VALUEVISION INTERNATIONAL INC - 10-K Annual Report

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

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

FOR THE FISCAL YEAR ENDED JANUARY 31, 2002

OR

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

FOR THE TRANSITION PERIOD FROM ------------ TO ------------

COMMISSION FILE NO. 0-20243

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VALUEVISION INTERNATIONAL, 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
"WWW.SHOPNBC.COM" 55344-3433
(Address of Principal Executive Offices) (Zip Code)

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

As of April 2, 2002, 38,232,690 shares of the Registrant's common stock
were outstanding. The aggregate market value of the common stock held by
non-affiliates of the registrant on such date, based upon the closing sale price
of the common stock as reported by the Nasdaq Stock Market on April 2, 2002 was
approximately $281,531,000.

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, 2002
are incorporated by reference in Part III of this Form 10-K.

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VALUEVISION INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
JANUARY 31, 2002

TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

A. GENERAL

ValueVision International, Inc. ("ValueVision" or the "Company") is an
integrated direct marketing company that markets its products directly to
consumers through various forms of electronic media. Starting in fiscal 2001,
the Company has also been doing business under the corporate name ValueVision
Media. The Company's operating strategy incorporates television home shopping,
Internet e-commerce, vendor programming sales and fulfillment services. The
Company is a Minnesota corporation with principal and executive offices at 6740
Shady Oak Road, Eden Prairie, Minnesota 55344-3433. The Company was incorporated
in the state of Minnesota on June 25, 1990 and its fiscal year ends on January
31. The year ended January 31, 2002 is designated fiscal "2001" and the year
ended January 31, 2001 is designated fiscal "2000". In prior reporting years,
fiscal years were designated by the calendar year in which the fiscal year
ended. Effective with the fiscal year ended January 31, 2001, the Company
changed the naming convention for its fiscal years to more accurately align the
name of the Company's fiscal year with the calendar year it primarily
represents. All prior fiscal year references have been renamed accordingly.

The Company's principal electronic media activity is its television home
shopping business which uses recognized on-air television home shopping
personalities to market brand name 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 Company-owned low
power television ("LPTV") stations. The Company also complements its television
home shopping business by the sale of merchandise through its Internet shopping
website (www.shopnbc.com), which sells a broad array of merchandise and
simulcasts its television home shopping program live 24 hours a day, 7 days a
week.

The Company rebranded its growing home shopping network and companion
Internet shopping website as "ShopNBC" and "ShopNBC.com," respectively, in
fiscal 2001 as part of a wide-ranging direct marketing strategy the Company is
pursuing in conjunction with certain of its strategic partners. The rebranding
is intended to position ValueVision as a multimedia retailer, offering consumers
an entertaining, informative and interactive shopping experience, and position
the Company as a leader in the evolving convergence of television and the
Internet. In November 2000, the Company entered into an exclusive license
agreement with National Broadcasting Company, Inc. ("NBC") pursuant to which NBC
granted ValueVision worldwide use of the NBC-branded name and the Peacock image
for a ten-year period. The new ShopNBC name is being promoted as part of a
marketing campaign that the Company launched in the second half of 2001.
ValueVision's original intent was to re-launch its television network and
companion Internet website under the SnapTV and SnapTV.com brand names,
respectively, in conjunction with NBC Internet, Inc. ("NBCi"). In June 2000,
NBCi announced a strategy to integrate all of its consumer properties under the
single NBCi.com brand, effectively abandoning the Snap name. This led to
ValueVision's search for an alternative rebranding strategy culminating in the
license agreement with NBC.

In 1999, the Company established ValueVision Interactive, Inc. as a wholly
owned subsidiary of the Company to manage and develop the Company's Internet
e-commerce initiatives. The Company, through its wholly owned subsidiary, VVI
Fulfillment Center, Inc. ("VVIFC"), provides fulfillment, warehousing and
telemarketing services on a cost plus basis to Ralph Lauren Media, LLC ("RLM").
VVIFC's services agreement was entered into in conjunction with the execution of
the Company's investment and electronic commerce alliance entered into with Polo
Ralph Lauren Corporation ("Polo Ralph Lauren"), NBC and other NBC affiliates.
VVIFC also provides fulfillment and support services for the NBC store in New
York and direct to consumer products sold on NBC's website. The Company, through
its wholly owned subsidiary, ValueVision Direct Marketing Company, Inc.
("VVDM"), formerly was a direct-mail marketer of a broad range of quality
general merchandise which was sold to consumers through direct-mail catalogs and
other

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direct marketing solicitations. In the second half of fiscal 1999, the Company
sold its remaining direct-mail catalog subsidiaries and exited from the direct
marketing catalog business.

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 live 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
$453,747,000 and $378,158,000, representing 98% of net sales, for fiscal 2001
and 2000. Products are presented by on-air television home shopping
personalities; viewers can then call a toll-free telephone number and place
orders directly with the Company or enter an order on the ShopNBC.com website.
Orders are taken primarily by the Company's call center representatives who use
the Company's customized computer processing system, which provides real-time
feedback to the on-air hosts. The Company's television programming is produced
at the Company's Eden Prairie, Minnesota facility and is transmitted nationally
via satellite to cable system operators, satellite dish owners and low power
broadcast television stations.

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, seasonal items and other merchandise. The
Company devoted a significant amount of airtime to its higher margin jewelry
merchandise during fiscal 2001 and fiscal 2000. Jewelry accounted for 74% of the
programming airtime during fiscal 2001 and 76% of the programming airtime in
fiscal 2000. Jewelry represents the network's largest single category of
merchandise, representing 67% of television home shopping net sales in fiscal
2001, 68% of net sales in fiscal 2000 and 70% of net sales in fiscal 1999. The
Company has developed this product group to include proprietary lines such as
New York Collection(TM), 18K Elegance(TM), Gems at Large(TM), Gems En Vogue(TM),
Treasures D'Italia(TM), Brilliante(TM), Diamond Jack(TM), Trader Jack(TM),
Moissanite(TM), and Dreams of India(TM) products produced to ValueVision's
specifications or designed exclusively for sale by the Company.

Program Distribution. Since the inception of the Company's television
operations, ValueVision has experienced continued growth in the number of
full-time equivalent ("FTE") subscriber homes that receive the Company's
programming. As of January 31, 2002, the Company served a total of 51.9 million
subscriber homes, or 44.0 million FTEs, compared with a total of 42.6 million
subscriber homes, or 34.2 million FTEs as of January 31, 2001. Approximately
36.0 million, 27.6 million and 17.3 million subscriber homes at January 31,
2002, 2001 and 2000, respectively, received the Company's television home
shopping programming on a full-time basis. As of January 31, 2002, the Company's
television home shopping programming was carried by 526 broadcasting systems
(320 in fiscal 2000) on a full-time basis and 132 broadcasting systems (126 in
fiscal 2000) on a part-time basis. Homes that receive the Company's television
home shopping programming 24 hours per day are counted as one FTE each and homes
that receive the Company's programming for any period less than 24 hours are
counted based upon an analysis of time of day and day of week. The total number
of cable homes that receive the Company's television home shopping programming
represents approximately 50% of the total number of cable subscribers in the
United States.

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

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Print Media

From July 1996 to December 1999, the Company was also a direct-mail
marketer of a broad range of general merchandise, which was sold to consumers
through direct-mail catalogs and other direct marketing solicitations. The
Company's involvement in the print media direct marketing business was the
result of a series of acquisitions made in fiscal 1996 by VVDM. In the second
half of fiscal 1999, the Company sold its remaining direct-mail catalog
subsidiaries and exited from the direct marketing catalog business. Sales from
the Company's print media direct marketing business, inclusive of shipping and
handling revenues, totaled $28,498,000, representing 10% of net sales for fiscal
1999.

B. BUSINESS STRATEGY

The Company's mission is to be a leader in innovative multimedia retailing,
offering consumers an entertaining, informative and interactive shopping
experience. The following strategies are intended to continue the growth of its
core television home shopping business and complementary website: (i) leverage
the strong brand equity implicit in the NBC name and associated Peacock symbol
to achieve instant brand recognition with the ShopNBC television channel and
ShopNBC.com internet shopping website; (ii) increase program distribution in the
United States via new or expanded broadcast agreements with cable and satellite
operators and other creative means for reaching consumers such as webcasting on
shopnbc.com; (iii) increase average net sales per home by increasing penetration
within the existing audience base and by attracting new customers through a
broadening of our merchandise mix; (iv) upgrade the overall quality of the
Company's network and programming consistent with expectations associated with
the NBC brand name; (v) develop the sale of airtime to branded or recognized
manufacturers, cataloguers and retailers who are looking for an alternative
advertising medium to build their brand directly with the Company's audience
base; (vi) continue to grow the Company's profitable and cash positive Internet
business with innovative use of marketing and technology, such as interactive
TV, 3-D imaging and unique auction capabilities; and (vii) leverage the service
capabilities implicit in our existing production, broadcasting, distribution and
customer care capabilities to support strategic partners, such as NBC, Ralph
Lauren Media's Polo.com, ESPN and CNN/Sports Illustrated.

PROGRAMMING DISTRIBUTION:

Cable and Satellite Affiliation Agreements

As of January 31, 2002, the Company had entered into long-term affiliation
agreements with approximately fifty cable system operators along with the
satellite companies DIRECTV(TM) and EchoStar (DISH Network) (TM) which require
each operator to offer the Company's television home shopping programming
substantially on a full-time basis over their systems. The aggregate number of
homes served by these fifty cable and satellite operators is approximately 61.1
million, of which approximately 33.0 million homes (32.6 million FTEs) currently
receive the Company's programming. The stated terms of the affiliation
agreements range from three to twelve years. Under certain circumstances, the
television operators may cancel the agreements prior to their expiration. There
can be no assurance that such agreements will not be so terminated, that such
termination will not materially or adversely affect the Company's business or
that the Company will be able to successfully negotiate acceptable terms with
respect to any renewal of such contracts. In addition, these television
operators are also carrying the Company's programming on an additional 4.6
million homes (3.0 million FTEs) pursuant to short-term carriage arrangements.
The affiliation agreements provide that the Company will pay each operator a
monthly access fee and marketing support payments based upon the number of homes
viewing the Company's television home shopping programming. Certain of the
affiliation agreements also require payment of one-time initial launch fees,
which are capitalized and amortized on a straight-line basis over the term of
the agreements. The Company is seeking to enter into affiliation agreements with
other television operators providing for full or part-time carriage of the
Company's television home shopping programming.

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Direct Satellite Service Agreements

In July 1999, the Company's programming was launched on the direct-to-home
("DTH") satellite services DIRECTV and DISH Network. Carriage on DIRECTV and
DISH Network is full-time under long-term distribution agreements. As of January
31, 2002, the Company's programming reached a total of approximately 15.3
million DTH homes on a full-time basis.

Other Methods of Program Distribution

The Company's programming is also made available full-time to "C"-band
satellite dish owners and homes over the air via eleven LPTV stations that a
subsidiary of the Company owns. The LPTV stations and satellite dish
transmissions were collectively responsible for approximately 5% of the
Company's sales in its last fiscal year. LPTV stations reach a substantially
smaller radius of television households than full power television stations, are
generally not entitled to must carry rights and, with the exception of certain
LPTV stations that have been granted "Class A" status, are generally subject to
substantial FCC limitations on their operations. See "Federal Regulation".

Internet Website

In April 1997, the Company launched an interactive, retail Internet site
located at www.vvtv.com, which the Company rebranded as ShopNBC.com in fiscal
2001. The Internet site provides consumers with the opportunity to view and hear
the live 24-hour per day television home shopping program via the Company's
state-of-the-art webcasting technologies. In addition, the Company produces a
limited number of original programs specifically for webcasting on the website.
The website provides viewers with an opportunity to purchase general merchandise
offered on the Company's television home shopping program, and other related
merchandise as well as bid and purchase items on the auction portion of the
website. Internet sales for the year ended January 31, 2002 increased at a far
greater percentage than television home shopping sales over the year ended
January 31, 2001. Sales from the Company's Internet website business, inclusive
of shipping and handling revenues, totaled $62,328,000 and $28,148,000
representing 13% and 7% of net sales, for fiscal 2001 and 2000, respectively.
The Company expects to see continuous strong growth in its Internet business and
believes that its e-commerce business complements the Company's base television
home shopping business. This method of program distribution and retail sales is
currently being more fully developed and, consequently, the Company cannot
predict the ultimate impact it will have on future operating results.

The Company's e-commerce activities are currently subject to a number of
general business regulations and laws regarding taxation and online commerce.
Due to the increasing popularity and use of the Internet and other online
services, it is possible that additional laws and regulations may be adopted
with respect to the Internet or other online services, covering such issues as
user privacy, advertising, pricing, content, copyrights and trademarks, access
by persons with disabilities, distribution, taxation, and characteristics and
quality of products and services. Congress currently is considering a broad
range of possible legislation intended to address issues relating to online
privacy, including measures to regulate and/or limit the collection and use of
online customers' personal and financial information. Such legislation, if
enacted, could make it more difficult for companies to conduct business online.
A moratorium on taxation on Internet access and on the imposition of multiple or
discriminatory taxes on e-commerce activities that was set to expire in October
2001 recently was extended for an additional two years. Many states and
companies oppose any further extensions of the moratorium, however, and no
prediction can be made as to whether any further extensions will be enacted.
Changes in consumer protection laws also may impose additional burdens on those
companies conducting business online. The adoption of any additional laws or
regulations may decrease the growth of the Internet or other online services,
which could, in turn, decrease the demand for the Company's products and
services and increase its cost of doing business through the Internet. Moreover,
it is not fully clear how existing laws governing issues such as property
ownership, sales and other taxes, libel and personal privacy would apply to the
Internet and online commerce. The European Union ("EU") now imposes specific
privacy regulations, value-added tax ("VAT") on e-commerce transactions, and
also requires that companies doing business in the EU register in a EU member
state. In addition, governments in foreign jurisdictions already regulate the

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Internet or other online services in such areas as content, privacy, network
security, encryption or distribution. This may affect the Company's ability to
conduct business internationally through its website.

