employees. The statement eliminates the alternative method of accounting
for employee share-based payments previously available under Accounting
Principles Board Opinion No. 25. The statement will be effective for
public companies for fiscal years beginning after June 15, 2005. The
Company has not completed the process of evaluating the full financial
statement impact that will result from the adoption of SFAS No. 123(R).
See Note 2, "Stock-Based Compensation", for the Company's disclosure
regarding the pro forma effect of the adoption of SFAS No. 123(R) on the
Company's consolidated financial statements.

29

- 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 the 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, 2005 and 2004,
the Company recorded a valuation allowance of approximately $45,479,000
and $27,672,000, respectively, 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 fiscal
2004, 2003 and 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.

RESTATEMENT OF PREVIOUSLY REPORTED ACCUMULATED RETAINED EARNINGS AND PAID-IN
CAPITAL

In connection with the preparation of the Company's response to a letter
received from the staff of the Securities and Exchange Commission ("SEC") in
August 2004, pursuant to a normal course review of its annual report on Form
10-K, the Company determined that its March 1999 issuance of convertible
redeemable preferred stock and an investment warrant in connection with the
Company's strategic alliance with GE Equity and NBC, were incorrectly recorded
in the Company's financial statements. As a result, the Company has restated its
January 31, 2002 beginning additional paid-in capital and related accumulated
retained earnings balances as the accounts were understated and overstated by
approximately $13,957,000. There was no change to previously reported total
shareholders' equity or previously reported cash flows as a result of this
correction. See Note 17 to the consolidated financial statements for a complete
discussion of this restatement.

ASSET IMPAIRMENTS AND EMPLOYEE TERMINATION COSTS

In the third quarter of fiscal 2004, the Company wrote off goodwill
attributable to the FanBuzz acquisition as the Company had determined that the
goodwill was impaired following FanBuzz's loss of its National Hockey League
contract in September 2004. In addition, the Company also concluded that the
book value of certain long-lived assets at FanBuzz was significantly higher than
their expected future cash flows and that an impairment had occurred in
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets. Accordingly, the Company recorded a non-cash impairment loss
and related charge of $11,302,000 in the third quarter of fiscal 2004. The
charges included $9,442,000 of goodwill impairment, $1,700,000 of fixed asset
and capital expenditure impairment and $160,000 of intangible asset impairment.
The Company is considering alternative courses of action for the future
operations of FanBuzz. As a result, the Company used a probability-weighted
approach for developing estimates of future cash flows used to test the
recoverability of FanBuzz's long-lived assets. Management will continue to
evaluate the assumptions used and the probability weight assigned to the
alternative courses of action. If circumstances arise that change certain
assumptions, an additional impairment of FanBuzz's long-lived assets may result.
In addition, in the fourth quarter of fiscal 2004, the Company recorded an asset
impairment charge of $1,900,000 related to deferred advertising costs in the
form of television advertising credits with NBC after it was determined that the
Company could no longer effectively use the credits.

During the third and fourth quarters of fiscal 2004, the Company also
recorded a $3,964,000 charge to earnings in connection with the decision to
eliminate a number of positions within the Company in an effort to streamline
the corporate organization and reduce operating expenses. The charges consisted
primarily of

30

severance pay and related benefit costs associated with the elimination of
approximately 30 positions. The severance is currently being paid out over
periods extending up to two years.

CEO TRANSITION COSTS

On May 20, 2003, the Company announced that its Chairman and Chief
Executive Officer (CEO), Gene McCaffery, would be part of a transition process
to determine a successor as CEO of the Company. On December 1, 2003 the Company
announced that its board of directors had named William J. Lansing as President
and Chief Executive Officer of the Company, effective December 16, 2003. He also
has been appointed to the Company's board of directors. In conjunction with Mr.
McCaffery's resignation and the hiring of Mr. Lansing, the Company recorded a
charge to income of $4,625,000 in the fourth quarter of fiscal 2003 related to
the transition. CEO transition costs consisted primarily of contract severance
and hiring costs totaling $4,317,000, legal and other professional fees totaling
$247,000 and other direct transition costs totaling $61,000.

ACQUISITIONS AND DISPOSITIONS

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 reached approximately 1.8 million cable households.
The deal closed in the first quarter of fiscal 2003 on April 1, following FCC
approval. The Company made the investment in order to build a long-term and cost
effective distribution strategy in the Boston, Massachusetts area. The purchase
price of the acquisition was $33,617,000, including professional fees, and has
been accounted for using the purchase method of accounting as stipulated by SFAS
No. 141 "Business Combinations".

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 for approximately $11,300,000. In one building,
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 utilizes for additional office space.
As a result of this acquisition, the Company's long-term property lease has been
terminated.

In February 2003, the Company completed the sale of ten of its eleven LPTV
stations for a total of $5,000,000. The Company recorded a pre-tax operating
gain on the sale of these LPTV stations of $4,417,000 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.

On February 25, 2002, the Company announced it had signed a definitive
agreement to acquire FanBuzz, an e-commerce and fulfillment solutions provider
of affinity-based merchandise. FanBuzz 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 $14,100,000 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, 2005 and 2004, the Company no longer had long-term equity
investment securities. The Company's equity investments included minority
interest holdings of companies whose shares, or underlying shares in the case of
warrant holdings, were traded on a public exchange and were 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 held certain nonmarketable equity investments of private enterprises, which
were carried at the lower of cost or net realizable value in the Company's
financial statements. During fiscal 2003, the Company recorded a pre-tax
investment loss of $2,011,000 relating to an investment in an Internet retailer
whose decline in fair value was determined by the Company to be other than
temporary. The decline in fair value of the Internet retailer was driven by its
continued reported operating losses, large
31

cumulative deficit and the inability of the company to make its original target
plan for revenue, gross profit and earnings. During fiscal 2002, the Company
evaluated the carrying value of its RLM investment. The RLM joint venture to
date had 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 had severely
diminished. In addition, the Company substantially amended its existing
fulfillment and services agreement with RLM in the fourth quarter of fiscal
2002. The Company believed that based on RLM's historic performance, future
earnings and cash flow outlook, the services agreement amendment and fourth
quarter valuation analysis, an impairment had 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.

ENTERPRISE RESOURCE PLANNING ("ERP") SYSTEMS CONVERSION

In fiscal 2000, the Company launched an effort to fully replace its legacy
financial, transaction processing, order fulfillment and customer care computer
systems in an effort to further support its 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 its 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, primarily 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. The Company made significant progress in stabilizing
all aspects of the operating systems. 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, which would prevent or delay the systems from
performing as intended. 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.

NBC TRADEMARK LICENSE AGREEMENT

On November 16, 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 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 to
purchase 6,000,000 shares of the Company's 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. As of
January 31, 2005, the License warrants were fully vested and outstanding. See
Business -- Strategic Relationships" for a detailed discussion of the License
Agreement.

32

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, NBC, NBCi and CNBC whereby the
parties created RLM, a joint venture. 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 contributed a cash funding commitment of up to $50
million, of which all of the Company's commitment had been funded at 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 the fourth
quarter of fiscal 2002, the Company wrote off its investment in RLM because it
determined that the decline in the value of its investment was other than
temporary. 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. As part of the strategic alliance with RLM, RLM
and 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.

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
continues to provide services to RLM at a flat cost per order and has 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 was obligated to
provide through December 31, 2003, and therefore was recorded as deferred
revenue and was recognized over the related service period. 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 fiscal 2002 operating
income and net income by $2,500,000, representing consideration received for the
early termination of the agreement.

RESULTS OF OPERATIONS

Results of operations for the year ended January 31, 2004 include the
operations of television station WWDP TV-46 from the effective date of its
acquisition, April 1, 2003. Results of operations for the year ended January 31,
2003 include the operations of FanBuzz from the effective date of its
acquisition, March 8, 2002.

33

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

KEY PERFORMANCE METRICS*

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

* Includes television home shopping and Internet sales only.
34

PROGRAM DISTRIBUTION

Average full time equivalent ("FTE") subscribers grew 8% in fiscal 2004
resulting in a 4.5 million increase in average FTE's compared to fiscal 2003.
Average FTE's grew 14% in fiscal 2003 resulting in a 6.4 million increase in
average FTE's compared to fiscal 2002. The annual increases were driven by
continued strong growth in satellite distribution and increased penetration of
digital cable.

NET SALES PER FTE

Net sales per FTE for fiscal 2004 decreased 3%, or $0.29, per FTE compared
to fiscal 2003. Net sales per FTE for fiscal 2003 decreased 3%, or $0.39, per
FTE compared to fiscal 2002. The decreases in net sales per FTE for the years
presented resulted from the fact that the Company's annual FTE home growth has
outpaced the growth in television sales year over year. Net television home
shopping sales growth was significantly impacted in fiscal 2004 as a result of a
number of factors including the loss of a number of experienced television
hosts, the effect of several severe hurricanes that devastated the east coast
during the year and a soft retail environment. In addition, home shopping net
sales growth was unfavorably impacted during the second half of fiscal 2004 due
to a number of high profile television-covered special events that competed with
the viewership of the Company's programming including television coverage of the
2004 Summer Olympics, the 2004 presidential election and extended news coverage
of multiple hurricanes.

NEW CUSTOMERS

During fiscal 2004, the Company added 64,348 new active customers, a 9%
increase over fiscal 2003. During fiscal 2003, the Company added 111,070 new
active customers, a 19% increase over fiscal 2002. The increase in new customers
resulted from the increase in household distribution, product diversification
efforts, the lowering of average price points and an increase in the marketing
and promotional efforts aimed at attracting new customers.

CUSTOMER PENETRATION

Penetration measures the total number of customers who purchased from the
Company over the past twelve months divided by the Company's average FTE's for
that same period. This measure was 1.3% for fiscal 2004, 1.3% for fiscal 2003
and 1.2% for fiscal 2002.

MERCHANDISE MIX

During fiscal 2004, jewelry net sales decreased from 65% of total
television and Internet net sales to 61% compared to fiscal 2003. Computer and
electronic net sales as a percent of total merchandise mix increased during
fiscal 2004, from 16% to 17%, and all other merchandise categories increased
from 19% to 22% compared to fiscal 2003. During fiscal 2003 jewelry net sales
decreased from 69% of total television and Internet net sales to 65% compared to
fiscal 2002. Computer and electronic net sales as a percent of total merchandise
mix decreased during fiscal 2003, from 18% to 16%, and all other merchandise
categories increased from 13% to 19% compared to fiscal 2002. The Company's
merchandise mix is evolving away from its historical reliance on jewelry and
computers and electronics to a broader mix that also includes apparel, health
and beauty, fitness, home and other product lines. The evolution of the
merchandise mix is a key component of the Company's strategy to appeal to a
broader audience, attract new customers and increase household penetration.

SHIPPED UNITS

The number of units shipped during fiscal 2004 increased 23% over fiscal
2003 to 5,004,000 from 4,080,000. The number of units shipped during fiscal 2003
increased 22% over fiscal 2002 to 4,080,000 from 3,337,000. The increases were
driven primarily by the reduction in the Company's average per unit selling
price compared to prior years of 16% and 8%, during fiscal 2004 and fiscal 2003,
respectively in addition to the increase in overall net sales. The Company
believes that the reduced average per unit selling price allows the Company to
appeal to a broader segment of potential customers.
35

AVERAGE SELLING PRICE

The average selling price per unit for the Company was $179 in fiscal 2004,
a 16% reduction from fiscal 2003. For fiscal 2003, the average per unit selling
price was $213, an 8% reduction from fiscal 2002. These reductions were due
primarily to the merchandise mix shift away from jewelry and computer and
electronics, towards lower priced home, apparel and health and beauty products.