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

C. STRATEGIC RELATIONSHIPS

NBC Trademark License Agreement

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

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

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NBC and GE Equity Strategic Alliance

In March 1999, the Company entered into a strategic alliance with NBC and
GE Capital Equity Investments, Inc. ("GE Equity"). Pursuant to the terms of the
transaction, NBC and GE Equity acquired 5,339,500 shares of the Company's Series
A Redeemable Convertible Preferred Stock (the "Preferred Stock"), and NBC was
issued a warrant to acquire 1,450,000 shares of the Company's Common Stock (the
"Distribution Warrants") under a Distribution and Marketing Agreement discussed
below. The Preferred Stock was sold for aggregate consideration of $44,265,000
(or approximately $8.29 per share) and the Company will receive an additional
approximately $12.0 million upon exercise of the Distribution Warrants. In
addition, the Company agreed to issue to GE Equity a warrant (the "Investment
Warrant") to increase its potential aggregate equity stake (together with its
affiliates, including NBC) at the time of exercise to 39.9%. NBC also has the
exclusive right to negotiate on behalf of the Company for the distribution of
its television home shopping service. The sale of 3,739,500 shares of the
Preferred Stock was completed on April 15, 1999. Final consummation of the
transaction regarding the sale of the remaining 1,600,000 Preferred Stock shares
was completed on June 2, 1999. The Preferred Stock was recorded at fair value on
the date of issuance less issuance costs of $2,850,000. The Preferred Stock is
convertible into an equal number of shares of the Company's Common Stock,
subject to customary anti-dilution adjustments, has a mandatory redemption on
the 10th anniversary of its issuance or upon a "change of control" at its stated
value ($8.29 per share), participates in dividends on the same basis as the
Common Stock and has a liquidation preference over the Common Stock and any
other junior securities. The excess of the redemption value over the carrying
value is being accreted by periodic charges to retained earnings over the
ten-year redemption period. On July 6, 1999, GE Equity exercised the Investment
Warrant and acquired an additional 10,674,000 shares of the Company's Common
Stock for an aggregate of $178,370,000, or $16.71 per share, representing the
45-day average closing price of the underlying Common Stock ending on the
trading day prior to exercise. Following the exercise of the Investment Warrant,
the combined ownership of the Company by GE Equity and NBC on a fully diluted
basis was approximately 39.9%.

SHAREHOLDER AGREEMENT

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

The Shareholder Agreement provides that during the Standstill Period (as
defined in the Shareholder Agreement), and with certain limited exceptions, GE
Equity and NBC shall be 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

8

specifically for, the purchase of any voting securities of the Company, (vii)
otherwise acting, whether alone or in concert with others, to seek to propose to
the Company any tender or exchange offer, merger, business combination,
restructuring, liquidation, recapitalization or similar transaction involving
the Company, or nominating any person as a director of the Company who is not
nominated by the then incumbent directors, or proposing any matter to be voted
upon by the shareholders of the Company. If during the Standstill Period any
inquiry has been made regarding a "takeover transaction" or "change in control"
which has not been rejected by the Board, or the Board pursues such a
transaction, or engages in negotiations or provides information to a third party
and the Board has not resolved to terminate such discussions, then GE Equity or
NBC may propose to the Company a tender offer or business combination proposal.

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

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

REGISTRATION RIGHTS AGREEMENT

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

DISTRIBUTION AND MARKETING AGREEMENT

NBC and the Company entered into the Distribution and Marketing Agreement
dated March 8, 1999 (the "Distribution Agreement") which provides that NBC shall
have the exclusive right to negotiate on behalf of the Company for the
distribution of its home shopping television programming service. The agreement
has a 10-year term and NBC has committed to delivering an additional 10 million
FTE subscribers over the first 42 months of the term. In compensation for such
services, the Company will pay NBC an annual fee of $1.5 million (increasing no
more than 5% annually) and issue NBC the Distribution Warrants. The exercise
price of the Distribution Warrants is approximately $8.29 per share. Of the
aggregate 1,450,000 shares subject to the Distribution Warrants, 200,000 shares
vested immediately, with the remainder vesting 125,000 shares annually over the
10-year term of the Distribution Agreement. In conjunction with the Company's
November 2000 execution of the Trademark License Agreement with NBC, the Company
agreed to accelerate the vesting of the remaining unvested Distribution
Warrants. The Distribution Warrants are exercisable for five years after
vesting. The value assigned to the Distribution Agreement and Distribution
9

Warrants of $6,931,000 was determined pursuant to an independent appraisal and
is being amortized on a straight-line basis over the term of the agreement.
Assuming certain performance criteria above the delivery by NBC to the Company
of 10 million FTE homes are met, NBC will be entitled to additional warrants to
acquire Common Stock at the then current market price. In April 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 as a result of NBC meeting
its performance target. The Company has a right to terminate the Distribution
Agreement after the twenty-fourth, thirty-sixth and forty-second month
anniversary if NBC is unable to meet the performance targets. If terminated by
the Company in such circumstance, the unvested portion of the Distribution
Warrants will expire. In addition, the Company will be entitled to a $2.5
million payment from NBC if the Company terminates 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."

NBCi Electronic Commerce Alliance

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

Polo Ralph Lauren/Ralph Lauren Media Electronic Commerce Alliance

Effective February 7, 2000, the Company entered into a new electronic
commerce strategic alliance with Polo Ralph Lauren, NBC, NBCi and 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, NBCi agreed to contribute $40 million in online
distribution and promotion and the Company has contributed a cash funding
commitment of up to $50 million, of which approximately $46 million has been
funded through January 31, 2002 and approximately $47 million through March 31,
2002. RLM's premier initiative is Polo.com, an Internet website dedicated to the
American lifestyle that will include original content, commerce and a strong
community component. Polo.com officially launched in November 2000 and includes
an assortment of men's, women's and children's products across the Ralph Lauren
family of brands as well as unique gift items. In connection with the formation
of RLM, the Company entered into various agreements setting forth the manner in
which certain aspects of the business of RLM are to be managed and certain of
the members' rights, duties and obligations with respect to RLM, including the
following:

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF RALPH LAUREN MEDIA

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

10

of control of either Polo Ralph Lauren and/or its affiliates or NBC or certain
of its affiliates, at a price and on terms and conditions set forth in the
agreement; (d) rights of Polo Ralph Lauren to purchase all of the outstanding
membership interests of RLM from and after its 12th anniversary, at a price and
on terms and conditions set forth in the agreement; (e) rights of certain of the
members to require RLM to consummate an initial public offering of securities;
(f) restrictions on Polo Ralph Lauren from participating in the business of RLM
under certain circumstances; (g) number and composition of the management
committee of RLM, and certain voting requirements; (h) composition and duties of
officers of RLM; (i) requirements regarding meetings of members and voting
requirements; (j) management of capital contributions and capital accounts; (k)
provisions governing allocations of profits and losses and distributions to
members; (l) tax matters; (m) restrictions on transfers of membership interests;
(n) rights and responsibilities of the members in connection with the
dissolution, liquidation or winding up of RLM; and (o) certain other customary
miscellaneous provisions.

AGREEMENT FOR SERVICES

RLM and VVIFC entered into an Agreement for Services under which VVIFC
agreed to provide to RLM, on a cost plus basis, certain telemarketing services,
order and record services, and merchandise 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 merchandise management functions and developing a system for such
purposes. The term of this agreement continues until June 30, 2010, subject to
one-year renewal periods after 2010, under certain conditions.

D. MARKETING AND MERCHANDISING

Electronic Media

The Company's television revenues are generated from sales of merchandise
and services offered through its television home shopping programming.
ValueVision's programming features on-air television home shopping network
personalities. The sales environment is friendly and informal. 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. Such customer testimonials give credibility to the products
and provide entertainment value for the viewers. The Company believes its
customers make purchases based primarily on convenience, value and quality of
merchandise.

The Company produces targeted, themed, and general merchandise programs, in
studio, including Gems En Vogue, Isomers, Italian Romance, Italian Gold with
Stefano, The Computer Store, Electronic Connection, The New York Collection,
Brilliante, Time Zone, 18K Elegance, Gems at Large and others. The Company
supplements its studio programming with occasional live on-location programs,
which in the last year included shows from Ocean City, Maryland, the Bahamas and
Florence, Italy. The Company believes that its customers are primarily women
between the ages of 35 and 55, with household income of approximately $50,000 to
$75,000. The typical viewer is from a household with a professional or
managerial primary wage earner. ValueVision schedules its special segments at
different times of the day and week to appeal to specific viewer and customer
profiles. The Company features frequent announced and occasionally unannounced,
special bargain, discount and inventory-clearance sales in order to, among other
reasons, encourage customer loyalty or add new customers.

In addition to the Company's daily produced television home shopping
programming, the Company may from time-to-time test other types of strategies,
including localized home shopping programming in

11

conjunction with retailers and other catalogers. The Company may seek to enter
into joint ventures, acquisitions, or similar arrangements with other consumer
merchandising companies, e-commerce and other television home shopping
companies, television stations, networks, or programmers to complement or expand
the Company's television home shopping business. Most of the Company's cable
lease and affiliation agreements provide for cross channel 30-second promotional
spots. The Company occasionally purchases advertising time on other cable
channels to advertise specialty shows and other special promotions. The Company
prominently features its on-air hosts in advertising and promotion of its
programming.

The Company's television home shopping merchandise is generally offered at
or below comparable retail prices. Jewelry accounted for approximately 67% of
the Company's television home shopping net sales in fiscal 2001, 68% in fiscal
2000 and 70% in fiscal 1999. Electronics (primarily computers), giftware,
collectibles and related merchandise, apparel, health and beauty aids,
housewares, seasonal items and other merchandise comprise the remaining sales.
The Company continually introduces new items with additional merchandise
selection chosen from available inventories of previously featured products.
Inventory sources include manufacturers, wholesalers, distributors, and
importers.

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

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

ShopNBC Catalog

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

ShopNBC Private Label Credit Card

In October 2001, the Company launched a private label credit card program
using the ShopNBC name in partnership with Alliance Data Systems. The new
ShopNBC credit card program provides a number of benefits to ShopNBC customers
including providing customers with an initial 10% discount upon first use of
their ShopNBC card for all merchandise purchases except for computers and
electronics, which is 5%. Customers also receive a credit line unique to ShopNBC
as well as special product offers along with their billing statements, advance
notices on special promotions, gifts for ShopNBC card purchases made during
special events and special financing promotions.

12

Favorable Purchasing Terms

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

E. ORDER ENTRY, FULFILLMENT AND CUSTOMER SERVICE

Products offered through all of the Company's selling mediums are available
for purchase via toll-free "800" telephone numbers. In fiscal 1999, the Company
entered into an agreement with West Teleservices Corporation to provide the
Company with telephone order entry operators and automated voice response
systems for the taking of television home shopping customer orders. West
Teleservices Corporation provides teleservices to the Company from a service
site located in Baton Rouge, Louisiana. The facility provides call
representatives that handle the Company's order calls on the Company's on-line
order entry, fulfillment computer system. The order response and fulfillment
system currently has over 200 dedicated agent stations. In October 2001, the
Company moved the automated voice response system to its corporate headquarters
location as a cost savings initiative. The in-house voice response system has
approximately 200 voice response ports with the ability to expand capacity
within 30 days. Currently, approximately 25-35% of all telephone orders are
completed in the voice response system. The Company's systems display
up-to-the-second data on the volume of incoming calls, the number of call center
representatives on duty, the number of calls being handled and the number of
incoming calls, if any, waiting for available call center representatives. The
fulfillment systems automatically report and update available merchandise
quantities as customers place orders and stock is depleted. The Company's
computerized systems handle customer order entry, order fulfillment, customer
service, merchandise purchasing, on-air scheduling, warehousing, customer record
keeping and inventory control. The Company maintains back-up power supply
systems to ensure that interruptions to the Company's operations due to
electrical power outages are minimized.

The Company owns a 262,000 square foot distribution facility in Bowling
Green, Kentucky, which the Company primarily uses to fulfill its obligations
under the service agreements entered into with RLM. In 2001, the Company entered
into an agreement with NBC to provide fulfillment and support services for the
NBC store in New York and direct to consumer products sold on NBC's website. The
Company's Bowling Green facility is also used for the fulfillment of non jewelry
merchandise sold on the Company's television home shopping program and the
ShopNBC website. The Company distributes jewelry and other smaller merchandise
from its Eden Prairie, Minnesota fulfillment center, a part of its corporate
office.

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

Merchandise is shipped to customers via the United States Postal Service
and Federal Express, which generally results in delivery to the customer within
seven to ten days after an order is received. The United States Postal Service
and Federal Express pick up merchandise directly at the Company's distribution
centers. Orders are generally shipped to customers within 48 hours after the
order is placed. The Company offers express service upon request at the
customer's expense. The Company also has arrangements with certain vendors who
ship merchandise directly to its customers after an approved customer order is
processed.

The Company's Customer Service departments handle customer inquiries, most
of which consist of inquiries with respect to the status of pending orders or
returns of merchandise. The customer service representatives are on-line with
the Company's computerized order response and fulfillment systems. Being
13

on-line permits access to a customer's purchase history while on the phone with
the customer, thus enabling most inquiries and requests to be promptly resolved.
The Company considers its order entry, fulfillment and customer service
functions as particularly important functions positioned with open capacity to
enable it to accommodate future growth. The Company designs all aspects of its
customer service infrastructure to meet the needs of the customer and to
accommodate future expansion.

The Company's television home shopping return policy allows a standard
30-day refund period from the date of invoice for all customer purchases. The
Company's return rates on its television sales have been approximately 30% to
33% over the past three fiscal years. Management attributes the high return rate
in part to the fact that it generally maintained higher than average unit price
points of approximately $186 in fiscal 2001 ($163 in fiscal 2000). Management
believes that the higher return rate is acceptable, given the higher net sales
and margin generated and the Company's ability to quickly process returned
merchandise at relatively low cost.

F. COMPETITION

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

The Company also competes with retailers involved with the evolving
convergence and development of electronic commerce mediums as well as other
retailers who sell and market their products through the highly competitive
Internet medium. The number of companies providing these types of services over
the Internet is large and increasing. The Company expects that additional
companies, including media companies and conventional retailers that to date
have not had a substantial commercial presence on the Internet, will offer
services that directly compete with the Company. In addition, as the use of the
Internet and other online services 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.

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 as home
shopping networks compensate basic cable television operators, whereas other
forms of cable programming typically receive compensation from cable operators
for carriage. The Company competes for cable distribution with all other
programmers, including other television home shopping networks such as QVC, HSN
and Shop at Home, Inc. ("SATH"). The Company currently competes for viewership
and sales with QVC, HSN and SATH in virtually all of its markets. The Company is
at a competitive disadvantage in attracting viewers due to the fact that the
Company's programming is not carried full time in all of its markets, and that
the Company may have less desirable cable channels in many markets. QVC is a
wholly owned subsidiary of Comcast Corporation. HSN is a wholly owned subsidiary
of USA Networks, Inc. Comcast and USA Networks are larger, more diversified and
have greater financial, marketing and distribution resources than the Company.

The Company expects increasing competition for viewers/customers and for
experienced home shopping personnel from major cable systems, television
networks, e-commerce and other retailers that may seek to enter the television
home shopping industry. The continued evolution and consolidation of retailers
on the Internet, together with strategic alliances being formed by other
television home shopping networks and Internet companies, will also result in
increased competition. The Company will also compete to lease cable television
time and enter into cable affiliation agreements. Entry and ultimate success in
the television home shopping industry is dependent upon several key factors, the
most significant of which is obtaining carriage on

14

cable systems reaching an adequate number of subscribers. The Company believes
that the number of new entrants into the television home shopping industry may
continue to increase. The Company believes that it is strategically positioned
to compete because of its established relationships with cable operators and its
strategic relationship with NBC and GE Equity pursuant to which NBC will provide
the Company with cable affiliation and distribution services. No assurance can
be given however, that the Company will be able to acquire cable carriage at
prices favorable to the Company. In March 2002, a Federal Court of Appeals
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
belongs to affiliated companies. Unless and until the FCC issues new ownership
limits in the future, the court's decision could, under certain circumstances,
make it harder for the Company to obtain carriage of its programming by cable
providers. In addition, continued consolidation in the cable and satellite
industry may lead to higher costs for ShopNBC programming over time. See "Risk
Factors".

New technological and regulatory developments also may increase competition
and the Company's costs. The FCC has adopted rules for digital television
("DTV") that will allow full power television stations to broadcast multiple
channels of digital data simultaneously on the bandwidth presently used by one
normal analog channel. FCC rules allow broadcasters to use this additional
capacity to provide conventional programming, including home shopping
programming, as well as ancillary or supplemental services, including
interactive data transfer. The FCC has determined to charge a fee for the
provision of ancillary or supplemental services, but not for traditional home
shopping programming. See "Federal Regulation." Every existing full power
television station has been assigned an additional channel on which to broadcast
DTV until analog transmissions are terminated. In addition, as of January 2002,
three direct broadcast satellite ("DBS") systems were transmitting programming
to subscribers and one additional company had been issued licenses to provide
DBS service. As of June 2001, there were more than 16 million DBS subscribers.
Congress has required DBS operators to provide access to broadcast television
stations in their local markets, and DBS equipment prices and other "up-front
costs," such as installation, continue to decline significantly. Furthermore,
satellite master antenna television systems ("SMATV") have begun to deliver
video programming to multiple dwelling units. SMATV systems receive and process
satellite signals at on-site facilities and then distribute the programming to
individual units. It is estimated that as of July 2001, there were approximately
1.5 million SMATV residential subscribers. Additionally, a number of telephone
companies have acquired cable franchises, and a number of local exchange
carriers are using very high-speed digital subscriber line ("VDSL") technology
to deliver video programming, high-speed Internet access, and telephone service
over existing copper telephone lines. The FCC has also certified several
operators to offer open video systems ("OVS") in order to provide video
programming to customers. Currently, only one OVS system is operating. Finally,
in 1996, the FCC completed auctions for authorizations to provide multichannel
multipoint distribution services ("MMDS"), also known as wireless cable, using
Multipoint Distribution Service and leased excess capacity on Instructional
Television Fixed Service channels. As of January 2002, there were approximately
700,000 MMDS subscribers.

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

G. FEDERAL REGULATION

The cable television industry and the broadcasting industry in general are
subject to extensive regulation by the FCC. The following does not purport to be
a complete summary of all of the provisions of the Communications Act of 1934,
as amended (the "Communications Act"), the Cable Television Consumer Protection
Act of 1992 (the "Cable Act"), the Telecommunications Act of 1996 (the
"Telecommunications Act") or the FCC rules or policies that may affect the
operations of the Company. Reference is made to the Communications Act, the
Cable Act, the Telecommunications Act and regulations and public notices
promulgated by the FCC for further information. The laws and regulations
affecting the industries are subject to change, including through pending
proposals. There can be no assurance that laws, rules or policies that may have
an adverse effect on the Company will not be enacted or promulgated at some
future date.

15

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.

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

The FCC released its most recent revisions to these rules in February 1997.
These revisions capped rates at the "average implicit fee" for a channel on a
cable system, which is the difference between the average subscriber charge for
a channel and the average license fee the cable operator pays to carry
programming. The Company's limited experience has been that the rates remain
largely unaffordable, although the rules do permit cable operators to charge
less than the maximum rates. The FCC also established rules governing the
process of negotiating for carriage, making other changes to the terms and
conditions of leased access carriage and making it easier for programmers like
the Company to lease channels for less than a full 24-hour day.

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

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

Closed Captioning. FCC rules require television stations, cable systems and
other video programming providers to phase in closed captioning for new
programming over an eight-year period beginning January 2000, in order to make
such programming accessible to the hearing impaired. FCC rules provide for
exemptions from the closed captioning requirements under certain circumstances,
such as, for example, where the costs of captioning for a particular channel
exceed two percent of the channel's gross revenues, and where a channel to be
captioned produced less than $3 million in annual revenues. In addition,
programmers, cable operators and TV stations can petition the FCC for an
exemption for programming where complying with the closed captioning
requirements would otherwise impose an undue burden. If the Company's
programming cannot qualify for an exemption or waiver from those standards, it
may be required to expend substantial additional funds to comply with them.

16

Broadcast Television

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

Full Power Television Stations. The Company and its subsidiaries currently
have pending before the FCC applications for construction permits for full power
television stations in Destin, Florida, and Des Moines, Iowa. In each case,
these applications are the subject of mutually exclusive applications, and thus
to the possibility of an FCC auction at which the licenses would be awarded to
the highest bidder. Both of these applications originally proposed to operate
above channel 52. The FCC has concluded, however, that it will not authorize new
analog full power television stations on channels 52-69 and that applications
for stations on these channels will be dismissed if they are not amended to seek
a new channel below channel 52. The FCC has established a series of filing
windows during which applicants for channels above channel 52 could jointly
propose a single replacement channel to which all applicants could agree to
modify their applications. The FCC also allowed applicants with mutually
exclusive applications to reach settlement agreements under which competing
applicants for a single license could agree to allow their applications to be
dismissed in exchange for compensation from a single remaining applicant. The
Company has reached timely settlement agreements with the other applicants for
both the Destin and Des Moines license applications. For the Destin application,
an analog replacement channel has been identified and a request to move to that
channel is pending; for the Des Moines application, no analog replacement
channel is available, and a request to move to a digital replacement channel is
pending. The Company's requests that the FCC approve the settlement agreements
and dismiss its applications for these licenses also remains pending. At this
time, the Company has no plans to apply for or purchase additional full power
television stations.

Low Power Television Stations. Ownership and operation of LPTV stations are
subject to FCC licensing requirements similar to those applicable to full power
television stations. LPTV stations, however, are generally not eligible for
"must carry" rights. Like full power stations, the transfer of ownership of any
LPTV station license requires prior approval by the FCC. The FCC grants LPTV
construction permits for an initial term of 18 months, which may be extended for
one or more six-month terms if there is substantial progress towards station
construction unless completion of the station is prevented by causes not under
the control of the permittee. LPTV licenses are now issued for terms of eight
years.

LPTV is a secondary broadcast service that is not permitted to interfere
with the broadcast signal of any existing or future full power television
station. Construction of a full power television station on the same channel in
the same region could therefore force a LPTV station off the air if such
interference is not corrected, subject to a right to apply for a replacement
channel. LPTV stations must also accept interference from existing and future
full power television stations.

The advent of DTV is expected to disrupt the operations of the Company's
LPTV stations to an as-yet unknown extent. The DTV proceedings have allocated an
additional channel to be used for DTV to every eligible full power television
station in the nation, effectively doubling the number of channels currently
used by full power television stations during the transition period between
analog and digital transmissions. A number of these new DTV stations have been
allocated to channels currently used by LPTV stations. Construction of these
newly authorized DTV stations will therefore force many LPTV stations off the
air unless they can find substitute channels. It is not known at this time
whether all or some of these "displaced" LPTV stations will be able to modify
their broadcast channel and continue operations.

Three of the Company's LPTV stations are currently licensed to UHF channels
between 60 and 69. Pursuant to a 1997 law requiring it to do so, the FCC has
determined that no low power (or full power) television stations will be
permitted to operate on these channels following the transition to DTV, which is
now not scheduled to be completed until 2006 at the earliest. Two of the
Company's LPTV stations are currently licensed to UHF channels between 52 and
59. The FCC recently reallocated these channels to other uses at
17

the end of the DTV transition. While LPTV stations may continue to operate on
channels 52-59 after the transition to DTV, such operations will continue to be
secondary, and is subject to interference from other licensed operations. While
the FCC will permit LPTV stations operating on these channels to relocate to
other channels when available, there can be no assurance that these five of the
Company's stations will be able to find suitable alternate channels.

In November 1999, Congress enacted the Community Broadcasters Protection
Act, which required the FCC to adopt regulations under which certain LPTV
licensees may apply for a Class A television license. Unlike existing LPTV
licensees, which are accorded secondary status compared to full power television
licensees, Class A licensees will be accorded protection from certain future
changes to full power facilities (both analog and digital) so long as they
continue to meet the requirements for eligibility set forth in the statute and
FCC rules. Licensees qualifying for Class A status generally will be subject to
the same regulatory obligations as full power television licensees, including
children's television, other programming, and main studio requirements. Failure
to comply with the obligations could result in the loss of Class A status. The
FCC rules establishing specific eligibility and application requirements for
LPTV licensees seeking Class A status generally limit eligibility for such
status to those stations that previously have provided locally produced
programming and continue to do so, and that filed timely requests for such
status by January 2000. In addition, as Class A licenses will only be granted
for stations on channels below channel 52, eligible stations operating on
channels 52 or above must first locate a replacement channel before applying for
a Class A license. The FCC has indicated that, except for the Company's two LPTV
stations licensed to Minneapolis, its LPTV stations do not meet the requirements
for Class A status. In January 2001, the FCC granted a Class A license for one
of the Minneapolis stations; the Company still must locate a replacement channel
for the second Minneapolis station before it can apply for Class A status. There
can be no guarantee that the Company will be able to do so.

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

Alternative Technologies

Alternative technologies could increase the types of systems on which the
Company may seek carriage. Three DBS systems currently provide service to the
public and one additional company currently holds a license to provide DBS
services. The number of DBS subscribers has increased to more than 16 million
households as of June 30, 2001, and Congress has enacted legislation designed to
facilitate the delivery by DBS operators of local broadcast signals and thereby
to promote DBS competition with cable systems. Approximately 700,000 households
now subscribe to wireless cable systems, also known as MMDS systems, which
provide traditional video programming and are beginning to provide advanced data
transmission services. The FCC has completed auctions for MMDS licenses
throughout the nation. Lastly, the emergence of home satellite dish antennas has
also made it possible for individuals to receive a host of video programming
options via satellite transmission.

Advanced Television Systems

Technological developments in television transmission will in the near
future make it possible for the broadcast and nonbroadcast media to provide
advanced television services -- television services provided using digital or
other advanced technologies. The FCC in late 1996 approved a DTV technical
standard to be used by television broadcasters, television set manufacturers,
the computer industry and the motion picture industry. This DTV standard allows
the simultaneous transmission of multiple streams of digital data on the
bandwidth presently used by a normal analog channel. It is possible to broadcast
one "high definition" channel ("HDTV") with visual and sound quality superior to
present-day television or several "standard definition" channels ("SDTV") with
digital sound and pictures of a quality slightly better than present television;
to provide interactive data services, including visual or audio transmission, on
multiple channels simultaneously; or to provide some combination of these
possibilities on the multiple channels allowed by DTV.
18

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

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

The Telecommunications Act requires that the FCC conduct a ten-year
evaluation regarding public interest in advanced television, alternative uses
for the spectrum and reduction of the amount of spectrum each licensee utilizes.
Many segments of the industry are also intensely studying these advanced
technologies. The FCC is conducting a periodic review of the progress of
conversion to digital television. Among other issues, the FCC is considering
adopting rules that would require that DTV stations elect the channel on which
they intend to operate following the transition to DTV before the close of the
DTV transition period. Adoption of such rules could negatively affect the
Company's operations. There can be no assurance as to the outcome of this or
other future FCC proceedings addressing the DTV transition.