SALES

Consolidated net sales, inclusive of shipping and handling revenue, for
fiscal 2004 were $649,416,000 compared to $616,795,000 for fiscal 2003, a 5%
increase. The fourth quarter of fiscal 2004 was the largest revenue quarter in
the Company's history. The increase in consolidated net sales is directly
attributable to increased sales from the Company's television home shopping and
Internet operations year over year. Net sales attributed to the Company's
television home shopping and Internet operations increased 6% to $614,884,000
for fiscal 2004 from $581,998,000 for fiscal 2003. Despite the increase in
consolidated net sales for the year, the Company experienced a 4% decrease in
net sales over prior year in the third quarter of fiscal 2004, which was
directly attributable to a decrease in television home shopping net sales
resulting from a number of factors including the loss of a number of experienced
television hosts at the start of the third quarter, the effect of several severe
hurricanes that devastated Florida and the east coast during the third quarter
and the soft retail environment. In addition, home shopping net sales growth was
unfavorably impacted during the second half of fiscal 2004 due to a number of
high profile television-covered special events that competed with the viewership
of our programming including television coverage of the 2004 Summer Olympics,
the 2004 presidential election and extended news coverage of the multiple
hurricane destruction. Collectively, these events significantly impacted overall
consolidated net sales growth during fiscal 2004. Management believes that these
factors will have a short-term impact on overall television home shopping net
sales. During fiscal 2004, the Company continued to make significant progress on
its strategic objective of diversifying the merchandise mix offered to
consumers. During fiscal 2004, gross unit volume was up 23% while the Company's
average selling price was down 16% from fiscal 2003. In addition, the Company's
home, apparel, fitness and cosmetics categories grew from 19% to 22% of net
sales during fiscal 2004. The growth in fiscal 2004 home shopping net sales is
attributable to the growth in FTE homes receiving the Company's television
programming. During fiscal 2004, the Company added approximately 4.5 million FTE
subscriber homes, an increase of 8%, going from 55.6 million FTE subscriber
homes at January 31, 2004 to 60.1 million FTE subscriber homes at January 31,
2005. The average number of FTE subscriber homes was 57.7 million for fiscal
2004 and 53.2 million for fiscal 2003, an 8% 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 and a 14% year-to-date increase,
or $15,244,000, in Internet sales over fiscal 2003 offset by an overall decrease
in the average order size due to the aforementioned decrease in average selling
prices. The Company intends to continue to develop its merchandising and
programming strategies, including the continuation of its strategy of product
diversification and increased marketing spending with the goal of improving its
television home shopping and Internet sales results. While the Company is
optimistic that television home shopping and Internet sales results will
improve, there can be no assurance that these changes in strategy will achieve
the intended results.

Consolidated net sales, inclusive of shipping and handling revenue, for
fiscal 2003 were $616,795,000 compared to $554,926,000 for fiscal 2002, an 11%
increase. 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. Net sales attributed to the Company's
television home shopping and Internet operations increased 10% to $581,999,000
for fiscal 2003 from $529,682,000 for fiscal 2002. The still challenging retail
economic environment, aggressive competition in the live home shopping industry
and slowdown in consumer spending experienced by the Company and other
merchandise retailers along with the distraction of continuing hostilities in
Iraq had an adverse affect on total net sales growth for fiscal 2003 as compared
to fiscal 2002. Also during the second half of fiscal 2003, the Company made
significant progress on its dual strategic objectives of diversifying the
merchandise mix offered to consumers and of lowering its average selling price.
During fiscal 2003, the Company chose not to repeat an aggressive, yet
unprofitable

36

Internet sales promotion that was run during the third quarter of fiscal 2002,
which contributed to the lower Internet sales growth percentage for fiscal 2003
of 18% compared to fiscal 2002 sales growth percentage of 52%. Notwithstanding
the challenging economic situation, the continued growth in home shopping net
sales is primarily attributable to the growth in FTE homes receiving the
Company's television programming. During fiscal 2003, the Company added
approximately 5.1 million FTE subscriber homes, an increase of 10%, going from
50.5 million FTE subscriber homes at January 31, 2003 to 55.6 million FTE
subscriber homes at January 31, 2004. The average number of FTE subscriber homes
was 53.2 million for fiscal 2003 and 46.7 million for fiscal 2002, a 14%
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
and an 18% increase, or $16,968,000, in Internet sales over fiscal 2002, which
was offset by a decrease in the average order size. In addition, total net sales
increased from fiscal 2002 resulting from a 75% increase, or $10,946,000, in net
sales from FanBuzz driven by growth in the business and as a result of the
Company reflecting a full year of FanBuzz net sales in fiscal 2003.

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 have been approximately 33% to 36% over the past three
fiscal years. The return rate for the television home shopping and Internet
operations has decreased over the past fiscal year and is attributable in part
to generally lower average unit television home shopping selling price points
for the Company ($179 in fiscal 2004 and $213 in fiscal 2003), which typically
results in lower return rates. 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 television home shopping and
Internet businesses.

GROSS PROFIT

Gross profits for fiscal 2004 and 2003 were $214,240,000 and $221,233,000,
respectively, a decrease of $6,993,000 or 3%. The principal reason for the
decrease in gross profit from year to year was the decrease in gross profit
margin experienced by the Company during fiscal 2004, offset by increased sales
volume from the Company's television home shopping and Internet businesses.
Gross margins for fiscal 2004 were 33.0% compared to 35.9% for fiscal 2003.
Television home shopping and Internet gross margins for fiscal 2004 and 2003
were 32.9% and 35.1%, respectively. Television and Internet gross margins for
fiscal 2004 decreased as compared to gross margins of fiscal 2003 primarily due
to decreased television and Internet shipping and handling margins of
approximately 1.4% driven by the impact of the Company's free shipping loyalty
club that launched in February 2004. Merchandise margins were also significantly
down during fiscal 2004 as a result of product discounting promotions that were
offered in order to generate additional sales during the second half of the
year, reduced margins on RLM fulfillment services as a result of contract
renegotiations and a third quarter FanBuzz inventory impairment write down of
$565,000 recorded as a result of the loss of the National Hockey League
contract. In addition, gross margins have also been unfavorably impacted during
the year as a result of other promotional activities initiated by the Company in
order to clear out excess on-hand inventory and to test various marketing
initiatives. Gross margins may not be comparable to those of other entities,
since some entities include all of the costs related to their product
distribution network in cost of sales and others, including the Company, exclude
a portion of them from gross margin, including them instead as a component of
distribution and selling expense. The Company expects the retail environment to
continue to be uncertain and anticipates continued promotional activity for
fiscal 2005.

Gross profits for fiscal 2003 and 2002 were $221,233,000 and $199,347,000,
respectively, an increase of $21,886,000 or 11%. Gross margins for fiscal 2003
were 35.9% compared to 35.9% for fiscal 2002. The principal reason for the
increase in gross profits was the increased sales volume from the Company's
television home shopping and Internet businesses. In addition, gross profit for
fiscal 2003 included positive contributions of approximately $5.3 million from
FanBuzz. Television home shopping and Internet gross margins for fiscal 2003 and
2002 were 35.1% and 35.3%, respectively. Television and Internet gross margins
for fiscal 2003 slightly decreased as compared to fiscal 2002 partly due to the
highly promotional nature of the retail environment throughout 2003 as well as
an increase in the mix of lower margin non-jewelry product offerings

37

sold during the year as the Company continues its effort to diversify its
product mix offerings. In fiscal 2003, particularly in the second half, one of
the Company's main priorities was to diversify its merchandise mix, focusing on
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. In addition, television and Internet gross margins for fiscal 2003 were
negatively impacted by first quarter promotional activity in the form of
discounting and shipping and handling promotions that were implemented by the
Company in an effort to maintain sales levels during the Iraq conflict when
viewership was decreased and general uncertainty had an adverse impact on retail
merchants.

OPERATING EXPENSES

Total operating expenses were $273,324,000, $232,157,000 and $209,834,000
for fiscal years 2004, 2003 and 2002, respectively, representing an increase of
$41,167,000 or 18% from fiscal 2003 to fiscal 2004, and an increase of
$22,323,000 or 11% from fiscal 2002 to fiscal 2003. Fiscal 2004 total operating
expenses included a non-cash charge of $11,302,000 relating to impairments of
goodwill and other long-lived assets associated with FanBuzz and a $1,900,000
non-cash charge relating to a fourth quarter write down of television
advertising credits. Total operating expenses for fiscal 2004 also included a
charge of $3,964,000 recorded in connection with management's decision to
eliminate a number of positions within the Company. Fiscal 2003 total operating
expense includes a $4,625,000 charge related to costs associated with the
Company's chief executive officer transition. These costs consisted primarily of
contract severance and hiring costs totaling $4,317,000, legal and other
professional fees totaling $247,000 and other direct transition costs totaling
$61,000. During fiscal 2003, the Company also incurred an additional $2,000,000
of severance relating to organizational changes in its senior management team.
In addition, during fiscal 2003, the Company recorded a $4,417,000 gain related
to the sale of its ten low power television stations, which reduced total
operating expenses in fiscal 2003.

Distribution and selling expense for fiscal 2004 increased $20,773,000 or
11% to $213,788,000 or 33% of net sales compared to $193,015,000 or 31% of net
sales in fiscal 2003. Distribution and selling expense increased primarily as a
result of increases in net cable access fees of $6,713,000 due to a 9% increase
in the number of average FTE subscribers over the prior year and increased costs
associated with the hiring of merchandising personnel and on-air talent of
$6,776,000 during fiscal 2004. In addition, distribution and selling expense for
fiscal 2004 also increased over fiscal 2003 as a result of increased direct-mail
and marketing expenses of $2,714,000 as the Company attempted to acquire
customers and stimulate ShopNBC program awareness and increased telemarketing
and customer service costs of $3,701,000, associated with increased sales
volumes and the Company's commitment to improve its customer service.

Distribution and selling expense for fiscal 2003 increased $15,203,000 or
9% to $193,015,000 or 31% of net sales compared to $177,812,000 or 32% of net
sales in fiscal 2002. Distribution and selling expense increased primarily as a
result of increases in net cable access fees of $8,654,000 due to a 14% increase
in the number of average FTE subscribers over the prior year, increased costs of
$4,005,000 associated with new merchandising personnel hired to develop new
product categories, additional costs of $1,764,000 associated with the Company's
test broadcasting launch of the Shop & Style program in conjunction with NBC and
certain NBC owned and operated television station affiliates, additional
distribution and selling costs of $4,009,000 associated with FanBuzz resulting
from its partnership with the National Hockey League, additional costs of
$371,000 associated with closed captioning and increased costs of $713,000
associated with on-air talent, offset by decreased bad debt expense of
$1,934,000 resulting from increased customer usage of the ShopNBC credit card
and decreased telemarketing costs of $2,416,000 from the prior year relating to
efficiencies realized.

General and administration expense for fiscal 2004 increased $3,162,000, or
17%, to $22,250,000, or 3% of net sales, compared to $19,088,000, or 3% of net
sales, in fiscal 2003. General and administrative expense increased over fiscal
2003 primarily as a result of increased information system personnel salaries,
recruiting costs and software maintenance fees of $3,150,000, increased legal
and accounting fees $894,000, increased human resources and recruitment fees of
$495,000, offset by a decrease in general and administration expense associated
with the establishment of a $470,000 litigation settlement reserve in fiscal
2003 and the write-off of
38

approximately $500,000 of legal fees in fiscal 2003 incurred in connection with
a discontinued business development initiative.

General and administrative expense for fiscal 2003 increased $3,003,000 or
19% to $19,088,000 or 3% of net sales compared to $16,085,000 or 3% of net sales
in fiscal 2002. General and administrative expense increased over prior year
primarily as a result of increased consulting, salaries and maintenance fees
totaling $2,028,000 associated with the Company's systems conversion effort, the
establishment of a $470,000 net reserve in fiscal 2003 for a pending litigation
settlement, the write-off of approximately $500,000 of legal fees in the first
quarter of fiscal 2003 incurred in connection with a discontinued business
development initiative and additional expense of $644,000 incurred in connection
with the hiring of two new executive officers. These increases were offset by a
decrease in rent expense of $891,000, which resulted from the termination of the
Company's long-term property lease following the Company's acquisition of the
leased property in the first quarter of fiscal 2003.

Depreciation and amortization expense was $20,120,000, $17,846,000 and
$15,937,000 for fiscal 2004, 2003 and 2002, respectively, representing an
increase of $2,274,000 or 13% from fiscal 2003 to fiscal 2004 and an increase of
$1,909,000 or 12% from fiscal 2002 to fiscal 2003. Depreciation and amortization
expense as a percentage of net sales was 3% for fiscal 2004, 2003 and 2002. The
dollar increase from fiscal 2003 to fiscal 2004 is primarily due to increased
depreciation and amortization as a result of assets placed in service in
connection with the Company's various application software development and
functionality enhancements. The dollar increase from fiscal 2002 to fiscal 2003
is primarily due to increased depreciation and amortization as a result of
assets placed in service in connection with the Company's ERP systems conversion
and implementation, depreciation on the two commercial buildings purchased by
the Company in February 2003 and increased depreciation associated with the
Company's acquisition of television station WWDP TV-46 in April 2003, offset by
decreased depreciation associated with VVIFC fixed assets that were written down
in the fourth quarter of fiscal 2002 following the Company's restructuring of
its customer care and fulfillment services agreement with RLM and decreased
depreciation as a result of the Company's sale of ten low power television
stations in February 2003.

OPERATING LOSS

The Company reported an operating loss of $59,084,000 for fiscal 2004
compared with an operating loss of $10,924,000 for fiscal 2003, an increase of
$48,160,000. Operating loss for fiscal 2004 increased from prior year primarily
as a result of the Company's decrease in gross margins as described above under
"Gross Profits." In addition to the decrease in gross margin over fiscal 2003,
there were increases in distribution and selling expenses, particularly net
cable access fees and additional costs associated with merchandising, marketing
and on-air talent, increases in general and administrative expenses recorded in
connection with information system personnel salaries, recruiting costs and
software maintenance fees and increases in depreciation and amortization expense
as a result of assets placed in service in connection with the Company's various
application software development and functionality enhancements, the details of
which are discussed above. Additionally, the Company's fiscal 2004 operating
loss also increased from fiscal 2003 due to $13,202,000 of asset impairment
charges recorded in the third and fourth quarter of fiscal 2004 and a charge of
$3,964,000 recorded in connection with costs associated with employee
terminations.

The Company reported an operating loss of $10,924,000 for fiscal 2003
compared with an operating loss of $10,487,000 for fiscal 2002, an increase of
$437,000. Operating loss for fiscal 2003 increased from fiscal 2002 primarily as
a result of increases in distribution and selling expenses, particularly cable
access fees for which the expense of adding approximately 5.1 million new FTE
homes since January 2003 is being incurred but the future revenue benefit and
productivity of these additional homes was yet to be fully realized and
increased costs associated with new merchandising personnel hired to develop new
product categories, increased general and administrative expenses recorded in
connection with pending litigation, additional consulting, salary and
maintenance fees, the write off of capitalized legal fees associated with a
discontinued business development initiative and increases in depreciation and
amortization as a result of assets placed in service in connection with the
Company's ERP systems conversion and implementation and fiscal 2003 building
purchases the details of which are discussed above. In addition, operating
results were reduced in
39

fiscal 2003 as a result of a $4,625,000 charge related to costs incurred
associated with the Company's chief executive officer transition and a
$2,000,000 severance charge relating to organizational changes in its senior
management team. These expense increases were offset by the increase in net
sales and gross profits reported by the Company's television home shopping,
Internet and other businesses during fiscal 2003 and the recording of a
$4,417,000 pre-tax gain following the sale of ten low power television stations
in the first quarter of fiscal 2003.

OTHER INCOME (EXPENSE)

Total other income (expense) was $1,508,000 in fiscal 2004, $(288,000) in
fiscal 2003 and $(28,493,000) in fiscal 2002. Total other income for fiscal 2004
included interest income of $1,558,000. Total other expense for fiscal 2003
included the following: pre-tax investment write-offs totaling $2,011,000
relating to an investment in an Internet retailer whose decline in fair value
was determined by the Company to be other than temporary; pre-tax gains of
$361,000 recorded on the sale of security investments; and interest income of
$1,362,000. 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; net pre-tax gains of
$488,000 recorded on the sale, conversion and holdings of security investments;
and interest income of $3,167,000.

NET LOSS

Net loss available to common shareholders was $57,886,000 or $1.57 per
basic and diluted share for fiscal 2004. Net loss available to common
shareholders was $11,675,000 or $.32 per basic and diluted share for fiscal
2003. Net loss available to common shareholders was $39,392,000 or $1.06 per
basic and diluted share for fiscal 2002. Net loss available to common
shareholders for fiscal 2002 included a loss of $5,669,000 related to the
Company's equity share of losses in RLM. For fiscal years 2004, 2003 and 2002,
respectively, the Company had approximately 36,815,000, 35,934,000 and
37,173,000 basic and diluted weighted average common shares outstanding.

For fiscal years 2004, 2003 and 2002, net loss reflects an income tax
provision (benefit) of $25,000, $180,000 and $(5,539,000), respectively, which
resulted in a recorded effective tax rate of 0% in fiscal 2004, 2% in fiscal
2003 and (12)% in fiscal 2002. The Company recorded an income tax provision
during fiscal 2004 and fiscal 2003, relating to state income taxes payable on
certain income for which there was no loss carryforward benefit available. The
Company has not recorded any additional tax benefits in fiscal 2004 and fiscal
2003 as such benefits are offset fully by the income tax valuation allowance
recorded against loss carryforwards. The Company's effective tax rate for fiscal
2004, fiscal 2003 and fiscal 2002 is lower than its historical effective tax
rate as a result of the Company recording a 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 the attendant fixed costs associated with a significant
expansion of cable homes, a challenging retail economic environment and a
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 such point that the Company
believes it is more likely than not that such assets will be realized in the
future.

PROGRAM DISTRIBUTION

The Company's television home shopping program was available to
approximately 63.9 million homes as of January 31, 2005 as compared to 61.9
million homes as of January 31, 2004 and to 55.1 million homes as of January 31,
2003. The Company's programming is currently available through affiliation and
time-block purchase agreements with approximately 1,250 cable and satellite
systems. Beginning in April 2003, the Company's programming was made available
full-time to homes in the Boston, Massachusetts market over
40

the air via a full-power television broadcast station that the Company acquired.
As of January 31, 2005, 2004 and 2003, the Company's programming was available
to approximately 60.1 million, 55.6 million and 50.5 million FTE households,
respectively. Approximately 54.2 million, 49.0 million and 44.1 million
households at January 31, 2005, 2004 and 2003, 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 that
programming is received. In March 2003, the Company completed the sale of ten of
its eleven low power television stations. Management believes that the sale of
these stations did 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 fiscal 2004 and 2003 have been prepared on the same basis as the annual
financial statements and reflect adjustments (consisting of normal recurring
adjustments) that 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.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

As of January 31, 2005 and 2004, cash and cash equivalents and short-term
investments were $100,581,000 and $127,181,000, respectively, a $26,600,000
decrease. For fiscal 2004 working capital decreased $34,697,000 to $151,450,000
compared to working capital of $186,147,000 for fiscal 2003. The current ratio
was 2.7 at January 31, 2005 compared to 3.2 at January 31, 2004.

SOURCES OF LIQUIDITY

The Company's principal source of liquidity is its available cash, cash
equivalents and short-term investments, accrued interest earned from its
short-term investments and its operating cash flow, which is primarily generated
from credit card receipts from sales transactions and the collection of
outstanding customer accounts receivables. The timing of customer collections
made pursuant to the Company's ValuePay installment program and the extent to
which the Company extends credit to its customers is important to the Company's
short-term liquidity and cash resources. In addition, a significant increase in
the Company's accounts receivable aging or credit losses could negatively impact
the Company's source of cash from operations in the short term. 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. Historically, the Company has also
been able to generate additional cash sources from the proceeds of stock option
exercises and from the sale of its equity investments and other properties;
however, these sources of cash are neither relied upon nor controllable by the
Company. The Company has no long-term debt other than fixed capital lease
obligations and believes it has the ability to obtain additional financing if
necessary. At January 31, 2005 and 2004, all short-term investments and cash
equivalents were invested primarily in money market funds, high quality
commercial paper with original maturity dates of less than 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.
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
and interest earned on these investments are subject to interest rate
fluctuations. The average maturity of the Company's investment portfolio ranges
from 30-180 days.

42

CASH REQUIREMENTS

The Company's principal use of cash is to fund its business operations,
which consist primarily of purchasing inventory for resale, funding account
receivables growth in support of sales growth and funding operating expenses,
particularly the Company's contractual commitments for cable and satellite
programming and the funding of capital expenditures. Expenditures made for
property and equipment in fiscal 2004 and 2003 and for expected future capital
expenditures include the upgrade and replacement of computer software and
front-end merchandising systems, expansion of capacity to support anticipated
growth in the Company's business, continued improvements and modifications to
the Company's owned headquarter buildings and the upgrade and digitalization 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. In addition, during fiscal 2003 the Company made a
significant investment of cash in connection with the acquisition of television
station WWDP TV-46 in Boston, Massachusetts and two commercial buildings where
the Company maintains its corporate administrative, television production and
jewelry distribution operations. Historically, the Company has also used its
cash resources for various strategic investments and for the repurchase of stock
under the Company's stock repurchase program but is under no obligation to
continue doing so if protection of liquidity is desired. The Company has the
discretion in the future to continue its stock repurchase program and will make
strategic investments as opportunities present themselves or when cash
investments are determined to be beneficial to the long-term interests of its
shareholders.

The Company ended fiscal 2004 with cash and cash equivalents and short-term
investments of $100,581,000, no debt and $1,380,000 of long-term capital lease
obligations. The Company expects continued future growth in working capital as
revenues grow beyond 2004 and into fiscal 2005, but expects cash generated from
operations to largely offset the expected use. The Company believes its existing
cash balances and its ability to raise additional financing, considering its
strong balance sheet, will be sufficient to fund its obligations and commitments
as they come due on a long-term basis as well as potential foreseeable
contingencies. These estimates are subject to normal business risk factors,
including those identified under "Business -- Risk Factors." In addition to
these Risk Factors, a significant element of uncertainty in future cash flows
arises from potential strategic investments, which are inherently opportunistic
and difficult to predict. The Company believes existing cash balances, its
ability to raise financing and the ability to structure transactions in a manner
reflective of capital availability will be sufficient to fund any such
investments while maintaining sufficient liquidity for its normal business
operations.