Telephone Companies' Provision of Programming Services

The Telecommunications Act eliminated the previous statutory restriction
forbidding the common ownership of a cable system and telephone company. The
extent of the regulatory obligations that the Telecommunications Act imposes on
a telephone company that selects and provides video programming services to
subscribers depends essentially upon whether the telephone company elects to
provide its programming over an "open video system" or to do so as a cable
operator fully subject to the existing provisions of the Communications Act
regulating cable providers. A telephone company that provides programming over
an open video system will be subject only to new legislative provisions
governing open video systems and to certain specified existing cable provisions
of the Communications Act, including requirements equivalent to the "must carry"
regulations. Such a telephone company will be required to lease capacity to
unaffiliated programmers on a nondiscriminatory basis and may not select the
video programming services for carriage on more than one-third of activated
channel capacity of the system. Generally, a telephone company that provides
video programming but does not operate over an open video platform will be
regulated as a cable operator.

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

19

H. SEASONALITY AND ECONOMIC SENSITIVITY

The Company's businesses are subject to seasonal fluctuation, with the
highest sales activity normally occurring during the fourth calendar quarter of
the year. Seasonal fluctuation in demand is generally associated with the number
of households using television and the direct marketing and retail industries.
In addition, the Company's businesses are sensitive to general economic
conditions and business conditions affecting consumer spending.

I. EMPLOYEES

At January 31, 2002, the Company, including its wholly owned subsidiaries,
had approximately 680 employees, the majority of whom are employed in customer
service, order fulfillment and television production. Approximately 17% of the
Company's employees work part-time. The Company is not a party to any collective
bargaining agreement with respect to its employees. Management considers its
employee relations to be good.

J. EXECUTIVE OFFICERS OF THE REGISTRANT

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

Gene C. McCaffery joined the Company in March 1998, was named Chief
Executive Officer in June 1998 and was appointed President and Chairman of the
Board in February 1999. Mr. McCaffery spent 14 years at Montgomery Ward & Co.,
Incorporated, a department store retailer, most recently through 1995 as Senior
Executive Vice President of Merchandising Marketing; Strategic Planning and
Credit Services. During this period, Mr. McCaffery also served as Vice Chairman
of Signature Group. From March 1996 to March 1998, Mr. McCaffery served as Chief
Executive Officer and managing partner of Marketing Advocates, a
celebrity-driven product and service development company based in Los Angeles,
California and Chicago, Illinois. He also served as Vice-Chairman of the Board
of ValueVision from August 1995 to March 1996. Mr. McCaffery served as an
infantry officer in Vietnam and was appointed as Civilian Aide to the Secretary
of the Army by President George Bush in 1991, serving until 2000.

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

20

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

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

K. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

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

L. RISK FACTORS

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

Historical Losses. The Company experienced operating losses of
approximately $11.0 million, $8.6 million and $5.5 million in fiscal 1997, 1998
and 2001, respectively, and operating income of $4.0 million and $6.6 million in
fiscal 1999 and 2000, respectively. The Company reported net income per diluted
share of $.57, $.18 and $.73 in fiscal 1997, 1998 and 1999, respectively, and a
net loss per diluted share of $.78 and $.25 in fiscal 2000 and 2001,
respectively. Net profits (losses) of approximately $23.6 million, $8.3 million,
$20.4 million, $(47.7) million and $(11.3) million, and net profit (loss) per
diluted share of $.74, $.32, $.51, $(1.24) and $(.30) in fiscal 1997, 1998,
1999, 2000 and 2001, respectively, were derived from gains on sale of broadcast
stations and other investments, offset by other non-operating charges in fiscal
1998, and investment

21

write downs in fiscal 2000 and 2001. There can be no assurance that the Company
will be able to achieve or maintain profitable operations in future fiscal
years.

NBC Rebranding and Trademark License Agreement. As discussed above, in
November 2000, the Company entered into a Trademark License Agreement with NBC
pursuant to which NBC granted the Company an exclusive, worldwide license for a
term of 10 years to use certain NBC trademarks, service marks and domain names
to effectively rebrand the Company's business and corporate name and companion
Internet website. Under the terms of the agreement, the Company's television
home shopping network, previously called ValueVision, and companion Internet
website was rebranded to ShopNBC and ShopNBC.com, respectively. The new name has
been promoted as part of a wide-ranging marketing campaign that was launched in
2001. There can be no assurance that this rebranding will be successful.
Additionally, if the Company's efforts to rebrand its network to ShopNBC are
ineffective, the Company's current growth expectations could be substantially
reduced. In the event the Company fails to achieve and maintain certain
performance targets, the Company is subject under the License Agreement to the
loss of its rights thereunder with respect to specific territories outside the
United States. The Company's online marketplace initiatives through its current
website are still being developed and the Company must continue to attract new
merchants in order to increase its attractiveness to consumers; however, there
can be no assurance that its efforts in this regard will be successful or
profitable. In addition, the License Agreement contains significant restrictions
on the Company's ability to use the rights granted to it under the License
Agreement in connection with businesses other than Permitted Businesses. This
restricts the ability of the Company to take advantage of certain business
opportunities. NBC has the right under the License Agreement to terminate the
License Agreement at any time upon certain changes of control of the Company,
the failure by NBC to own a certain minimum percentage of the outstanding
capital stock of the Company on a fully-diluted basis, the failure of NBC and
the Company to agree on new trademarks, service marks or related intellectual
property rights, and certain other related matters. The termination of the
License Agreement would require the Company to pursue a new branding strategy,
would entail significant expense and time, and may result in a material adverse
effect on the Company's sales and results of operations as a result of the
potential for negative impact on the Company's presence in the marketplace. In
addition, in certain events the termination by NBC of the License Agreement may
result in the acceleration of vesting of the License Warrants.

NBC and GE Equity Strategic Alliance. No assurance can be given that the
alliance among the Company, GE Equity and NBC will be successful. As a result of
its equity ownership of the Company, NBC and GE Equity can exert substantial
influence over the election of directors and the management and affairs of the
Company. Accordingly, GE Equity may have sufficient voting power to determine
the outcome of various matters submitted to the Company's shareholders for
approval, including mergers, consolidations and the sale of all or substantially
all of the Company's assets. Such control may result in decisions that are not
in the best interests of the Company or its shareholders. In addition, a
termination of the strategic alliance with NBC could significantly limit the
Company's ability to increase the number of households receiving the Company's
television programming. The Preferred Stock issued to NBC and GE Equity may also
be redeemed upon certain "changes of control" of the Company. In the event of
any such redemption, the requirement of the Company to pay cash in connection
with such redemption may have a material impact on the Company's liquidity and
cash resources.

Ralph Lauren Media, LLC, Joint Venture. As discussed above, and in Note 15
of the Company's consolidated financial statements, in February 2000, the
Company entered into a strategic alliance with Polo Ralph Lauren, NBC, NBCi, and
CNBC.com and created Ralph Lauren Media, LLC, 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. The Company owns a 12.5% interest in RLM. In connection with forming
this strategic alliance, the Company has committed to provide up to $50 million
of cash for purposes of financing RLM's operating activities of which
approximately $46 million has been funded through January 31, 2002 and
approximately $47 million through March 31, 2002. At January 31, 2002, the
Company's investment in RLM was $32,429,000 after adjusting for the Company's
equity share of RLM's losses under the equity method of accounting. The RLM
joint venture is still considered a start-up venture and to date has incurred
significant operating losses since it commenced operations in November

22

2000. Being a minority shareholder, the Company does not have direct control
over the strategic operational direction of this joint venture. The Company
evaluates the carrying value of its RLM investment by evaluating the current and
forecasted financial condition of the entity, its liquidity prospects, its cash
flow forecasts and by comparing its operational results to plan. No assurance
can be given that this alliance will be successful or that the Company will be
able to ultimately realize any return on its ownership interest in RLM. The
Company has also committed and spent significant resources totaling over $12
million to develop facilities to allow the Company to fulfill its service
obligations to RLM. There can be no assurance that the Company will recover its
costs for developing and constructing these facilities and, if the alliance was
not successful, the Company would have limited ability to recover such costs or
would incur additional expenditures to reconfigure for alternative uses.

Dependence on the Internet. Sales of consumer goods using the Internet
currently do not represent a significant portion of overall sales of consumer
goods in the United States. The Company has made material investments in
anticipation of the growing use and acceptance of the Internet as an effective
medium of commerce by merchants and shoppers. Rapid growth in the use of and
interest in the Internet and other online services is a recent development. No
one can be certain that acceptance and use of the Internet and other online
services will continue to develop or that a sufficiently broad base of merchants
and shoppers will adopt and continue to use the Internet and other online
services as a medium of commerce. The Internet may fail as a commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies, including security technology, privacy protection and
performance improvements. Additional laws and regulations may be adopted with
respect to the Internet or other online services, covering such issues as user
privacy, advertising, pricing, content, copyrights and trademarks, access by
persons with disabilities, distribution, taxation and characteristics and
quality of products and services. Such laws or regulations, if enacted, could
make it more difficult for the Company to conduct business online, which could,
in turn, decrease the demand for the Company's products and services and
increase its cost of doing business through the Internet. Additionally, because
material may be downloaded from websites hosted by or linked from the Company
and subsequently distributed to others, there is a potential that claims will be
made against the Company for negligence, copyright or trademark infringement or
other theories based on the nature and content of this material. Inherent with
the Internet and e-commerce is the risk of unauthorized access to confidential
data, the risk of computer virus infection or other unauthorized acts of
electronic intrusion with the malicious intent to do damage. Although the
Company has taken precautionary steps to secure and protect its data network
from intrusion and acts of hostility, there can be no assurance that
unauthorized access to the Company's electronic systems will be prevented
entirely. Negligence and product liability claims also potentially may be made
against the Company due to the Company's role in facilitating the purchase of
certain products. The Company's liability insurance may not cover claims of
these types, or may not be adequate to indemnify the Company against this type
of liability. There is a possibility that such liability could have a material
adverse effect on the Company's reputation or operating results.

Competition. As a general merchandise retailer, the Company competes for
consumer expenditures with other forms of retail businesses, including
department, discount, warehouse and specialty stores, television home shopping,
mail order and catalog companies and other direct sellers. The catalog and
direct mail industry includes a wide variety of specialty and general
merchandise retailers and is both highly fragmented and highly competitive. The
Company also competes with retailers involved with the evolving convergence and
development of electronic commerce as well as other retailers who sell and
market their products through the highly competitive Internet medium. The
Company expects that additional companies, including media companies and
conventional retailers that to date have not had a substantial commercial
presence on the Internet, will offer services that directly compete with the
Company. In addition, as the use of the Internet and other online services
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. Providers of Internet browsers
and other Internet products and services who are affiliated with providers of
Web directories and information services that compete with the Company's website
may more tightly integrate these affiliated offerings into their browsers or
other products or services. Any of these trends would increase the competition
23

with respect to the Company. The Company also competes with a wide variety of
department, discount and specialty stores, which have greater financial,
distribution and marketing resources than the Company. The home shopping
industry is also highly competitive and is dominated by two companies, HSN and
QVC. The Company's television home shopping programming competes directly with
HSN and QVC in virtually all of the Company's markets. The Company is at a
competitive disadvantage in attracting viewers due to the fact that the
Company's programming is not carried full-time in all of its markets, and that
the Company may have less desirable cable channels in many markets. QVC and HSN
are well-established and, similar to the Company, offer home shopping
programming through cable systems, owned or affiliated full and low power
television stations and directly to satellite dish owners and, accordingly,
reach a significantly larger percentage of United States television households
than the Company's broadcast. The television home shopping industry is also
experiencing vertical integration. QVC and HSN are both affiliated with cable
operators or cable networks serving significant numbers of subscribers
nationwide. While the Cable Television Consumer Protection and Competition Act
of 1992 includes provisions designed to prohibit coercion and discrimination in
favor of such affiliated programmers, the FCC has decided that it will rule on
the scope and effect of these provisions on a case-by-case basis. QVC is a
wholly owned subsidiary of Comcast Corporation. HSN is a wholly owned subsidiary
of USA Networks, Inc. Comcast and USA Networks are larger, more diversified and
have greater financial, marketing and distribution resources than the Company.

Industry Consolidation. On October 28, 2001, EchoStar Communications
Corporation ("EchoStar") announced the signing of definitive agreements with
General Motors Corporation ("GM") and its subsidiary Hughes Electronics
Corporation ("Hughes"), providing for the spin-off of Hughes from GM and the
merger of Hughes with EchoStar. The combined company would use the EchoStar name
and adopt Hughes' DIRECTV brand for its services. The merger would create the
nation's second-largest pay television platform with more than 16.7 million
subscribers. The transaction is subject to a number of conditions, including
regulatory clearance. On December 19, 2001, ATT Corp. ("ATT") and Comcast
Corporation ("Comcast") announced the execution of a definitive agreement to
combine ATT Broadband with Comcast. The new company, to be called ATT Comcast
Corporation, will have approximately 22 million subscribers. ATT Comcast
Corporation's assets will consist of both companies' cable TV systems, as well
as ATT's interests in cable television joint ventures and its 25.5 percent
interest in Time Warner Entertainment, and Comcast's interests in QVC (a direct
competitor of the Company), E! Entertainment, The Golf Channel, and other
entertainment properties. The merger of ATT Broadband and Comcast is subject to
regulatory review and certain other conditions. The proposed Echostar/GM and
ATT/Comcast transactions could have an effect on the Company's ability to
further expand its programming to additional viewers and might impact the price
paid to gain access to those households that currently receive the Company's
programming.