Total assets at January 31, 2005 were $350,296,000 compared to $396,591,000
at January 31, 2004. Shareholders' equity was $216,812,000 at January 31, 2005,
compared to $267,007,000 at January 31, 2004, a decrease of $50,195,000. The
decrease in shareholders' equity from fiscal 2003 to fiscal 2004 resulted
primarily from the net loss of $57,601,000 recorded during the year, $53,000
relating to accrued interest on a note receivable from a former officer and
accretion on redeemable preferred stock of $285,000. These decreases were offset
by increases in shareholders' equity of $3,046,000 from proceeds received
related to the exercise of stock options, $4,211,000 from proceeds received on
notes receivable and vesting of deferred compensation of $486,000. As of January
31, 2005, the Company had long-term debt obligations totaling $1,380,000 related
to assets purchased under capital lease arrangements. The decrease in
shareholders' equity from fiscal 2002 to fiscal 2003 resulted primarily from the
net loss of $11,392,000 recorded during the year, the repurchase of 586,000
common shares totaling $6,429,000 under the Company's authorized stock
repurchase plan, $60,000 relating to accrued interest on a note receivable from
a former officer and accretion on redeemable preferred stock of $283,000. These
decreases were offset by increases in shareholders' equity of $7,163,000 from
proceeds received related to the exercise of stock options, unrealized gains on
investments classified as "available-for-sale" totaling $2,517,000 and vesting
of deferred compensation of $845,000. As of January 31, 2004, the Company had
long-term debt obligations totaling $2,002,000 related to assets purchased under
capital lease arrangements.

For fiscal 2004, net cash used for operating activities totaled $18,070,000
compared to net cash provided by operating activities of $3,368,000 in fiscal
2003 and $3,666,000 in fiscal 2002. Net cash used for operating activities for
fiscal 2004 reflects a net loss, as adjusted for depreciation and amortization,
common stock issued
43

to employees, amortization of deferred compensation, loss on sale of property
and investments and asset impairment charges recorded in fiscal 2004. In
addition, net cash used for operating activities for fiscal 2004 reflects a
decrease in inventories and an increase in accounts payable and accrued
expenses, offset by an increase in accounts receivable and prepaid expenses and
other. Inventories decreased primarily as a result of the Company's strong
fourth quarter sales activity and management's focused effort to reduce overall
inventory levels. The increase in accounts payable and accrued expenses is a
result of the timing of payments related to long-term cable access fees, accrued
severance recorded in connection with the third quarter employee terminations
and the timing of merchandise receipts. Accounts receivable increased due to an
increase in sales made utilizing extended payment terms for the ValuePay
installment program and increased credit card sales directly resulting from
increased sales following the Company's largest revenue quarter in its history.
Prepaid expenses and other increased primarily as a result of the Company's
temporary acquisition of a personal residence in conjunction with an executive's
hiring and relocation, increases in prepaid maintenance and salary contracts,
postage and deferred rent offset by a decrease in deferred television
advertising costs.

Net cash provided by operating activities for fiscal 2003 reflects a net
loss, as adjusted for depreciation and amortization, common stock issued to
employees, vesting of deferred compensation, gain on sale of television
stations, gain on sale and conversion of investments and write-down of
investments. In addition, net cash provided by operating activities for fiscal
2003 reflects a decrease in accounts 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 the first quarter
receipt of $11.0 million from RLM resulting from VVIFC's agreement to amend the
RLM customer care and fulfillment services agreement in fiscal 2002. Receivables
also decreased as a result of the timing of customer collections made from the
ValuePay installment program and an increase in the percentage of sales made
using the ShopNBC credit card, which is non-recourse to the Company. These
decreases were offset by an increase in credit card receivables as a result of
increased sales. Inventories increased from fiscal 2002 primarily to support
increased sales volume during the fiscal 2003 holiday season and as a direct
result of the Company's effort to diversify its product mix offerings and the
timing of merchandise receipts. Prepaid expenses decreased primarily as a result
of the timing of long-term cable access fee payments and decreases in prepaid
rent, deferred advertising and postage. The decrease in accounts payable and
accrued liabilities is primarily due to the timing of vendor payments and a
decrease in amounts due to customers for merchandise returns over fiscal 2002.

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. Accounts receivable
increased primarily due to an increase in sales made utilizing extended payment
terms and the timing of customer collections made under 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
fiscal 2002. Inventories also increased due to a significant reduction in
"advance order" selling over the 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 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 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.

44

The Company utilizes an installment payment program called ValuePay that
entitles customers to purchase merchandise and generally pay for the merchandise
in two to six equal monthly credit card installments. As of January 31, 2005,
the Company had approximately $61,894,000 due from customers under the ValuePay
installment program, compared to $56,339,000 at January 31, 2004. The increase
in ValuePay receivables from fiscal 2003 is primarily the result of increased
sales made utilizing extended payment terms and the general increase in overall
sales over the prior year. ValuePay was introduced many years ago to increase
sales and to respond to similar competitive programs while at the same time
reducing return rates on merchandise with above 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 2005 from the Company's present capital
resources and future operating cash flows.

Net cash used for investing activities totaled $2,304,000 in fiscal 2004,
compared to net cash provided by investing activities of $23,003,000 in fiscal
2003 and net cash provided by investing activities of $19,185,000 in fiscal
2002. Expenditures for property and equipment were $14,722,000 in fiscal 2004
compared to $23,489,000 in fiscal 2003 and $16,332,000 in fiscal 2002.
Expenditures for property and equipment during fiscal 2004 and fiscal 2003
primarily include capital expenditures made for the upgrade and replacement of
computer software and front-end ERP, customer care management and merchandising
systems, related computer equipment, digital broadcasting equipment and other
office equipment, warehouse equipment, production equipment and leasehold
improvements. Expenditures for property during fiscal 2003 also included the
Company's $11,300,000 property and commercial building purchase in February 2003
where the Company maintains its corporate administrative, television production
and jewelry distribution operations. Included as part of the acquisition was a
second commercial building, which the Company utilizes for additional office
space. Increases in property and equipment in fiscal 2002 were offset by a
decrease of approximately $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 upgrade and replacement of
various enterprise software systems, continued improvements and modifications to
the Company's owned headquarter buildings, the expansion of warehousing
capacity, the upgrade and digitalization of television production and
transmission equipment and the purchase of related computer equipment associated
with the expansion of the Company's home shopping business and e-commerce
initiatives. During fiscal 2004, the Company invested $128,397,000 in various
short-term investments, received proceeds of $136,604,000 from the sale of
short-term investments and received proceeds of $4,211,000 in connection with a
note receivable from a former officer.

During fiscal 2003, the Company invested $72,969,000 in various short-term
investments, received proceeds of $140,346,000 from the sale of short-term
investments and received proceeds of $5,000,000 in connection with the sale of
ten low power television stations. Also during fiscal 2003, the Company invested
$33,466,000, net of cash acquired, in connection with the acquisition of
television station WWDP TV-46 in Boston, Massachusetts and received proceeds of
$7,581,000 from the sale of common stock investments.

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.

Net cash provided by financing activities totaled $1,981,000 in fiscal 2004
and related primarily to cash proceeds received of $3,024,000 from the exercise
of stock options, offset by payments of long-term capital lease obligations of
$1,043,000. Net cash used for financing activities totaled $447,000 in fiscal
2003 and related primarily to payments made of $6,429,000 in conjunction with
the repurchase of 586,000 shares of the Company's common stock at an average
price of $10.97 per share and payments of long-term capital lease obligations of
$1,155,000, offset by cash proceeds received of $7,137,000 from the exercise of
stock options. 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

45

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.

CONTRACTUAL CASH OBLIGATIONS AND COMMITMENTS

The following table summarizes the Company's obligations and commitments as
of January 31, 2005, and the effect these 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, 2005 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.

IMPACT OF INFLATION

The Company believes that inflation has not had a material impact on its
results of operations for each of the fiscal years in the three-year period
ended January 31, 2005. The Company cannot assure that inflation will not have
an adverse impact on its operating results and financial condition in future
periods.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board issued a
revision to Statement of Financial Accounting Standards No. 123, "Share-Based
Payment" ("SFAS No. 123(R)"). The revision requires all entities to recognize
compensation expense in an amount equal to the fair value of share-based
payments granted to employees. The statement eliminates the alternative method
of accounting for employee share-based payments previously available under
Accounting Principles Board Opinion No. 25. The statement will be effective for
public companies for fiscal years beginning after June 15, 2005. The Company has
not completed the process of evaluating the full financial statement impact that
will result from the adoption of SFAS No. 123(R). See Note 2, "Stock-Based
Compensation", for the Company's disclosure regarding the pro forma effect of
the adoption of SFAS No. 123(R) on the Company's consolidated financial
statements.

In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 153, "Exchange of Nonmonetary Assets" ("SFAS No. 153"), an
amendment of APB Opinion No. 29. SFAS No. 153 requires all nonmonetary exchanges
to be recorded at fair value, unless the assets exchanged do not have commercial
substance. A nonmonetary exchange has commercial substance under SFAS No. 153 if
future cash flows are expected to change significantly as a result of the
exchange. SFAS No. 153 will be effective for all nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company does not
expect the adoption of SFAS No. 153 to have a significant impact on its
financial statements.

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

46

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 had
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.

47

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
ValueVision Media, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of ValueVision
Media, Inc. and Subsidiaries (the "Company") as of January 31, 2005 and 2004 and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended January 31, 2005. Our
audits also included Schedule II: Valuation and Qualifying Accounts for the
years ended January 31, 2005, 2004 and 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 these consolidated financial statements and the financial statement
schedule based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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 audits provide 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 as of January 31, 2005 and 2004, and the results of its
operations and its cash flows for the three years in the period ended January
31, 2005, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the January 31, 2005, 2004 and
2003 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.

We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of the
Company's internal control over financial reporting as of January 31, 2005,
based on criteria established in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our
report dated April 15, 2005, expressed an unqualified opinion on management's
assessment of the effectiveness of the Company's internal control over financial
reporting and an unqualified opinion on the effectiveness of the Company's
internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Minneapolis, Minnesota
April 15, 2005

49

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial
statements.
50

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial
statements.
51

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED JANUARY 31, 2005, 2004 AND 2003

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, 2005, 2004 AND 2003

1. THE COMPANY:

ValueVision Media, Inc. and Subsidiaries (the "Company") is an integrated
direct marketing company that markets, sells and distributes 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.

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 and one low power television
station in Atlanta, Georgia. 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. The Company also sells blocks of its
programming airtime to third-party vendors on a limited and selective basis
through its vendor programming sales program.

On November 16, 2000, the Company entered into an exclusive license
agreement with National Broadcasting Company, Inc., now known as NBC Universal,
Inc. ("NBC") pursuant to which NBC granted the Company worldwide use of an
NBC-branded name and the peacock image for a ten-year period. The Company
rebranded its television home shopping network and companion Internet shopping
website as "ShopNBC" and "ShopNBC.com", respectively, in fiscal 2001. This
rebranding was intended to position the Company 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.