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

Strategic Investments by the Company. In fiscal 1999, the Company began to
enter into transactions with companies that it viewed then as emerging leaders
in industries and markets complementary to the Company's business strategy. In
general, each such transaction in the past may have involved an equity
investment by the Company in such entity as well as a production and marketing
component pursuant to which the third party also marketed and sold its products
through the Company's television programming and Internet website. Most, but not
all, of these companies are emerging-stage entities with a limited history of
operating results. There can be no assurance that the Company will realize a
return on any of its remaining investments. Each such investment involves a high
degree of risk by the Company. As of January 31, 2002, the Company had remaining
investments totaling $2,011,000, excluding its investment in RLM, relating to
this original strategy. In fiscal 2001 and 2000 the Company recorded pre-tax
losses totaling $7,567,000 and $56,157,000, respectively, relating to the
write-down of a majority of these investments.

24

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

Product Liability Claims. Products sold by the Company may expose it to
potential liability from claims by users of such products, subject to the
Company's rights, in certain instances, to indemnification against such
liability from the manufacturers of such products. The Company has instead
generally required the manufacturers and/or vendors of these products to carry
product liability insurance, although in certain instances where a limited
quantity of products are purchased from non-U.S. vendors, the vendor may not be
formally required to carry product liability insurance. Certain of such vendors,
however, may in fact maintain such insurance. There can be no assurance that
such parties will maintain this insurance or that this coverage will be adequate
to cover all potential claims, including coverage in amounts, which it believes
to be adequate. There can be no assurance that the Company will be able to
maintain such coverage or obtain additional coverage on acceptable terms, or
that such insurance will provide adequate coverage against all potential claims.

Legacy Systems Replacement. In fiscal 2000, the Company launched an effort
to fully replace its legacy financial, order fulfillment and customer care
computer systems in an effort to further support the Company's growing
television home shopping and Internet businesses. The installation of the
Company's financial systems was successfully completed in midyear 2000. The
Company is currently in the process of replacing its order management, inventory
management and customer care systems and is further upgrading its website and
making significant enhancements to the website's underlying infrastructure.
These systems are expected to be fully implemented by mid-year 2002, however,
there can be no assurances that expected timeframes will be met. 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 errors or omissions in the installed applications, errors in the conversion
of historical data or errors, which would prevent or delay the new systems from
performing as intended. The Company has taken specific measures to ensure
adequate functionality for these systems, however there can be no assurances
that all systems will perform as expected.

Seasonality and Economic Sensitivity. The television home shopping and
e-commerce businesses in general are somewhat seasonal, with the primary selling
season occurring during the last quarter of the calendar year. These businesses
are also sensitive to general economic conditions and business conditions
affecting consumer spending. The recent general deterioration in economic
conditions in the United States 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. As a result,
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 specifically with reference to other types of merchandise the Company
offers on its television programming and over the Internet.

ITEM 2. PROPERTIES

The Company leases approximately 139,000 square feet of space in Eden
Prairie, Minnesota (a suburb of Minneapolis), which includes all corporate
administrative, television production, customer service and jewelry distribution
operations. The Company owns a 262,000 square foot distribution facility on a
34-acre parcel of land in Bowling Green, Kentucky and leases approximately
25,000 square feet of office space for a telephone call center in Brooklyn
Center, Minnesota, which the Company primarily uses to fulfill its service
obligations in connection with the Services Agreement entered into with RLM.
Additionally, the Company rents transmitter site and studio locations in
connection with its LPTV stations. The Company believes that its

25

existing facilities are adequate to meet its current needs and that suitable
additional or alternative space will be available as needed to accommodate
expansion of operations.

ITEM 3. LEGAL PROCEEDINGS

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

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

Iosota, Inc. ("Iosota"), the parent company of FanBuzz, Inc. (See Item 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Acquisition of FanBuzz, Inc.) is subject to an Agreement Containing
Consent Order with the Federal Trade Commission (FTC File No. 012 3151; the
"Iosota Consent Order"). Under the terms of the Iosota Consent Order, Iosota has
agreed to comply with those FTC regulations that apply to the labeling of
textiles and apparel with country of origin information, including the
requirement that certain origination information be posted to Iosota's website
as part of the apparel's description. In the event of noncompliance with the
Iosota Consent Order, the Company could be subject to civil penalties. Iosota's
execution of the Iosota Consent Order did not have a material impact on Iosota
and will not have a material impact on the Company. The Company has been and is
currently in compliance with the Iosota Consent Order.

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

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, 2002.

26

PART II

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

MARKET INFORMATION FOR COMMON STOCK

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

HOLDERS

As of April 2, 2002 the Company had approximately 425 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 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.

27

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data for the five years ended January 31, 2002 have
been derived from the audited consolidated financial statements of the Company.
The selected financial data presented below are qualified in their entirety by,
and should be read in conjunction with, the financial statements and notes
thereto and other financial and statistical information referenced elsewhere
herein including the information referenced under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

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

(a) Results of operations for the year ended January 31, 2001 include a
write-off of $4.6 million relating to Montgomery Wards' bankruptcy filing
in December 2000. See Note 3 of Notes to Consolidated Financial Statements.
28

(b) In the second half of fiscal 1999, the Company divested the catalog
operations of Catalog Ventures, Inc. and Beautiful Images, Inc. See Note 4
of Notes to Consolidated Financial Statements.

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

(d) Income (loss) before income taxes and net income (loss) include a net
pre-tax loss of $16.1 million from the sale and holdings of investments and
other assets in fiscal 2001, a net pre-tax loss of $59.0 from the sale and
holdings of investments and other assets in fiscal 2000, a net pre-tax gain
of $32.7 million from the sale and holdings of broadcast properties and
other assets in fiscal 1999, a net pre-tax gain of $22.8 million from the
sale and holdings of broadcast properties and other assets and pre-tax
charges totaling $9.5 million associated with a litigation settlement and
terminated acquisition costs in fiscal 1998 and a pre-tax gain of $38.9
million from the sale of broadcast properties in fiscal 1997. See Notes 2
and 4 of Notes to Consolidated Financial Statements.

(e) EBITDA represents operating income (loss) for the respective periods
excluding depreciation and amortization expense and the write-off due to
Montgomery Ward's bankruptcy in fiscal 2000. Management views EBITDA as an
important alternative measure of cash flows because it is commonly used by
analysts and institutional investors in analyzing the financial performance
of companies in the broadcast and television home shopping sectors.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of operating performance or as a measure of
liquidity. EBITDA, as presented, may not be comparable to similarly
entitled measures reported by other companies.

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

INTRODUCTION

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

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

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

29

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses ValueVision's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. 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:

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

- Intangible assets. As of January 31, 2002, the Company had intangible
assets totaling $34,405,000 recorded as a result of warrants issued by
the Company in connection with a Trademark License Agreement and a
Distribution and Marketing Agreement entered into with NBC. 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. 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.

- Accounts receivable. The Company utilizes an installment payment program
called "ValuePay" which entitles customers to purchase merchandise and
generally pay for the merchandise in two to six equal monthly
installments. As of January 31, 2002, the Company had approximately
$48,078,000 due from customers under the ValuePay installment program,
down from $54,759,000 as of January 31, 2001. 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.

30

- Inventory. The Company values its inventory, which consists primarily of
consumer merchandise held for resale, at the lower of average cost or
realizable value and reduces its balance by an allowance for excess and
obsolete merchandise. As of January 31, 2002 and 2001, the Company had an
inventory balance of $40,383,000 and $34,960,000, respectively. The
Company regularly reviews inventory quantities on hand and records a
provision for excess and obsolete inventory based primarily on a
percentage of the inventory balance as determined by its age and specific
product category. In determining these percentages, the Company looks at
its historical write-off experience, the specific merchandise categories
on hand, its historic recovery percentages on liquidations, forecasts of
future product television shows and the current market value of gold. If
actual recoveries or future demand or market conditions differ from the
Company's estimates and assumptions, additional inventory write-downs may
be required in future periods.

- Product returns. The Company records a reserve as a reduction of gross
sales for anticipated product returns at each month-end and must make
estimates of potential future product returns related to current period
product revenue. The Company 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.

NBC TRADEMARK LICENSE AGREEMENT

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

NBC AND GE EQUITY STRATEGIC ALLIANCE

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

31

the Company for the distribution of its television home shopping service. The
sale of 3,739,500 shares of the Preferred Stock was completed on April 15, 1999.
Final consummation of the transaction regarding the sale of the remaining
1,600,000 Preferred Stock shares was completed on June 2, 1999. On July 6, 1999,
GE Equity exercised the Investment Warrant acquiring an additional 10,674,000
shares of the Company's Common Stock for an aggregate of $178,370,000, or $16.71
per share, representing the 45-day average closing price of the underlying
Common Stock ending on the trading day prior to exercise. Proceeds received from
the issuance of the Preferred Stock and the Investment Warrant (and to be
received from the exercise of the Distribution Warrants) are for general
corporate purposes. Following the exercise of the Investment Warrant, the
combined ownership of the Company by GE Equity and NBC was approximately 39.9%.
See Item 1 -- Business Section under "Strategic Relationships" for a detailed
discussion of the NBC and GE Equity strategic alliance.

POLO RALPH LAUREN/RALPH LAUREN MEDIA ELECTRONIC COMMERCE ALLIANCE

In February 2000, the Company entered into an electronic commerce strategic
alliance with Polo Ralph Lauren Corporation ("Polo Ralph Lauren"), NBC, NBCi and
CNBC.com LLC ("CNBC") whereby the parties created Ralph Lauren Media, LLC
("RLM"), a joint venture formed for the purpose of bringing the Polo Ralph
Lauren American lifestyle experience to consumers via multiple media platforms,
including the Internet, broadcast, cable and print. RLM is currently owned 50%
by Polo Ralph Lauren, 37.5% by NBC and its affiliates and 12.5% by the Company.
In exchange for their interest in RLM, NBC agreed to contribute $110 million of
television and online advertising on NBC and CNBC properties, NBCi agreed to
contribute $40 million in online distribution and promotion and the Company has
contributed a cash funding commitment of up to $50 million, of which
approximately $46 million has been funded through January 31, 2002 and
approximately $47 million through March 31, 2002. RLM's premier initiative is
Polo.com, an Internet website dedicated to the American lifestyle that will
include original content, commerce and a strong community component. Polo.com
was officially launched in November 2000 and includes an assortment of men's,
women's and children's products across the Ralph Lauren family of brands as well
as unique gift items. In connection with the formation of RLM, the Company
entered into various agreements setting forth the manner in which certain
aspects of the business of RLM are to be managed and certain of the members'
rights, duties and obligations with respect to RLM. In addition, RLM and VVI
Fulfillment Center, Inc. ("VVIFC"), a wholly owned subsidiary of the Company,
entered into an Agreement for Services under which VVIFC agreed to provide all
telemarketing, fulfillment and distribution services to RLM on a cost plus
basis. See Item 1 -- Business Section under "Strategic Relationships" for a
detailed discussion of the RLM strategic alliance.

NBCI ELECTRONIC COMMERCE ALLIANCE

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

WRITE-DOWN OF INVESTMENTS

As of January 31, 2002 and 2001, the Company had equity investments
totaling approximately $40,551,000 and $42,034,000, respectively, of which
$32,429,000 and $25,646,000, respectively, related to the Company's investment
in the RLM joint venture, after adjusting for the Company's equity share of RLM
losses under the equity method of accounting. The Company's share of RLM losses
totaled $8.8 million and $4.5 million for the years ended January 31, 2002 and
2001, respectively. The Company's other equity

32

investments include minority interest holdings of companies whose shares, or
underlying shares in the case of warrant holdings, are traded on a public
exchange and are accounted for in accordance with the provisions of Statement of
Financial Accounting Standards No. 115 ("SFAS No. 115") for common stock
holdings and Statement of Financial Accounting Standards No. 133 ("SFAS No.
133") for warrant holdings. The Company also holds certain nonmarketable equity
investments of private enterprises, which are carried at the lower of cost or
net realizable value in the Company's financial statements. These equity
investments were made primarily in conjunction with the Company's strategy of
investing in e-commerce, Internet strategic alliances and the rebranding of the
Company's television network. During fiscal 2001, the Company recorded pre-tax
investment losses totaling $7,567,000 of which $6,006,000 related to the
write-off of the Company's investment in Internet company Wine.com pursuant to
its announced employee layoff, sale of assets to eVineyard.com and subsequent
dissolution. In fiscal 2000, the Company recorded pre-tax losses totaling
$56,157,000 relating to the write-down of investments made primarily in a number
of Internet retailers whose decline in fair value was determined by the Company
to be other than temporary. The decline in fair value of these companies was
driven by their large operating losses and negative cash flow accompanied by an
environment not conducive to raising new financing. The major investment
components of the write-down included minority investments made in NBCi.com,
Petopia.com, SelfCare.com, Roxy.com and BigStar Entertainment, Inc.

WRITE-OFF DUE TO BANKRUPTCY

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

DISPOSITIONS:

BEAUTIFUL IMAGES, INC.

In fiscal 1999, the Company, through VVDM, completed the sale of Beautiful
Images, Inc. ("BII"), a direct marketer of women's apparel and acquired by the
Company in 1996, for a total of $5,000,000, which was received in the form of a
promissory note, representing the net book value of BII on the date of sale.
Accordingly, no gain or loss was recorded on the closing of the sale. As a
result of the former subsidiary's subsequent earnings erosion, negative
earnings, negative cash flow, interest payment default and the inability of the
acquiring entity to obtain additional bank financing, the Company determined
that the promissory note was uncollectible and wrote off the $5,000,000 note in
the third quarter of fiscal 2000. Management believes that the sale will not
have a significant impact on the ongoing operations of the Company.

CATALOG VENTURES, INC.