The Company, through its wholly owned subsidiary, ValueVision Interactive,
Inc., maintains the ShopNBC.com website and manages its Internet e-commerce
initiatives. The Company, through its wholly owned subsidiary, VVI Fulfillment
Center, Inc. ("VVIFC"), provides fulfillment, warehousing, customer service and
telemarketing services to Ralph Lauren Media, LLC ("RLM"). VVIFC also provides
fulfillment and warehousing services for the NBC Experience Store in New York
City and direct to consumer products sold on NBC's website, fulfillment of
certain non-jewelry merchandise sold on the Company's television home shopping
program and Internet website and fulfillment to the Company's FanBuzz, Inc.
subsidiary ("FanBuzz"). Through FanBuzz, the Company also provides e-commerce
and fulfillment solutions to some of the most recognized sports, media and other
entertainment and retail companies.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company 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, 2004, include
the operations of television station WWDP TV-46 as of the effective date of its
acquisition, April 1, 2003. The accompanying consolidated results of operations
for the year ended January 31, 2003, include the operations of FanBuzz 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,
2005 is designated fiscal 2004, the year ended January 31, 2004 is designated
fiscal 2003 and the year ended January 31, 2003 is designated fiscal 2002. The
year ending January 31, 2006 is designated fiscal 2005.
54

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE

Revenue is recognized at the time merchandise is shipped or when services
are provided. Shipping and handling fees charged to 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.

Revenue is recognized for vendor programming airtime sales upon completion
of the production of the vendor's show and its broadcast over the Company's
ShopNBC television network in accordance with the Company's contractual service
obligation, when the sales price is fixed or determinable and collectibility is
reasonably assured. Revenue is recognized for the Company's fulfillment services
when the services are provided in accordance with the Company's contractual
obligation, the sales price is fixed or determinable and collectibility is
reasonably assured. The Company's customary shipping terms for its fulfillment
services are Freight-On-Board shipping point.

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 $2,421,000 at January 31, 2005
and $2,054,000 at January 31, 2004. The Company utilizes an installment payment
program called ValuePay that entitles customers to purchase merchandise and
generally pay for the merchandise in two to six equal monthly credit card
installments. As of January 31, 2005 and 2004, the Company had approximately
$61,894,000 and $56,339,000, respectively, of net receivables 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. Provision for doubtful accounts receivable
(primarily related to the Company's ValuePay program) for the years ended
January 31, 2005, 2004, and 2003 were $4,303,000, $4,556,000 and $6,704,000,
respectively.

COST OF SALES AND OTHER OPERATING EXPENSES

Cost of sales includes primarily the cost of merchandise sold, shipping and
handling costs, inbound freight costs, excess and obsolete inventory charges and
customer courtesy credits. Purchasing and receiving costs, including costs of
inspection, are included as a component of distribution and selling expense and
were approximately $10,724,000, $8,150,000 and $5,633,000 for the years ended
January 31, 2005, 2004 and 2003, respectively. Distribution and selling expense
consist primarily of cable and satellite access fees, credit card fees, bad debt
expense and costs associated with purchasing and receiving, inspection,
marketing and advertising, show production, website marketing and merchandising,
telemarketing, customer service, warehousing and fulfillment. General and
administrative expense consists primarily of costs associated with executive,
legal, accounting and finance, information systems and human resources
departments, software and system maintenance contracts, insurance, investor and
public relations and director fees.

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 not experienced losses in such
accounts and believes it is not exposed to any significant credit risk on its
cash and cash equivalents.

55

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SHORT-TERM INVESTMENTS

Short-term investments consist principally of high quality commercial paper
with original maturity dates of less than 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 30-180 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 not experienced 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 has classified certain long-term 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, 2005 and 2004, the Company no longer has long-term
equity investment securities.

Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"), 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. For the year ended January 31, 2003, the
Company recorded in the consolidated statement of operations unrealized gains on
security holdings of $1,021,000 relating to fair value adjustments made with
respect to derivative common stock purchase warrants held by the Company. In the
second quarter of fiscal 2003, the Company recorded a net pre-tax investment
gain of $361,000 relating to the sale of its common stock investments of Paxson
Communications, Inc. and iDine Rewards Network, Inc. ("iDine"; formerly
Transmedia Network, Inc.). 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 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 had derivative warrant investments.

Proceeds from sales of investment securities were $-0-, $7,581,000 and $-0-
in fiscal 2004, 2003 and 2002, respectively, and related gross realized gains
included in income were $-0-, $361,000 and $-0- in fiscal 2004, 2003 and 2002,
respectively.

As of January 31, 2005 and 2004, respectively, the Company had no
investments classified as trading securities in the accompanying consolidated
balance sheets.

INVENTORIES

Inventories, which consist primarily of consumer merchandise held for
resale, are stated principally at the lower of average cost or realizable value
and are reflected net of obsolescence write downs of $4,674,000 at January 31,
2005 and $5,224,000 at January 31, 2004.

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ADVERTISING COSTS

Promotional advertising expenditures are expensed in the period the
advertising initially takes place. Direct response advertising costs, consisting
primarily of catalog preparation, printing and postage expenditures, are
capitalized and amortized over the period during which the benefits are
expected, generally one to three months. The Company receives vendor allowances
for the reimbursement of direct advertising costs. Advertising allowances
received by the Company are recorded as a reduction of advertising expense and
were $1,254,000, $1,175,000 and $643,000 for the years ended January 31, 2005,
2004 and 2003, respectively. Advertising costs, after reflecting allowances
given by vendors, totaled $13,572,000, $10,993,000 and $10,619,000 for the years
ended January 31, 2005, 2004 and 2003, respectively, and consist primarily of
contractual marketing fees paid to certain cable operators for cross channel
promotions. The Company includes advertising costs as a component of
distribution and selling expense in the Company's consolidated statement of
operations. Prepaid expenses and other includes deferred advertising costs in
the form of television advertising credits from NBC of $135,000 at January 31,
2005 and $2,035,000 at January 31, 2004, which will be reflected as an expense
during the quarterly period of benefit. In the fourth quarter of fiscal 2004,
the Company wrote down $1,900,000 of these advertising credits as they were
deemed by management to be impaired. See Note 16 for a full discussion of the
Company's fiscal 2004 asset impairments.

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.

Property and equipment consisted of the following at January 31:

NBC TRADEMARK LICENSE AGREEMENT

As discussed further in Note 15, in November 2000, the Company entered into
a Trademark License Agreement with NBC (the "License Agreement") 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. In March 2001, the Company
established a measurement date with respect to the License Agreement by

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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
License Agreement. The Company used the Black-Scholes option pricing model to
compute the fair market value of the NBC warrants at March 12, 2001. Significant
assumptions in the warrant fair value calculation included: market price of
$11.00; exercise price of $17.375; risk-free interest rate of 5.08%; volatility
factor of 53.54%; and dividend yield of 0%. As of January 31, 2005 and 2004,
accumulated amortization related to this asset totaled $14,150,000 and
$10,923,000, 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 42-month period. In compensation for these services, the
Company currently pays NBC an annual fee of approximately $1.6 million 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. The value assigned to the
Distribution and Marketing Agreement and related warrant of $6,931,000 was
determined pursuant to an independent appraisal using the Black-Scholes option
pricing model and is being amortized on a straight-line basis over the term of
the agreement. Significant assumptions used in the warrant valuation included:
market price of $9.00; exercise price of $8.29; risk-free interest rate of
5.01%; volatility factor of 55.36%; and dividend yield of 0%. As of January 31,
2005 and 2004, accumulated amortization related to this asset totaled $4,003,000
and $3,309,000, 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 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 warrants were determined using the Black Scholes
option pricing 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, 2005 and 2004, total accumulated amortization related to these
assets totaled $726,000 and $523,000, respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," ("SFAS No. 142") 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 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, which resulted in a
$2,000,000 increase in goodwill.

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Changes in the carrying amount of goodwill for the years ended January 31
are as follows:

During the quarter ended October 31, 2004 the Company wrote off the
goodwill attributable to the FanBuzz acquisition as the Company had determined
that the goodwill was impaired following FanBuzz's loss of its National Hockey
League ("NHL") contract in September 2004. See Note 16 for a full discussion of
the Company's fiscal 2004 asset impairments.

Intangible assets have been recorded by the Company as a result of the
acquisition of FanBuzz in fiscal 2002 and television station WWDP TV-46 in
fiscal 2003. The components of amortized and unamortized intangible assets in
the accompanying consolidated balance sheets consists of the following:

Amortization expense for intangible assets for the years ended January 31,
2005, 2004 and 2003 was $433,000, $581,000 and $758,000, respectively. Estimated
amortization expense for fiscal 2005 is $68,000. During the quarter ended
October 31, 2004, the Company wrote off approximately $160,000 of intangible
assets in connection with the FanBuzz asset impairment. See Note 16 for a full
discussion of the Company's fiscal 2004 asset impairments.

OTHER ASSETS

Other assets consisted of the following at January 31:

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

Deferred satellite rent is attributable to the Company's fiscal 2004
long-term satellite services rental agreement that contains provisions for
scheduled rent decreases over the lease term. The Company recognizes the related
rental expense on a straight-line basis and records the difference between the
recognized rental expense and amounts payable under the lease as deferred rent.

Other assets consist principally of long-term deposits and the long-term
portion of prepaid compensation costs associated with employment contracts
entered into with certain key employees of the Company in fiscal 2004.
Compensation expense is being recognized for these contracts over the four-year
service period.

EQUITY INVESTMENTS

As of January 31, 2004, the Company no longer had long-term equity
investment securities. As discussed in Note 14, in February 2000, the Company
entered into a strategic alliance with Polo Ralph Lauren, NBC, NBCi and CNBC 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 an equity investment of $50 million of cash for
purposes of financing RLM's operating activities of which the entire commitment
had been funded by January 31, 2003. The Company, through VVIFC also entered
into an agreement to provide certain fulfillment and customer care services to
RLM.

In the fourth quarter of fiscal 2002, VVIFC amended, 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 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 and for
early termination of its original long-term services agreement. In accordance
with this amendment, RLM is permitted to negotiate with other parties to provide
it with fulfillment services. The Company continues to provide services to RLM
at a flat cost per order and has 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 related to a prepayment for a portion of the ongoing
services the Company was obligated to provide through December 31, 2003, and
therefore was recorded as deferred revenue and was recognized over the related
service period. 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 Company determined the fair value and thus the
impairment of the RLM assets by analyzing the equipment's future cash-flow
generating ability. This analysis included a comparison of the equipment's
current throughput capabilities to historic and expected future throughput
capacity under its amended shorter-term contractual arrangement with RLM. The
impaired assets are owned by VVIFC and are included in the "All Other"
segment-reporting category. The effect of amending its RLM services agreement
was to increase fourth quarter 2002 operating income and net income by
$2,500,000, representing consideration received for the early termination of the
agreement.

The Company accounted for its ownership interest in RLM under the equity
method of accounting and adjusted its investment balance for its share of RLM
losses each reporting period. The Company's equity share of RLM losses was
$5,669,000 in fiscal 2002. 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 and its
cash flow forecasts and by comparing its historical operational results to plan.
The RLM joint venture to date had incurred significant operating losses since it
commenced operations in November 2000 and the Company's expectations regarding
RLM's growth, earnings
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capability and ability to generate future positive cash flows had severely
diminished. In addition, as discussed above, the Company substantially amended
its existing fulfillment and services agreement with RLM in the fourth quarter
of fiscal 2002. The Company believed 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 with respect to
this investment and the decline in value was determined to be other than
temporary whereby the Company would 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 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 and 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. In the fourth quarter of fiscal 2003, the Company recorded a pre-tax
investment loss of $2,011,000 relating to a 1999 investment in an Internet
retailer whose decline in fair value was determined by the Company to be other
than temporary. The decline in fair value of the Internet retailer was driven by
their continued reported operating losses, large accumulated deficit and the
inability of the company to make its original target plan for revenue, gross
profit and earnings. 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. The declines in fair value were
determined by the Company to be other than temporary.