In fiscal 1999, the Company, through VVDM, completed the sale of Catalog
Ventures, Inc. ("CVI"), a catalog direct marketing company, to privately held
Massachusetts-based Potpourri Holdings, Inc. acquired by the Company in 1996,
for approximately $7,300,000 cash and up to an additional $5,500,000 contingent
upon CVI's performance over the twelve months following the sale. A pre-tax loss
of approximately $128,000 was recorded on the initial closing of the sale of CVI
and was recognized in fiscal 1999. In fiscal 2000, the Company received
$2,130,000 of additional consideration, net of fees incurred, in connection with
the sale of CVI and recorded the pre-tax gain in the fourth quarter of fiscal
2000. Management believes that the sale will not have a significant impact on
the ongoing operations of the Company.

33

SALE OF BROADCAST STATIONS

In fiscal 1999, the Company completed the sale of its KVVV-TV full power
television broadcast station, Channel 33, and K53 FV low power station, serving
the Houston, Texas market, for a total of $28 million to Visalia,
California-based Pappas Telecasting Companies. The Company acquired KVVV-TV in
March 1994 for approximately $5.8 million. The pre-tax gain recorded on the sale
of the television station was approximately $23.3 million and was recognized in
the third quarter of fiscal 1999. Also in fiscal 1999, the Company received a
contingent payment of $10 million relating to the sale of KBGE-TV Channel 33,
which served the Seattle, Washington market, and recognized a $10 million
pre-tax gain, net of applicable closing fees, in the first quarter of fiscal
1999. Management believes that the sale will not have a significant impact on
the ongoing operations of the Company.

ACQUISITION OF FANBUZZ, INC.

On February 25, 2002, the Company announced it had signed a definitive
agreement to acquire Minneapolis-based FanBuzz, Inc., an e-commerce and
fulfillment solutions provider of affinity based merchandise to some of the most
recognized sports, media and other well known entertainment brands in the world,
including ESPN, CNN/Sports Illustrated, the Salt Lake 2002 Winter Games, the
Chicago Bears and many other professional sports teams, leagues and colleges.
FanBuzz, Inc., with annualized revenues of approximately $20 million, has
pioneered the business model of operating private label online stores for
already-established brands and destinations. The purchase price of the
acquisition, which closed on March 8, 2002, was $14 million in cash and will be
accounted for using the purchase method of accounting.

RESULTS OF OPERATIONS

Results of operations for the year ended January 31, 2000 include the
direct-mail operations of CVI, which was sold effective October 31, 1999, and
BII, which was sold effective December 31, 1999.

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

SALES

Consolidated net sales, inclusive of shipping and handling revenue
(reclassified effective January 31, 2001, per EITF Issue No. 00-10) for the year
ended January 31, 2002 (fiscal 2001) were $462,322,000 compared to $385,940,000
for the year ended January 31, 2001 (fiscal 2000), a 20% increase. The Company
has again recently reported its largest revenue quarter in the Company's
history. The increase in consolidated

34

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 20% to $453,747,000 for the year ended January 31, 2002
from $378,158,000 for the year ended January 31, 2001. The challenging retail
economic environment currently being experienced by the Company and other
merchandise retailers along with the economic effects following the dramatic and
tragic events of September 11, 2001 has had a negative effect on total net sales
growth during the fiscal 2001 year. Despite the challenging economic situation,
the continued growth in home shopping net sales is primarily attributable to the
growth in full-time equivalent ("FTE") homes receiving the Company's television
programming which increased by approximately 12.0 million homes since December
2000; however, the complete net sales impact and productivity from these
additional homes is still to be realized as these additional new homes have yet
to mature. During the 12-month period ended January 31, 2002, the Company added
approximately 9.8 million FTE subscriber homes (2.7 million FTEs in the fourth
quarter alone), an increase of 29%, going from 34.2 million FTE subscriber homes
at January 31, 2001 to 44.0 million FTE subscriber homes at January 31, 2002.
The average number of FTE subscriber homes was 39.3 million for fiscal 2001 and
27.9 million for fiscal 2000, a 41% increase. In addition to new FTE subscriber
homes, television home shopping and Internet sales increased due to the
continued addition of new customers from households already receiving the
Company's television home shopping programming, an increase in the average order
size and a 121% increase in Internet sales over fiscal 2000. The Company intends
to continue to test and change its merchandising and programming strategies with
the goal of improving its television home shopping and Internet results.
However, while the Company is optimistic that television home shopping and
Internet sales results will continue to improve, there can be no assurance that
such changes in strategy will achieve the intended results or that the economy
will improve in the near term.

Consolidated net sales for the year ended January 31, 2001 were
$385,940,000 compared to $293,460,000 for the year ended January 31, 2000, a 32%
increase. The increase in consolidated net sales was directly attributable to
the increased sales from the Company's television home shopping and Internet
operations as well as a result of amounts billed for fulfillment services
provided in connection with the Company's service agreements with RLM. Sales
attributed to the Company's television home shopping and Internet operations
increased 43% to $378,158,000 for the year ended January 31, 2001 from
$264,962,000 for the year ended January 31, 2000. The growth in television home
shopping net sales was primarily attributable to the increase in FTE subscriber
homes receiving the Company's television home shopping programming, which
increased approximately 9.2 million or 37% from 25.0 million at January 31, 2000
to 34.2 million subscriber homes at January 31, 2001. The average number of FTE
subscriber homes was 27.9 million for fiscal 2000 and 19.6 million for fiscal
1999, a 42% increase. In addition to new FTE subscriber homes, television home
shopping and Internet sales increased as result of increased sales from
households already receiving the Company's programming, an increase in the
average customer order size and a 618% increase in Internet sales over the prior
year. There were no sales attributed to direct-mail catalog operations in fiscal
2000 as the Company divested its remaining mail order catalog operations in the
fourth quarter of fiscal 1999. Sales attributed to direct-mail marketing
operations totaled $28,498,000 or 10% of total net sales for the year ended
January 31, 2000.

The Company records a reserve as a reduction of gross sales for anticipated
product returns at each month-end based upon historical product return
experience. The return rates for the fiscal years ended January 31, 2002, 2001
and 2000 were approximately 34%, 33% and 29%, respectively. The increase in the
overall return rate from fiscal 1999 to fiscal 2000 was in part a direct result
of the divestiture of the Company's remaining direct-mail catalog operations in
fiscal 1999. Direct-mail operations, which represented only 10% of total sales
in fiscal 1999, typically experienced lower average return rates than the
Company's television operations. The fiscal 2001 return rate for the Company's
television home shopping and Internet operations was 34%, compared to 33% in
fiscal 2000 and 30% in fiscal 1999. The return rate for the television home
shopping operations is slightly higher than prior year and historic industry
averages and is attributable in part to a continued slowing of the economy
during fiscal 2001 and its effect on consumer purchasing decisions and higher
average unit television home shopping selling price points for the Company
(approximately $186 in fiscal 2001 versus $163 in fiscal 2000), which typically
result in higher return rates. The Company is continuing to manage return rates
and is adjusting average selling price points and product mix in an effort to
35

reduce the overall return rate related to its home shopping business. The
average return rate for the Company's direct marketing operations was 11% in
fiscal 1999.

GROSS PROFIT

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

Gross profits for fiscal 2000 and 1999 were $144,520,000 and $113,488,000,
respectively, an increase of $31,032,000 or 27%. Gross margins for fiscal 2000
were 37.4% compared to 38.7% for fiscal 1999. The principal reason for the
increase in gross profit dollars was the increased sales volume from the
Company's television home shopping and Internet businesses, offset by a decrease
in direct-mail order gross profits resulting from the fiscal 1999 divestiture of
the Company's remaining direct mail-order catalog operations. In addition, gross
profit for fiscal 2000 included positive contributions made from the Company's
fulfillment services. Television home shopping and Internet gross margins for
fiscal 2000 and 1999 were 36.7% and 36.8%, respectively. Gross margins for the
Company's direct mail operations were 55.8% in fiscal 1999. Overall, annual
television and Internet gross margins increased slightly; however, television
home shopping merchandise gross margins decreased slightly from prior year
primarily as a result of a decrease in the mix of higher margin jewelry
merchandise offset by an increase in gross margin percentages in the electronics
product category and the addition of airtime sales revenue in fiscal 2000.

OPERATING EXPENSES

Total operating expenses were $177,448,000, $137,883,000 and $109,492,000
for the years ended January 31, 2002, 2001 and 2000, respectively, representing
an increase of $39,565,000 or 29% from fiscal 2000 to fiscal 2001, and an
increase of $28,391,000 or 26% from fiscal 1999 to fiscal 2000. For fiscal 2000,
total operating expense includes a $4,609,000 one-time asset write-off resulting
from a bankruptcy filing by Montgomery Ward in the fourth quarter. Assets
written off consisted primarily of uncollected spot advertising and credit card
processing receivables and the remaining Montgomery Ward Operating Agreement and
License intangible asset. The Company concluded that the intangible asset was
permanently impaired as a result of the bankruptcy filing and the subsequent
termination of the Company's use of the MW Card.

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

Distribution and selling expense for fiscal 2000 increased $17,131,000 or
19% to $108,952,000 or 28% of net sales compared to $91,821,000 or 31% of net
sales in fiscal 1999. Distribution and selling expense increased from the prior
year primarily as a result of increases in net cable access fees due to a 42%
annual increase in the number of average FTE subscriber homes over the prior
year, an increase in the average net cost per FTE subscriber home, increased
marketing and advertising fees, fulfillment distribution costs, and increased
costs

36

associated with credit card processing, telemarketing and the Company's ValuePay
program primarily resulting from increased sales volumes. These increases were
offset by decreases in distribution and selling expenses associated with the
divestiture of the Company's catalog operations. Distribution and selling
expense for fiscal 2000 decreased as a percentage of net sales over fiscal 1999
as a result of expenses growing at a slower rate than the increase in television
home shopping and Internet net sales over the prior year.

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

General and administrative expense for fiscal 2000 increased $3,374,000 or
27% to $16,079,000 or 4% of net sales compared to $12,705,000 or 4% of net sales
in fiscal 1999. General and administrative expense increased from the prior year
primarily as a result of increases in personnel costs, travel and information
systems costs, including increased consulting and placement fees and increases
in general and administrative expenses associated with the Company's fulfillment
service operations during the RLM initiative. These increases were offset by a
decrease in general and administrative expense associated with the Company's
divested catalog operations. General and administrative expense as a percentage
of net sales remained flat from year to year.

Depreciation and amortization expense was $12,341,000, $8,243,000 and
$4,966,000 for the years ended January 31, 2002, 2001 and 2000, respectively,
representing an increase of $4,098,000 or 50% from fiscal 2000 to fiscal 2001
and an increase of $3,277,000 or 66% from fiscal 1999 to fiscal 2000.
Depreciation and amortization expense as a percentage of net sales was 3% for
fiscal 2001 and 2% for both fiscal 2000 and 1999. The dollar increase from
fiscal 2000 to fiscal 2001 is primarily due to a full year of amortization
incurred in fiscal 2001 in connection with the Company's NBC Trademark License
Agreement and increased depreciation associated with the Company's fixed assets
and fulfillment service obligations with RLM. The dollar increase from fiscal
1999 to fiscal 2000 was primarily related to additional amortization incurred in
fiscal 2000 in connection with the November 2000 initiation of the NBC Trademark
License Agreement and increased depreciation associated with the Company's fixed
assets as a result of significant capital additions made during fiscal 2000
primarily in the areas of new systems implementation and the Company's
fulfillment obligations with RLM. The increases in fiscal 2000 were offset by a
reduction in depreciation expense in connection with the divestiture of the
Company's direct-mail catalog operations and divested television broadcast
stations.

OPERATING INCOME (LOSS)

The Company reported an operating loss of $5,475,000 for the year ended
January 31, 2002 compared with operating income of $6,637,000 for the year ended
January 31, 2001, a decrease of $12,112,000. The Company reported operating
income of $3,996,000 for the year ended January 31, 2000. Operating income for
fiscal 2001 decreased from the prior year primarily as a result of the Company
achieving lower than expected sales levels in fiscal 2001 coupled with increased
distribution and selling expenses, particularly net cable access fees for which
the expense of adding approximately 12 million new homes since December 2000 is
being incurred currently but the future revenue benefit and productivity of
these additional homes is yet to be realized. The net sales shortfall has been a
direct result of the challenging economic environment in general, the soft
retail market in particular and the economic effect following the tragic events
of September 11, 2001. In addition, operating income also decreased as a result
of increased amortization expense associated with the Company's Trademark
License Agreement with NBC and increases in depreciation associated with the
Company's fixed assets and fulfillment obligations with RLM. Fiscal 2001
operating expense increases were partially offset by the increase in net sales
and gross profits reported by the Company's television home shopping and
Internet businesses and a decrease in overall general and administrative expense
driven by tight controls over spending.

37

The Company reported operating income of $6,637,000 for the year ended
January 31, 2001 compared with operating income of $3,996,000 for the year ended
January 31, 2000. Operating income for fiscal 2000 includes a one-time asset
write-off of $4,609,000 resulting from a bankruptcy filing made by Montgomery
Ward in the fourth quarter. Excluding the one-time bankruptcy write-off,
operating income was $11,246,000 for the year ended January 31, 2001, an
improvement of $7,250,000 or 181% over fiscal 1999. The improvement in operating
income over fiscal 1999 was directly attributed to the overall operating
improvements in the Company's television home shopping and Internet businesses,
which, excluding the one-time charge, improved by approximately $6,938,000 or
188% for the year ended January 31, 2001. Operating income improved as a result
of increased sales and gross profits from the Company's television home shopping
and Internet businesses and the additional positive contributions made during
the year from the Company's fulfillment operations. These operating income
improvements were offset by increased distribution and selling expense largely
due to increases in cable access fees associated with new cable distribution,
increased general and administrative expense, increased fixed asset depreciation
and the additional amortization associated with the November 2000 initiation of
the NBC Trademark and License Agreement.