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" ("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, 2005 and 2004, the Company recorded a valuation
allowance of approximately $45,479,000 and $27,672,000, respectively, for its
net deferred tax assets including net operating and capital loss carryforwards.
Based on the Company's recent history of losses, a full valuation allowance was
recorded in fiscal 2004 and fiscal 2003 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 the attendant fixed costs associated with a significant
expansion of cable homes, a challenging retail economic environment and a
slowdown in consumer

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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, 2005, 2004 and 2003, approximately
1,072,000, 1,639,000 and 2,159,000, respectively, in-the-money potentially
dilutive common share stock options and warrants and 5,340,000 shares of
convertible preferred stock 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 on securities classified as "available-for-sale." Total
comprehensive loss was $57,601,000, $8,875,000 and $40,582,000 for the years
ended January 31, 2005, 2004 and 2003, respectively.

STOCK-BASED COMPENSATION

At January 31, 2005, 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 Accounting Principal Board 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of grant. The following table illustrates the effect on net loss and net 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 2004, 2003 and 2002, respectively:
risk-free interest rates of 3.8, 3.5 and 3.3 percent; expected volatility of 36,
36 and 45 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 certain financial
instruments and all non-financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value of amounts presented do not represent the
underlying value of the Company.

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

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.

RECLASSIFICATIONS

Certain fiscal 2003 amounts in the accompanying consolidated balance sheets
and statement of operations have been reclassified to conform to the fiscal 2004
presentation. This includes reclassifying $5,669,000 in equity in losses of
affiliates previously reported in fiscal 2002 as other income (expense) to a
presentation shown after the income tax provision (benefit). These
reclassifications had no impact on previously reported net loss or shareholders'
equity.

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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board ("FASB") issued
a revision to Statement of Financial Accounting Standards No. 123, "Share-Based
Payment" ("SFAS No. 123(R)"). The revision requires all entities to recognize
compensation expense in an amount equal to the fair value of share-based
payments granted to employees. The statement eliminates the alternative method
of accounting for employee share-based payments previously available under
Accounting Principles Board Opinion No. 25. The statement will be effective for
public companies for fiscal years beginning after June 15, 2005. The Company has
not completed the process of evaluating the full financial statement impact that
will result from the adoption of SFAS No. 123(R). See Note 2, "Stock-Based
Compensation", for the Company's disclosure regarding the pro forma effect of
the adoption of SFAS No. 123(R) on the Company's consolidated financial
statements.

In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 153, "Exchange of Nonmonetary Assets" ("SFAS No. 153"), an
amendment of APB Opinion No. 29. SFAS No. 153 requires all nonmonetary exchanges
to be recorded at fair value, unless the assets exchanged do not have commercial
substance. A nonmonetary exchange has commercial substance under SFAS No. 153 if
future cash flows are expected to change significantly as a result of the
exchange. SFAS No. 153 will be effective for all nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company does not
expect the adoption of SFAS No. 153 to have a significant impact on its
financial statements.

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3. CEO TRANSITION COSTS:

On May 20, 2003, the Company announced that its Chairman and Chief
Executive Officer ("CEO"), Gene McCaffery, would be part of a transition process
to determine a successor as CEO of the Company. On December 1, 2003 the Company
announced that its Board of Directors had named William J. Lansing as President
and CEO of the Company, effective December 16, 2003. Mr. Lansing joined the
Company with more than 15 years of senior management experience, including
positions as President and CEO at public companies in the consumer direct
marketing and Internet commerce arenas. He also was appointed to the Company's
Board of Directors. In addition, the Board appointed Marshall S. Geller to serve
as the non-executive Chairman of the Board, following Mr. McCaffery's
resignation from the Board.

In conjunction with Mr. McCaffery's resignation and the hiring of Mr.
Lansing, the Company recorded a charge to income of $4,625,000 in the fourth
quarter of fiscal 2003 related to the transition. CEO transition costs consisted
primarily of contract severance and hiring costs totaling $4,317,000, legal and
other professional fees totaling $247,000 and other direct transition costs
totaling $61,000. Documents relating to Mr. Lansing's employment with the
Company and Mr. McCaffery's separation from the Company were included in a
Report on Form 8-K filed on December 3, 2003.

4. ACQUISITIONS AND DISPOSITIONS:

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 reached approximately 1.8 million cable households.
The deal closed in the first quarter of fiscal 2003 on April 1, following
Federal Communication Commission ("FCC") approval. The Company made the
investment in television station WWDP TV-46 in order to build a long-term and
cost effective distribution strategy in the Boston, Massachusetts area. The
purchase price of the acquisition was $33,617,000 and has been accounted for
using the purchase method of accounting as stipulated by Statement of Financial
Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141"). The
results of operations of the acquired television station have been included in
the accompanying consolidated financial statements from April 1, 2003, 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.

The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed from television station WWDP TV-46 on the date
of acquisition:

Current assets.............................................. $ 176,000
Property and equipment...................................... 1,598,000
Other assets................................................ 5,000
FCC broadcasting license.................................... 31,943,000
-----------
Total assets acquired..................................... 33,722,000
Current liabilities......................................... 105,000
-----------
Net assets acquired....................................... $33,617,000
===========

The Company assigned $31,943,000 of the total acquisition price to
television station WWDP TV-46's FCC broadcasting license, which is not subject
to amortization as a result of its indefinite useful life. The Company tests the
FCC license asset for impairment annually, or more frequently if events or
changes in circumstances indicate that the asset might be impaired.

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 for approximately $11,300,000. One building
purchased is where the Company currently maintains its corporate administrative,

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television production and jewelry distribution operations. Included, as part of
the acquisition, was a second building of approximately 70,000 square feet of
commercial space, which the Company utilizes for additional office space. As a
result of this acquisition, the Company's long-term property lease on this space
was terminated.

In February 2003, the Company completed the sale of ten of its eleven low
power television stations for a total of $5,000,000. The Company recorded a
pre-tax operating gain on the sale of these low power television stations of
$4,417,000 in the first quarter of fiscal 2003. Management believes that the
sale of these stations did not have a significant impact on the ongoing
operations of the Company.

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. FanBuzz is an e-commerce and fulfillment solutions
provider of affinity based merchandise to some of the most recognized sports,
media and other entertainment brands in the world and many other professional
sports teams, leagues and colleges. The purchase price of the acquisition, which
closed on March 8, 2002, was $14,100,000 and was accounted for using the
purchase method of accounting as stipulated by SFAS No. 141. The Company
acquired FanBuzz to position itself to become a provider of outsourcing
solutions to companies wishing to add on-line or on-air commerce to their
existing business models. The acquisition allows the Company to use its existing
expertise in fulfillment, customer care, merchandising and marketing.
Additionally, the Company also expected to reduce FanBuzz's costs through
economies of scale. The purchase price and resulting goodwill reflect projected
future cash flows as a result of expected revenue growth and achievement of cost
synergies from leveraging the Company's economies of scale. 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.

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 (2-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.
During fiscal 2004, the Company wrote off the balance of goodwill after
determining that the book value significantly exceeded its implied fair value.
See Note 16.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. LOW POWER TELEVISION STATIONS:

The FCC through the Communications Act of 1934 regulates the licensing of
low power television stations' transmission authority. Low power television
station 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, 2005,
the Company held a license for one low power television station located in
Atlanta, Georgia that it currently uses and classifies this remaining station as
held and used at January 31, 2005. See Note 4 regarding the Company's sale of
low power television stations during fiscal 2003.

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 37,044,000 shares were issued and
outstanding as common stock as of January 31, 2005. The Board of Directors may
establish new classes and series of capital stock by resolution without
shareholder approval.

DIVIDENDS

The Company has never declared or paid any dividends with respect to its
capital stock. Under the terms of the Shareholder Agreement between the Company
and GE Capital Equity Investments, Inc. (GE Equity"), the Company is prohibited
from paying dividends in excess of 5% of the Company's market capitalization in
any fiscal quarter.

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. The excess of the redemption value over the
carrying value is being accreted by periodic charges to equity over the ten-year
redemption period.

WARRANTS

As discussed further in Notes 2 and 15, 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
conjunction with the Company's November 2000 execution of the Trademark License
Agreement with NBC, the Company agreed to accelerate the vesting of these
warrants. 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 fiscal
2002, the Company issued to NBC warrants to purchase 36,858 shares of the
Company's common stock at an
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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.

STOCK OPTIONS

In June 2004, the shareholders of the Company approved the Company's 2004
Omnibus Stock Plan (the "2004 Plan"), which provides for, among other things,
the issuance of up to 2,000,000 shares of the Company's common stock. The 2004
Plan is administered by the Company's Compensation Committee (the "Committee")
and has two basic components, (a) discretionary awards for employees, directors
and consultants and (b) automatic option grants for outside directors. All
employees of the Company or its affiliates are eligible to receive awards under
the 2004 Plan. The Committee may also award nonstatutory stock options and other
awards under the 2004 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 2004 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 employees 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. No incentive stock option
may be granted more than ten years after the effective date of the 2004 Plan or
be exercisable more than ten years after the date of grant. The 2004 Plan
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 2004 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 2004 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 2004 Plan are exercisable in whole or in
installments, as determined by the Committee, and are generally exercisable in
annual installments of 33%.

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 Committee and has two basic components, (a) discretionary awards for
employees, directors and consultants and (b) 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 and other
awards 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 installments, as determined by the
Committee, and are generally exercisable in annual installments of 33% to 50%.

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Previous to the adoption of the 2004 and 2001 Plans, 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 provided 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 were granted
at such exercise prices as the Committee determined but were 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 does 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, 2005, 2004 and 2003 and changes during the years then ended are presented
below:

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The following table summarizes information regarding stock options
outstanding at January 31, 2005:

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 $1,244,000, $2,149,000 and $851,000 in fiscal 2004, 2003 and 2002,
respectively. The Company has not recorded the tax benefit through paid in
capital in these fiscal years, as the related tax deductions were not taken due
to the losses incurred. These benefits will be recorded in the applicable future
periods.

RESTRICTED STOCK

On February 1, 2003, the Company awarded 114,170 shares of restricted stock
under the Company's 2001 Omnibus Stock Plan (as amended) to certain executive
officers. The stock vests one third on each of the next three anniversary dates
of the grant provided that the recipient is still employed with the Company. The
aggregate market value of the restricted stock at the date of award was
$1,491,000 and has been recorded as deferred compensation, a separate component
of shareholders' equity, and is being amortized as compensation expense over the
three-year vesting period. In the second quarter of fiscal 2004, the Company
awarded an additional 25,000 shares of restricted stock to certain employees.
The restricted stock vests over different periods ranging from 17 to 53 months
so long as the recipient is still employed with the Company. The aggregate
market value of the restricted stock at the award dates was $308,000 and has
been recorded as deferred compensation, a separate component of shareholders'
equity, and is being amortized as compensation

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expense over the respective vesting periods. During fiscal 2004, approximately
5,000 shares of unvested restricted stock were forfeited by employees who had
resigned from the Company.

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,
2005, approximately $21 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, 2005, the Company had repurchased a total of
3,820,000 shares of its common stock for a total net cost of $54,322,000 at an
average price of $14.22 per share. The Company did not repurchase any shares
under its repurchase program during the year ended January 31, 2005. During the
year ended January 31, 2004, the Company repurchased 586,000 shares of its
common stock at an average price of $10.97 per share. During the year ended
January 31, 2003, the Company repurchased 2,257,000 shares of its common stock
at an average price of $14.93 per share.

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, 2005 and 2004 were as follows:

The provision (benefit) from income taxes consisted of the following:

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

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, 2005 and 2004 in accordance
with the provisions of SFAS No. 109. The ultimate realization of these deferred
tax assets depends on the ability of the Company to generate sufficient taxable
income and capital gains in the future. As of January 31, 2005, the Company has
net operating loss carryforwards of approximately $119 million and capital loss
carryforwards of approximately $800,000 that will begin to expire in January
2022 and January 2007, respectively.

8. COMMITMENTS AND CONTINGENCIES:

CABLE AND SATELLITE AFFILIATION AGREEMENTS

As of January 31, 2005, the Company had entered into 3 to 12 year
affiliation agreements with approximately 90 cable system operators along with
the satellite companies DIRECTV and EchoStar (DISH Network) that 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, 2005, 2004 and 2003,
respectively, the Company paid approximately $93,539,000, $85,359,000 and
$79,542,000 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 1, 2003, the Company entered into a three-year employment
agreement with its new CEO. The employment agreement specifies, among other
things, the term and duties of employment, compensation and benefits,
termination of employment, severance and non-compete restrictions.

On November 25, 2003, the Company entered into a Separation Agreement with
the then-serving CEO whereby the executive resigned as President, CEO and
Chairman of the Board. In addition, the agreement stipulated, among other
things, the terms of separation including severance payments, non-compete
restrictions, and transition and continuing employment. As a direct result of
entering into this Separation Agreement, the Company recorded a $3,530,000
charge to earnings in the fourth quarter of fiscal 2003, which has been included
as part of CEO transition costs.

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In addition, the Company has entered into employment and salary
continuation agreements with a number of officers and on-air hosts of the
Company and its subsidiaries for original terms ranging from 12 to 36 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 agreements), severance
payments and non-disclosing and non-compete restrictions. The aggregate
commitment for future base compensation at January 31, 2005 was approximately
$13,830,000.

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 offices and warehousing facilities at subsidiary
locations, satellite transponder, office equipment and certain tower site
locations.

Future minimum lease payments at January 31, 2005 were as follows:

Total rent expense under such agreements was approximately $3,608,000 in
fiscal 2004, $3,953,000 in fiscal 2003 and $4,817,000 in fiscal 2002.

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 sheets. The capitalized cost of leased
assets was approximately $4,572,000 at January 31, 2005 and 2004.

Future minimum lease payments for assets under capital leases at January
31, 2005 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1999, the Company elected to make matching contributions to the plan. The
Company currently matches $.50 for every $1.00 contributed by eligible
participants up to a maximum of 6% of eligible compensation. The Company made
plan contributions totaling approximately $360,000, $263,000 and $226,000 during
fiscal 2004, 2003 and 2002, respectively.

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 July 2001, a customer, Vincent Bounomo, a Florida resident, commenced a
purported class action against the Company in Hennepin County District Court in
Minneapolis, Minnesota, alleging that he had purchased a computer system from
the Company following a broadcast that had promised him free lifetime access to
the Internet as part of the computer system. The customer alleged that the
Company had breached its alleged promise to provide him free lifetime access to
the Internet, breached certain warranties, and violated state consumer
protection statutes. The Company denied all liability. Following discovery, the
amendment of pleadings, and certain motion practice, the Company agreed to
settle this action on a classwide basis. Under the terms of the settlement, the
Company will: (i) provide 15 months of free dial-up access to the Internet to
customers who purchased the computer systems at issue and who file timely and
complete claim forms; (ii) pay plaintiffs' attorneys' fees, class
representatives fees, costs, expenses, and disbursements as awarded by the
court, up to a maximum total amount of $950,000; and (iii) pay the costs of
notifying class members and administering the settlement. The court granted
final approval to the proposed settlement following a fairness hearing on March
30, 2004, and ordered that the action, and all claims that were or could have
been asserted therein, be dismissed with prejudice. The Company's insurer and
the vendor of the computer systems have agreed to both pay a portion of the
remaining cost of the settlement, after application of insurance proceeds. The
Company's portion of the settlement cost was approximately $470,000. The Company
recorded and recognized the litigation settlement in the first quarter of fiscal
2003 when it was determined that the loss was both probable and estimable after
a binding Mediated Settlement Agreement was signed. The Company recorded a
liability for the cash settlement payment of approximately $1,190,000,
representing the estimated cash outlay the Company was required to remit under
the settlement agreement. The Company also recorded the amounts to be recovered
from its computer vendor, approximately $470,000, and insurance carrier,
$250,000 as receivables on its balance sheet. The collectibility of the
receivables recorded was reasonably assured based upon the execution of the
binding Mediated Settlement Agreement and after assessing the ability of each
party to pay the Company. The Company received the cash proceeds from the
insurance company and is currently receiving monthly payments from its computer
vendor.

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
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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 did not have a
material effect on the Company's operations or consolidated financial
statements.

10. RELATED PARTY TRANSACTIONS:

At January 31, 2005 and 2004, the Company held a note receivable totaling
$-0- and $4,158,000, respectively, including accrued interest (the "Note"), from
a former executive officer of the Company for a loan made in 2000 under the
officer's employment agreement. The Note bears interest at a floating rate equal
to the Federal short-term rate in effect under Section 1274(d) of the Internal
Revenue Code of 1986, as amended, and is secured by shares of the Company's
common stock and options to purchase shares of the Company's common stock held
by the former executive with a fair market value equal to 150% of the principal
balance borrowed under the Note. The Note is reflected as a reduction of
shareholders' equity in the accompanying consolidated balance sheet since it is
collateralized by a security interest in vested stock options and in shares of
the Company's common stock to be acquired by the former officer upon the
exercise of such vested stock options. In the third quarter of fiscal 2004, the
Company received proceeds of $1,600,000 as partial repayment of the Note and the
remaining outstanding balance of $2,598,000 plus accrued interest was paid off
in full on December 8, 2004.

In conjunction with its services agreement with RLM, the Company records
revenue for amounts billed to RLM for telemarketing, order taking and
fulfillment and warehousing services. Revenues recorded from these services were
$8,705,000, $8,605,000 and $7,666,000 for the years ended January 31, 2005, 2004
and 2003, respectively. Amounts due from RLM as of January 31, 2005 and 2004
were $850,000 and $748,000, respectively.

In July 2004, the Company entered into an agreement with Right Now
Technologies, Inc. ("Right Now") under which the Company paid Right Now
approximately $150,000 during fiscal year 2004 to utilize certain customer
services technologies developed by Right Now. The Company's President and Chief
Executive Officer, William J. Lansing, serves on the board of directors of Right
Now.

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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 SFAS No. 131 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,
fitness products, giftware, collectibles, seasonal items and other merchandise.
The Company's segments primarily operate 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 material
intersegment product sales. Segment information included in the accompanying
consolidated

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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 is attributable to
VVIFC, which provides fulfillment, warehousing and telemarketing services
primarily to RLM, the Company and the NBC Experience Store.

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

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Information on net sales by significant product groups is as follows (in
thousands):

13. NBC AND GE EQUITY STRATEGIC ALLIANCE:

In March 1999, the Company entered into a strategic alliance with NBC and
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 approximately $8.29 per
share) and the Company may 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.
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 equity 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. Following the
exercise of the Investment Warrant, the combined ownership of the Company by GE
Equity and NBC on a fully diluted basis was approximately 40%. In February 2005,
GE Equity sold 2,000,000 shares of the Company's common stock. Following GE
Equity's sale of such common stock, GE Equity and NBC have a combined ownership
in the Company of approximately 37% on a diluted basis.

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) initially
provided that GE Equity and NBC would 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". As defined in the
Shareholder Agreement, 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 were
to include a proportional number of directors nominated by GE Equity and NBC.
The Shareholder Agreement also

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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). Finally, the Company is
prohibited from exceeding certain thresholds relating to the issuance of voting
securities 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 or 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," each as
defined in the Shareholder Agreement, 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.

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, (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, or (vii) in a private sale
or pursuant to Rule 144A of the Securities Act of 1933; provided that, in the
case of any transfer pursuant to clause (v) or (vii), the 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), or (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's
fully-diluted outstanding stock, except pursuant to issuance or exercise of any
warrants or pursuant to a 100% tender offer for the Company.

On March 19, 2004 the Company, NBC and GE Equity agreed to amend the
Shareholder Agreement as follows: (i) to increase the authorized size of the
Company's board of directors to 9 from 7, (ii) to permit NBC and GE Equity to
appoint an aggregate of 3 directors instead of 2 to the Company's board of
directors,

79

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and (iii) to reflect that NBC and GE Equity would no longer have the right to
have its director-nominees on the Audit, Compensation or Nominating and
Governance Committees, in the event the committees must be comprised solely of
"independent" directors under applicable laws or Nasdaq regulations. Instead,
NBC and GE Equity would have the right to have an observer attend all of these
committee meetings, to the extent permitted by applicable law.

REGISTRATION RIGHTS AGREEMENT

Pursuant to the Investment Agreement, the Company 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") that 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. As compensation for these
services, the Company currently pays NBC an annual fee of approximately $1.6
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 ten-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. Because NBC successfully delivered to the Company 10 million FTE
homes pursuant to the Distribution Agreement, 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 and in 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. On April 7, 2004, NBC exercised a portion of the
Distribution Warrants in a cashless exercise acquiring 101,509 shares of the
Company's common stock. 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. 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 ("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. All of the Company's commitment was funded by
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
80

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
Amended and Restated Limited Liability Company Agreement, pursuant to which
certain terms and conditions regarding operations of RLM and certain rights and
obligations of its members are set forth.

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 is permitted to negotiate with other parties to provide it with 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 was
obligated to provide through December 31, 2003, and therefore was recorded as
deferred revenue and was recognized over the related service period. 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 fiscal 2002 operating
income and net income by $2,500,000, representing consideration received for the
early termination of the agreement. On May 18, 2004, RLM and VVIFC entered into
a new Agreement for Services pursuant to which VVIFC agreed to continue to
provide certain telemarketing, customer support and fulfillment services to RLM
until May 31, 2006.

15. 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 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," to rebrand the Company's marketing and sales
effort. The new names were 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

81

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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.

16. ASSET IMPAIRMENTS AND EMPLOYEE TERMINATION COSTS:

In the third quarter of fiscal 2004, the Company's FanBuzz reporting unit
was notified by the NHL whereby the NHL had exercised its termination option,
pursuant to their agreement with FanBuzz, and terminated their contract
effective February 1, 2005. Revenue from the NHL agreement represented
approximately 40% of FanBuzz's total net sales for the nine-month period ended
October 31, 2004. Following this notification, and in accordance with SFAS No.
142, the Company performed a discounted cash flow analysis that indicated that
the book value of FanBuzz significantly exceeded its estimated fair value and
that a goodwill impairment had occurred. The Company compared the implied fair
value of the goodwill with the carrying amount and concluded that the goodwill
was fully impaired and recorded a third-quarter impairment charge of $9,442,000.
In addition, the Company assessed whether there had been an impairment of the
FanBuzz long-lived assets in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144"). The Company
concluded that the book value of certain long-lived assets at FanBuzz was
significantly higher than their probability-weighted expected future cash flows
and that an impairment had occurred. Accordingly, the Company recorded a
non-cash impairment loss and related charge of $11,302,000 in the third quarter
of fiscal 2004. The charges included $9,442,000 of goodwill impairment,
$1,700,000 of fixed asset and capital expenditure impairment, and $160,000 of
intangible asset impairment.