OTHER INCOME (EXPENSE)

Total other income (expense) was $(7,543,000) in fiscal 2001, $(43,635,000)
in fiscal 2000 and $42,775,000 in fiscal 1999. Total other expense for fiscal
2001 included the following: pre-tax investment write-offs totaling $7,567,000
of which $6,006,000 related to write-off of the Company's investment in Internet
company Wine.com pursuant to its announced employee layoff, sale of assets to
eVineyard.com and subsequent dissolution (the declines in fair value of these
investments were determined by the Company to be other than temporary); a
pre-tax loss of $8,838,000 related to the Company's equity share of losses in
RLM; net pre-tax gains of $277,000 recorded on the sale and holdings of property
and security investments; and interest income of $8,585,000. Total other expense
for fiscal 2000 included the following: a pre-tax charge totaling $56,157,000
relating to the write-down of investments made primarily in a number of Internet
retailers whose decline in fair value was determined by the Company to be other
than temporary; a pre-tax loss of $4,500,000 related to the Company's equity
share of losses in RLM; net pre-tax gains of $1,644,000 recorded on the sale and
holdings of property and security investments; and interest income of
$15,378,000. The major investment components of the write-down included minority
investments in NBCi.com, Petopia.com, SelfCare.com, Roxy.com and BigStar
Entertainment, Inc. Total other income for fiscal 1999 included the following:
pre-tax gains of $23,250,000 from the sale of two television stations serving
the Houston, Texas market; a pre-tax gain of $9,980,000 relating to a payment
received from a prior year television station sale; net pre-tax gains of
$1,457,000 recorded on the sale and holdings of property and security
investments; a pre-tax loss of $1,991,000 related to an investment made in 1997;
and interest income of $10,079,000. The decrease in interest income from fiscal
2000 to fiscal 2001 was primarily attributable to reductions in federal funds
rates experienced during the year, decreases in the Company's cash balances
driven by the Company's share repurchase program and having a greater percentage
of tax advantaged cash investments which typically carry lower interest rates.

NET INCOME (LOSS)

Net loss available to common shareholders was $(9,769,000) or ($.25) per
basic and diluted share for the year ended January 31, 2002. Excluding the net
gains/losses recorded on the sale and holdings of property and investments and
other one-time charges, discussed above, the Company recorded a net loss
available to common shareholders of $(3,006,000), or $(.08) per basic and
diluted share for the year ended January 31, 2002. Net loss available to common
shareholders was $(30,172,000) or $(.78) per basic and diluted share for the
year ended January 31, 2001. Excluding the net gains/losses recorded on the sale
and holdings of property and investments and other one-time charges, discussed
above, the Company recorded net income available to common shareholders of
$13,550,000, or $.35 per basic share and $.29 per diluted share for the year
ended January 31, 2001. Net income available to common shareholders was
$29,123,000 or $.89 per basic share and $.73 per diluted share for the year
ended January 31, 2000. Excluding the net gains/losses recorded on the sale and
holdings of property and investments and other one-time charges, discussed
above, the Company recorded net income available to common shareholders of
$8,590,000, or $.26 per basic share and $.21 per diluted share
38

for the year ended January 31, 2000. For the years ended January 31, 2002, 2001
and 2000, respectively, the Company had approximately 38,336,000, 38,560,000 and
40,427,000 diluted weighted average common shares outstanding and 38,336,000,
38,560,000 and 32,603,000 basic weighted average common shares outstanding.

For the years ended January 31, 2002, 2001 and 2000, net income (loss)
reflects an income tax provision (benefit) of $(3,858,000), $(7,104,000) and
$17,441,000, respectively, which results in an effective tax rate of 30% in
fiscal 2001, 19% in fiscal 2000 and 37% in fiscal 1999. The Company's effective
tax rate for the years ended January 31, 2002 and 2001 are lower than its
historical effective tax rate as a result of the uncertainty of future tax
benefits relating to certain investments written down during those years and an
increase in the mix of interest income generated from tax-free, short-term
investments in fiscal 2001.

PROGRAM DISTRIBUTION

The Company's television home shopping program was available to
approximately 51.9 million homes as of January 31, 2002 as compared to 42.6
million homes as of January 31, 2001 and to 33.1 million homes as of January 31,
2000. The Company's programming is currently available through affiliation and
time-block purchase agreements with 658 cable and or satellite systems. In
addition, the Company's programming is broadcast full-time over eleven owned low
power television stations in major markets, and is available unscrambled to
homes equipped with satellite dishes. As of January 31, 2002, 2001 and 2000, the
Company's programming was available to approximately 44.0 million, 34.2 million
and 25.0 million FTE households, respectively. Approximately 36.0 million, 27.6
million and 17.3 million households at January 31, 2002, 2001 and 2000,
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.

QUARTERLY RESULTS

The following summarized unaudited results of operations for the quarters
in the fiscal years ended January 31, 2002 and 2001 have been prepared on the
same basis as the annual financial statements and reflect adjustments
(consisting of normal recurring adjustments), which the Company considers
necessary for a fair presentation of results of operations for the periods
presented. The Company's results of operations have varied and may continue to
fluctuate significantly from quarter to quarter. Results of operations in any
period should not be considered indicative of the results to be expected for any
future period.

- -------------------------
(a) Net sales for all periods includes the reclassification of shipping and
handling revenues in accordance with EITF Issue No. 00-10.

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

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

As of January 31, 2002 and 2001, cash and cash equivalents and short-term
investments were $231,867,000 and $244,723,000, respectively, a decrease of
$12,856,000 primarily driven by the Company's share repurchase program. For the
year ended January 31, 2002, working capital decreased $17,876,000 to
$274,289,000 compared to working capital of $292,165,000 for the year ended
January 31, 2001. The current ratio was 5.4 at January 31, 2002 compared to 4.9
at January 31, 2001. At January 31, 2002 and 2001, 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 two hundred and
seventy (270) days and investment grade corporate and municipal bonds and other
tax advantaged certificates with tender option terms ranging from one month to
one year. The Company's principal source of liquidity is its cash, cash
equivalents and short-term investments as well as its operating cash flows.
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 average maturity of
the Company's investment portfolio is approximately 30-60 days. Management
believes that funds currently held by the Company should be sufficient to fund
the Company's operations, anticipated capital expenditures or strategic
investments and cable launch fees through at least fiscal 2002.

Total assets at January 31, 2002 were $449,690,000 compared to $510,697,000
at January 31, 2001. Shareholders' equity was $344,820,000 at January 31, 2002,
compared to $393,426,000 at January 31, 2001, a decrease of $48,606,000. The
decrease in shareholders' equity and total assets for fiscal 2001 resulted
primarily from the $26,879,000 revaluation of common stock purchase warrants
granted to NBC in connection with the Company's NBC Trademark License Agreement
pursuant to the establishment of a fixed measurement date. Shareholders' equity
also decreased as a result of recording a $9,489,000 net loss in fiscal 2001
primarily attributable to write downs of historical investments. In addition,
shareholders' equity also decreased $15,702,000 in connection with the Company's
repurchase of 1,092,000 common shares under its authorized stock repurchase
plan, $143,000 relating to an increased note receivable from an officer, the
recording of net unrealized losses on investments classified as
"available-for-sale" totaling $232,000 and accretion on

40

redeemable preferred stock of $280,000. These decreases were offset by increases
in shareholders' equity relating to the issuance of 343,725 common stock
purchase warrants valued at $1,175,000 to NBC and by proceeds received of
$2,944,000 related to the exercise of stock options. As of January 31, 2002, the
Company had long-term debt obligations totaling $395,000 related to assets
purchased under capital lease arrangements. The increase in common shareholders'
equity from fiscal 1999 to fiscal 2000 resulted primarily from the issuance of
6,000,000 common stock purchase warrants valued at $59,560,000 at January 31,
2001 as consideration paid to NBC in connection with the Company's execution of
the NBC License Agreement. In addition, shareholders' equity increased from the
prior year as a result of proceeds received of $4,258,000 from the exercise of
stock options and a $4,348,000 income tax benefit relating to stock options
exercised. The equity increases were offset by the $29,894,000 net loss reported
by the Company, other comprehensive losses on investments available-for-sale of
$9,704,000, officer note issued, inclusive of accrued interest, of $3,863,000,
the repurchase of 214,000 shares of Company common stock for $2,922,000 and by
accretion of redeemable preferred stock of $278,000. As of January 31, 2001, the
Company had no long-term debt obligations.

For the year ended January 31, 2002, net cash provided by operating
activities totaled $22,997,000 compared to $30,381,000 in fiscal 2000 and net
cash used for operating activities of $(1,469,000) in fiscal 1999. Cash flows
from operations before consideration of changes in working capital items and
investing and financing activities (which the Company defines as EBITDA) was
$6,866,000 in fiscal 2001, $14,880,000 in fiscal 2000 and $8,962,000 in fiscal
1999. Net cash provided by operating activities for fiscal 2001 reflects a net
loss, as adjusted for depreciation and amortization, the write-down of
investments, unrealized gains on security holdings and equity in losses of
affiliates, the cumulative effect of adopting SFAS No. 133 and losses on the
sale of property and investments. In addition, net cash provided by operating
activities for fiscal 2001 reflects decreases in accounts receivable, income
taxes receivable and prepaid expenses, offset by an increase in inventories and
a decrease in accounts payable and accrued liabilities. Accounts receivable
decreased primarily due to a reduction in sales made utilizing extended payment
terms, decreased vendor airtime receivables, decreased interest receivable
resulting from lower interest rates driven by reductions in federal funds rates
and the timing of customer collections made pursuant to the "ValuePay"
installment program, offset by increased receivables related to the Company's
new ShopNBC private label credit card. Inventories increased from fiscal 2000
primarily to support increased sales volumes and as a result of the timing of
merchandise receipts. The decrease in accounts payable and accrued liabilities
is primarily due to the timing of vendor payments. The decrease in income taxes
receivable relates to tax refunds received during fiscal 2001 resulting from the
net loss recorded in fiscal 2000 and other tax benefits recorded in connection
with the exercise of employee stock options in prior year.

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

Net cash used for operating activities for fiscal 1999 reflects net income,
as adjusted for depreciation and amortization, gains on the sale of property,
investments and broadcast stations, unrealized losses on security holdings and
the write-down of an investment. In addition, net cash used for operating
activities for fiscal 1999 reflects increases in accounts receivable,
inventories and net income taxes receivable, offset by increases in accounts
payable and accrued liabilities and a decrease in prepaid expenses. Accounts
receivable increased primarily due to increased receivables from customers for
merchandise sales made pursuant to the "ValuePay" installment program, the
timing of credit card receivable payments and increased interest

41

receivable resulting from higher cash balances. Inventories increased from
fiscal 1998 to support increased sales volume offset by decreases resulting from
the divestiture of the Company's direct-mail catalog operations. The increase in
accounts payable and accrued liabilities is a direct result of the increase in
inventory levels and the timing of vendor payments. Prepaid expenses decreased
primarily as a result of decreased prepaid catalog costs as a result of the
divestiture of the Company's direct-mail catalog operations. Income taxes
receivable increased as a direct result of benefits recorded in the connection
with the exercise of employee stock options offset by an increase in income
taxes payable resulting from increased earnings.

The Company utilizes an installment payment program called "ValuePay" which
entitles customers to purchase merchandise and generally pay for the merchandise
in two to six equal monthly installments. As of January 31, 2002, the Company
had approximately $48,078,000 due from customers under the ValuePay installment
program, compared to $54,759,000 at January 31, 2001. The decrease in ValuePay
receivables from fiscal 2000 is primarily the result of a reduction in sales
made utilizing extended payment terms over prior year as well as the
introduction and roll out of the Company's new ShopNBC private label credit card
in October 2001. The new credit card provider, Alliance Data Systems, assumes
the risk associated with consumer payments on the ShopNBC credit card. ValuePay
was introduced many years ago to increase sales while at the same time reducing
return rates on merchandise with above-normal average selling prices. The
Company records a reserve for uncollectible accounts in its financial statements
in connection with ValuePay installment sales and intends to continue to sell
merchandise using the ValuePay program. Receivables generated from the ValuePay
program will be funded in fiscal 2002 from the Company's present capital
resources and future operating cash flows.

Net cash used for investing activities totaled $80,079,000 in fiscal 2001
compared to $34,708,000 in fiscal 2000 and $135,897,000 in fiscal 1999.
Expenditures for property and equipment were $12,525,000 in fiscal 2001 compared
to $24,557,000 in fiscal 2000 and $4,036,000 in fiscal 1999. Expenditures for
property and equipment in fiscal 2001 and 2000 primarily include capital
expenditures made for the upgrade and conversion of new computer software,
related computer equipment, web page development costs and other office
equipment, warehouse equipment, production equipment and expenditures on
leasehold improvements. Expenditures for property and equipment in fiscal 2000
and 1999 also included over $12 million of capital expenditures made for the
Company's distribution facility and new customer service and call center site in
connection with the RLM service agreement. Increases in property and equipment
in fiscal 1999 were offset by a decrease of approximately $1,091,000 related to
the divestiture of the Company's direct-mail catalog businesses and the sale of
television broadcast station KVVV-TV. Principal future capital expenditures
include the upgrade of television production and transmission equipment and the
upgrade and replacement of computer software, systems and related computer
equipment associated with the expansion of the Company's home shopping business
and e-commerce initiatives. During fiscal 2001, the Company invested
$277,933,000 in various short-term investments, received proceeds of
$220,888,000 from the sale of short-term investments, received proceeds of
$1,148,000 from the sale of property and investments and made disbursements of
$11,657,000 for certain investments and other long-term assets primarily related
to the Company's equity interest in RLM.