In addition, in the fourth quarter of fiscal 2004, the Company recorded an
asset impairment charge of $1,900,000 related to deferred advertising costs in
the form of television advertising credits from NBC after it was determined that
the Company could no longer effectively use the credits.

82

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During the third and fourth quarters of fiscal 2004, the Company also
recorded a $3,964,000 charge to earnings in connection with the decision to
eliminate a number of positions within the Company in an effort to streamline
the corporate organization and reduce operating expenses. The charge consisted
primarily of severance pay and related benefit costs associated with the
elimination of approximately 30 positions. The severance is currently being paid
out over periods extending out no more than two years.

17. RESTATEMENT OF PREVIOUSLY REPORTED ACCUMULATED RETAINED EARNINGS AND
ADDITIONAL PAID-IN CAPITAL:

In connection with the preparation of the Company's response to a letter
received from the staff of the Securities and Exchange Commission in August
2004, pursuant to a normal course review of the Company's fiscal 2003 Annual
Report on Form 10-K, the Company determined that the March 1999 issuance of
convertible redeemable preferred stock and investment warrant, pursuant to the
Company's strategic alliance with GE Equity and NBC, were incorrectly recorded
in the Company's financial statements. In fiscal 1999 the Company did not record
a beneficial conversion feature associated with 5,339,500 shares of convertible
redeemable preferred stock as the Company and GE Equity agreed to establish a
conversion price of $8.29 per share that was equal to a 45-day trailing average
stock price. Subsequently, the Company had determined that the per share closing
price on the date of issuance (March 8, 1999), of $10.12, would have been the
appropriate fair value of the common stock for the purpose of determining
whether or not there existed a beneficial conversion feature. Utilizing the
closing stock price on the date of issuance would have resulted in a beneficial
conversion feature of approximately $9,771,000. The resulting impact should have
been an allocation of this intrinsic value of approximately $9,771,000 to
additional paid-in capital. The discount created by the allocation of intrinsic
value to additional paid-in capital is analogous to a dividend on the
convertible redeemable preferred stock which would be amortized from the date of
issuance, utilizing the effective interest method, through the date the security
is first convertible. Given the convertible redeemable preferred stock was
immediately convertible into common stock, the resulting discount should have
been amortized as a reduction to net income available to common shareholders in
the first quarter of fiscal 1999. Therefore, the January 31, 2002 beginning
additional paid-in capital and related accumulated retained earnings balances
were understated and overstated by approximately $9,771,000. There was no change
to previously reported total shareholders' equity or previously reported cash
flows as a result of this correction.

In conjunction with the strategic alliance with GE Equity and NBC, the
Company also agreed to issue a detachable investment warrant to GE Equity in
March 1999. The Company did not consider the investment warrant to have a
material value based upon the terms of the investment warrant and did not
allocate a portion of the proceeds on the convertible redeemable preferred stock
to the investment warrant at the time of issuance. Upon further consideration of
the relevant accounting guidance applicable in 1999, the Company believed an
independent appraisal of the relative fair value of the investment warrant was
necessary to determine whether a portion of the proceeds of the redeemable
preferred stock was allocable to the investment warrant. Based on this analysis
the Company has determined that $4,186,000 represented the fair value of the
investment warrant issued in 1999. The resulting impact would have been an
allocation of a portion of the proceeds from the issuance of the convertible
redeemable preferred stock to the fair value of the investment warrant,
analogous to a dividend on the convertible redeemable preferred stock.
Therefore, a credit to additional paid-in capital of approximately $4,186,000
with the resulting discount amortized from the date of issuance, utilizing the
effective interest method, through the date the security is first convertible
should have been recorded in the first quarter of fiscal 1999. Given the
convertible redeemable preferred stock was immediately convertible into common
stock, the resulting discount should have been amortized as a reduction to net
income available to common shareholders in fiscal 1999. Therefore, the January
31, 2002 beginning additional paid-in capital and related accumulated retained
earnings balances were understated and overstated by approximately $4,186,000.
There was no change to previously reported total shareholders' equity or
previously reported cash flows as a result of this correction.

83

VALUEVISION MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As a result of the above items the beginning additional paid-in capital and
accumulated retained earnings balances at January 31, 2002 have been restated as
follows (in thousands):

84

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

None

ITEM 9A. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company's
management conducted an evaluation, under the supervision and with the
participation of the Company's chief executive officer and chief financial
officer of the effectiveness of the Company's disclosure controls and procedures
(as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934 (the "Exchange Act")). Based on this evaluation, including consideration of
the restatement of shareholders' equity disclosed in Note 17 of the consolidated
financial statements, the officers concluded that the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of ValueVision Media, Inc. is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15 (f) under the Securities Exchange Act 1934. The Company's internal
control system was designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.

All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.

Management assessed the effectiveness of the Company's internal control
over financial reporting as of January 31, 2005. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control -- Integrated
Framework.

Based on our evaluation under the framework in Internal
Control -- Integrated Framework, management concluded that the Company's
internal control over financial reporting was effective as of January 31, 2005.

Management's assessment of the Company's internal control over financial
reporting as of January 31, 2005, has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report.

/s/ WILLIAM J. LANSING
--------------------------------------
William J. Lansing
Chief Executive Officer
and President (Principal Executive
Officer)

/s/ FRANK P. ELSENBAST
--------------------------------------
Frank P. Elsenbast
Vice President Finance, Chief
Financial Officer
(Principal Financial Officer)
April 15, 2005

85

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

Our management, with the participation of the chief executive officer and
chief financial officer, performed an evaluation as to whether any change in the
internal controls over financial reporting (as defined in Rules 13a-15 and
15d-15 under the Securities Exchange Act of 1934) occurred during the period
covered by this report. Based on that evaluation the Chief Executive Officer and
Chief Financial Officer concluded that no change occurred in the internal
controls over financial reporting during the period covered by this report that
materially affected, or is reasonably likely to materially affect, the internal
controls over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
ValueVision Media, Inc. and Subsidiaries

We have audited management's assessment, included in the accompanying
"Management's Report on Internal Control Over Financial Reporting", that
ValueVision Media, Inc. and Subsidiaries (the "Company") maintained effective
internal control over financial reporting as of January 31, 2005, based on
criteria established in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.

A company's internal control over financial reporting is a process designed
by, or under the supervision of, the Company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
Company's Board of Directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company's
assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion, management's assessment that the Company maintained
effective internal control over financial reporting as of January 31, 2005, is
fairly stated, in all material respects, based on criteria established in
Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective

86

internal control over financial reporting as of January 31, 2005, based on
criteria established in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated financial
statements and financial statement schedule as of and for the year ended January
31, 2005, of the Company and our report dated April 15, 2005, expressed an
unqualified opinion on those financial statements and financial statement
schedule.

/s/ DELOITTE & TOUCHE LLP

Minneapolis, Minnesota
April 15, 2005

ITEM 9B. OTHER INFORMATION

None

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 Item 1 under the
heading "Executive Officers of the Registrant" and with respect to other
information relating to the Company's executive officers and its directors is
incorporated herein by reference to the sections titled "Proposal 1 -- Election
of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
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.

CODE OF BUSINESS CONDUCT AND ETHICS

The Company has adopted a code of business conduct and ethics applicable to
all of its directors and employees, including its principal executive officer,
principal financial officer, principal accounting officer, controller and other
employees performing similar functions. A copy of this code of business conduct
and ethics is available on our website at www.shopnbc.com, under "Investor
Relations -- Business Ethics Policy". In addition, the Company has adopted a
code of ethics policy for its senior financial management; this policy is also
available on our website at www.shopnbc.com, under "Investor Relations -- Code
of Ethics Policy for Chief Executive and Senior Financial Officers".

The Company intends to satisfy the disclosure requirements under Form 8-K
regarding an amendment to, or waiver from, a provision of its codes of business
conduct and ethics by posting such information on its website at the address
specified above.

ITEM 11. EXECUTIVE COMPENSATION

Information in response to this item is incorporated herein by reference to
the sections titled "Proposal 1 -- Election of Directors -- Director
Compensation," "Executive Compensation" and "Company Stock Performance" in 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 sections titled "Security Ownership of Principal Shareholders and
Management" and "Equity Compensation Plan Information" in 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.

87

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information in response to this item is incorporated herein by reference to
the section titled "Certain Relationships and Related Transactions" in 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. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information in response to this item is incorporated herein by reference to
the section titled "Proposal 2 -- Ratification of Our Independent
Auditors -- Fees Billed by Deloitte & Touche LLP" and "Proposal
4 -- Ratification of Our Independent Auditors -- Approval of Independent Auditor
Services and Fees" in 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.

PART IV

ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULE

1. Financial Statements

- Report of Independent Registered Public Accounting Firm

- Consolidated Balance Sheets as of January 31, 2005 and 2004 (Restated)

- Consolidated Statements of Operations for the Years Ended January 31,
2005, 2004 and 2003

- Consolidated Statements of Shareholders' Equity for the Years Ended
January 31, 2005, 2004 (Restated) and 2003 (Restated)

- Consolidated Statements of Cash Flows for the Years Ended January 31,
2005, 2004 and 2003

- Notes to Consolidated Financial Statements

88

2. Financial Statement Schedule

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 acquisitions.

3. Exhibits

EXHIBIT INDEX

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

* Filed herewith.

** Included with Signatures.

*** To be filed by amendment.

91

+ Management compensatory plan/arrangement.

(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.

(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 Proxy Statement in
connection with its annual meeting of shareholders held on August 17, 1994,
filed on July 19, 1994, File No. 0-20243.

(E) 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.

(F) 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.

(G) 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.

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

(I) 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.

(J) 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.

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

(L) 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.

(M) 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.

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

(O) 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.

(P) 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.

(Q) 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.

(R) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 2003, File No. 0-20243.

(S) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated December 1, 2003, filed on December 3, 2003, File No. 0-20243.

(T) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003, filed on August 15, 2003,
File No. 0-20243.

(U) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8 filed on March 19, 2004, File No. 333-113736.

(V) Incorporated herein by reference to Annex B to the Registrant's Proxy
Statement in connection with its annual meeting of shareholders held on
June 22, 2004, filed on May 19, 2004, File No. 0-20243.

(W) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated January 14, 2005, filed on January 14, 2005, File No. 0-20243.

92

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 15, 2005.

VALUEVISION MEDIA, INC.
(Registrant)

By: /s/ WILLIAM J. LANSING
------------------------------------
William J. Lansing
Chief Executive Officer and
President

Each of the undersigned hereby appoints William J. Lansing and Frank P.
Elsenbast, and each of them (with full power to act alone), as attorneys and
agents for the undersigned, with full power of substitution, for and in the
name, place and stead of the undersigned, to sign and file with the Securities
and Exchange Commission under the Securities Act of 1934, any and all amendments
and exhibits to this annual report on Form 10-K and any and all applications,
instruments, and other documents to be filed with the Securities and Exchange
Commission pertaining to this annual report on Form 10-K or any amendments
thereto, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary or desirable. 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 15, 2005.

94

EXHIBIT INDEX