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

During fiscal 1999, the Company received $28,130,000 in proceeds from the
sale of its full power television station KVVV-TV and K53 FV low power stations
and received a $10,000,000 contingent payment relating to the sale of its
television station KBGE-TV. In addition, during fiscal 1999, the Company
invested $202,107,000 in various short-term investments, received proceeds of
$46,884,000 from the sale of short-term investments, received proceeds of
$12,403,000 from the sale of property and other investments, received $1,436,000
in connection with the repayment of outstanding notes receivable and made
disbursements of $28,607,000 for certain investments and other long-term assets.
42

Net cash used for financing activities totaled $12,819,000 in fiscal 2001
and related primarily to payments made of $15,702,000 in conjunction with the
repurchase of 1,092,000 shares of the Company's common stock primarily in the
third quarter at an average price of $14.60 per share, offset by cash proceeds
received totaling $2,944,000 from the exercise of stock options. Net cash
provided by financing activities totaled $2,151,000 in fiscal 2000 and related
primarily to $5,073,000 of proceeds received from the exercise of stock options
offset by payments made of $2,922,000 in conjunction with the repurchase of
214,000 shares of the Company's common stock at an average price of $13.66. Net
cash provided by financing activities totaled $231,323,000 for fiscal 1999 and
related primarily to $178,370,000 of proceeds received from GE Equity on the
issuance of 10,674,000 shares of Common Stock in conjunction with the exercise
of the Investment Warrant and $41,415,000 of net proceeds received from the
issuance of Series A Redeemable Preferred Convertible Stock in conjunction with
the Company's new strategic alliance with GE Equity. In addition, the Company
also received proceeds of $11,693,000 from the exercise of stock options and
made payments of $155,000 on capital leases.

CONTRACTUAL CASH OBLIGATIONS AND COMMITMENTS

In January 2002, the Securities and Exchange Commission issued Financial
Reporting Release No. 61, "Commission Statement about Management's Discussion
and Analysis of Financial Condition and Results of Operations" ("FRR No. 61").
While FRR No. 61 does not create new or modify existing requirements, it does
set forth certain views of the SEC regarding disclosure that should be
considered by registrants. Among other things, FRR No. 61 encourages registrants
to provide disclosure in one place, within the Management's Discussion and
Analysis of Financial Condition and Results of Operations, of the on and off
balance sheet arrangements that may affect liquidity and capital resources. The
following table summarizes the Company's obligations and commitments as of
January 31, 2002, and the effect such obligations and commitments are expected
to have on the liquidity and cash flow of the Company in future periods:

- -------------------------
(a) Future cable and satellite payment commitments are based on subscriber
levels as of January 31, 2002 and future payment commitment amounts could
increase or decrease as the number of cable and satellite subscribers
increase or decrease. Under certain circumstances, operators may cancel
their agreements prior to expiration.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS No. 141"), and Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires
all business combinations initiated after June 30, 2001 to use the purchase
method of accounting. SFAS No. 142 addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired in
a business combination) should be accounted for in financial statements upon
their acquisition. SFAS No. 142 also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. The Company's adoption of SFAS No. 141 in fiscal 2001 did
not have a material effect on its financial position or results of operations
nor will the Company's adoption of SFAS No. 142 in fiscal 2002.

In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). SFAS No. 144 addresses financial

43

accounting and reporting for the impairment or disposal of long-lived assets and
supercedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets to Be Disposed Of" and the accounting and reporting provisions of APB
Opinion No. 30. The changes required by SFAS No. 144 resolve significant
implementation issues related to SFAS No. 121 and improve financial reporting by
requiring that one accounting model be used for long-lived assets to be disposed
of by sale, whether previously held and used or newly acquired. The requirements
of SFAS No. 144 also broaden the presentation of discontinued operations to
include more disposal transactions. The Company will adopt SFAS No. 144 in
fiscal 2002 and does not anticipate a significant impact from the adoption on
its financial position or results of operations.

Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued in
June 1998 and amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of SFAS No. 133" to
require adoption at the beginning of the Company's fiscal year ending January
31, 2002. The standard requires every derivative to be recorded on the balance
sheet as either an asset or liability measured at fair value with changes in the
derivative's fair value recognized in earnings unless specific hedge accounting
criteria are met. The Company's adoption of SFAS No. 133 on February 1, 2001
(related to common stock warrants held as investments) resulted in a charge of
$329,000 in fiscal 2001 and is reflected in the consolidated statement of
operations as a cumulative effect of change in accounting principle.

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 does hold certain
equity investments in the form of common stock purchase warrants in two public
companies and accounts for these investments in accordance with the provisions
of SFAS No. 133. 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.

44

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

45

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ValueVision International, Inc.:

We have audited the accompanying consolidated balance sheets of ValueVision
International, Inc. (a Minnesota corporation) and Subsidiaries as of January 31,
2002 and 2001, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended January 31, 2002. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ValueVision International,
Inc. and Subsidiaries as of January 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2002 in conformity with accounting principles generally accepted in
the United States.

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

Arthur Andersen LLP

Minneapolis, Minnesota,
March 6, 2002

46

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated balance
sheets.
47

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial
statements.
48

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED JANUARY 31, 2002, 2001 AND 2000

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

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001

1. THE COMPANY:

ValueVision International, Inc. and Subsidiaries ("ValueVision" or the
"Company") is an integrated direct marketing company that markets its products
directly to consumers through various forms of electronic media. The Company's
operating strategy incorporates television home shopping, Internet e-commerce,
vendor programming sales and fulfillment services. Starting in fiscal 2001, the
Company has also been doing business under the corporate name ValueVision Media.

The Company's television home shopping business uses on-air television home
shopping 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
Company-owned low power television ("LPTV") stations. The Company also
complements its television home shopping business by the sale of merchandise
through its Internet shopping website (www.shopnbc.com), which sells a broad
array of merchandise and simulcasts its television home shopping show live 24
hours a day, 7 days a week.

The Company rebranded its growing home shopping network and companion
Internet shopping website as "ShopNBC" and "ShopNBC.com," respectively, in
fiscal 2001 as part of a wide-ranging direct marketing strategy the Company is
pursuing in conjunction with certain of its strategic partners. The rebranding
is intended to position ValueVision as a multimedia retailer, offering consumers
an entertaining, informative and interactive shopping experience, and position
the Company as a leader in the evolving convergence of television and the
Internet. In November 2000, the Company entered into an exclusive license
agreement with National Broadcasting Company, Inc. ("NBC") pursuant to which NBC
granted ValueVision worldwide use of an NBC-branded name and the Peacock image
for a ten-year period. The new ShopNBC name is being promoted as part of a
marketing campaign that the Company launched in the second half of 2001.
ValueVision's original intent was to re-launch its television network and
companion Internet website under the SnapTV and SnapTV.com brand names,
respectively, in conjunction with NBC Internet, Inc. ("NBCi"). In June 2000,
NBCi announced a strategy to integrate all of its consumer properties under the
single NBCi.com brand, effectively abandoning the Snap name. This led to
ValueVision's search for an alternative rebranding strategy culminating in the
license agreement with NBC.

In 1999, the Company founded ValueVision Interactive, Inc. as a wholly
owned subsidiary of the Company to manage and develop the Company's Internet
e-commerce initiatives. The Company, through its wholly owned subsidiary, VVI
Fulfillment Center, Inc. ("VVIFC"), provides fulfillment, warehousing and
telemarketing services on a cost plus basis to Ralph Lauren Media, LLC ("RLM").
VVIFC's services agreement was entered into in conjunction with the execution of
the Company's investment and electronic commerce alliance entered into with Polo
Ralph Lauren Corporation ("Polo Ralph Lauren"), NBC and other NBC affiliates.
See Note 15. VVIFC also provides fulfillment and support services for the NBC
store in New York and direct to consumer products sold on NBC's website. The
Company, through its wholly owned subsidiary, ValueVision Direct Marketing
Company, Inc. ("VVDM"), formerly was a direct-mail marketer of a broad range of
quality general merchandise which was sold to consumers through direct-mail
catalogs and other direct marketing solicitations. In the second half of fiscal
1999, the Company sold its remaining direct-mail catalog subsidiaries and exited
from the direct marketing catalog business.

52

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 2002 AND 2001

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
ValueVision and its wholly owned subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation.

FISCAL YEAR

The Company's fiscal year ends on January 31. The year ended January 31,
2002 is designated fiscal "2001" and the year ended January 31, 2001 is
designated fiscal "2000". In prior reporting years, fiscal years were designated
by the calendar year in which the fiscal year ended. Effective with the fiscal
year ended January 31, 2001, the Company changed the naming convention for its
fiscal years to more accurately align the name of the Company's fiscal year with
the calendar year it primarily represents. All prior fiscal year references have
been renamed accordingly.

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE

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

Accounts receivable consist primarily of amounts due from customers for
merchandise sales and from credit card companies, and are reflected net of
reserves for estimated uncollectible amounts of $3,205,000 at January 31, 2002
and $5,869,000 at January 31, 2001.

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.

SHORT-TERM INVESTMENTS

Short-term investments consist principally of high quality commercial paper
with original maturity dates of less than two hundred and seventy (270) days and
investment grade corporate and municipal bonds and other tax advantaged
certificates with tender option terms of approximately 35 days. These
investments are stated at cost, which approximates market value due to the short
maturities of these instruments. 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 average maturity of the Company's short-term investment
portfolio is approximately 30-60 days.

INVESTMENTS IN EQUITY SECURITIES

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

53

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 2002 AND 2001

the cost of securities sold. As of January 31, 2002 and 2001, accumulated
unrealized holding losses on available-for-sale securities excluded from income
and reported as a separate component of shareholders' equity totaled
$(1,045,000) and $(813,000), respectively.

Statement of Financial Accounting Standards No. 133 (" SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities", establishes
accounting and reporting standards requiring that derivative instruments, as
defined in the standard, be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires changes in the
derivative's fair value to be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company adopted the provisions of SFAS
No. 133, as amended, effective February 1, 2001. The impact of the initial
adoption of SFAS No. 133 was ($329,000) related to warrants held as investments
and is reflected in the consolidated statement of operations as a cumulative
effect of change in accounting principle. For the year ended January 31, 2002,
the Company also recorded in the consolidated statement of operations unrealized
gains on security holdings of $346,000 relating to fair value adjustments made
with respect to derivative common stock purchase warrants held by the Company.

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

As of January 31, 2002 and 2001, all available-for-sale and SFAS No. 133
investments were classified as long-term investments in the accompanying
consolidated balance sheets. Also see "Investments and Other Assets."

Proceeds from sales of investment securities were $821,000, $57,000 and
$12,043,000 in fiscal 2001, 2000 and 1999, respectively, and related gross
realized gains (losses) included in income were $(277,000) $(389,000) and
$2,206,000 in fiscal 2001, 2000 and 1999, respectively.

As of January 31, 2002 and 2001, respectively, the Company had no
investments classified as trading securities in the accompanying consolidated
balance sheets. Net unrealized holding losses on trading securities included in
income during fiscal 2001, 2000 and 1999 totaled $-0-, $(96,000) and $(890,000),
respectively.

INVENTORIES

Inventories, which consist primarily of consumer merchandise held for
resale, are stated at the lower of average cost or realizable value and are
reflected net of obsolescence reserves of $1,370,000 at January 31, 2002 and
$1,740,000 at January 31, 2001.

ADVERTISING COSTS

Promotional advertising expenditures are expensed in the period the
advertising initially takes place. Advertising costs of $9,702,000, $6,861,000
and $18,719,000 for the years ended January 31, 2002, 2001 and 2000,
respectively, are included in the accompanying consolidated statements of
operations. Direct response advertising costs in fiscal 1999 consisted primarily
of catalog preparation, printing and postage expenditures, and are deferred and
amortized over the period during which the benefits are expected, generally
three to six

54

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 2002 AND 2001

months. Prepaid expenses and other includes deferred advertising costs of
$1,172,000 at January 31, 2002 and $5,013,000 at January 31, 2001, which will be
reflected as an expense during the quarterly period benefited.

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 16, in November 2000, the Company entered into
a Trademark License Agreement with NBC pursuant to which NBC granted the Company
an exclusive, worldwide license for a term of 10 years to use certain NBC
trademarks, service marks and domain names to rebrand the Company's business and
corporate name on the terms and conditions set forth in the License Agreement.
In connection with the License Agreement, the Company issued to NBC warrants to
purchase 6,000,000 shares of the Company's common stock at an exercise price of
$17.375 per share. The original fair value assigned to the NBC License Agreement
and related warrants was determined pursuant to an independent appraisal. At the
date of the agreement, a measurement date had not yet been established and the
Company revalued the Trademark License and warrants to $59,629,000, the
estimated warrants' fair value as of January 31, 2001, including professional
fees. In March 2001, the Company established a measurement date with respect to
the NBC Trademark License Agreement by amending the agreement, and fixed the
fair value of the Trademark License asset at $32,837,000, which is being
amortized over the remaining ten-year term of the Trademark License Agreement.
As of January 31, 2002 and 2001, accumulated amortization related to this asset
totaled $4,470,000 and $1,243,000, 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 has committed to deliver 10 million full-time equivalent ("FTE")
subscribers over a forty-two month period. In

55

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 2002 AND 2001

compensation for these services, the Company pays NBC a $1.5 million annual fee
and issued NBC a Distribution Warrant to purchase 1,450,000 shares of the
Company's common stock at an exercise price of $8.29 per share. The value
assigned to the Distribution and Marketing Agreement and related warrant of
$6,931,000 was determined pursuant to an independent appraisal and is being
amortized on a straight-line basis over the term of the agreement. As of January
31, 2002 and 2001, accumulated amortization related to this asset totaled
$1,923,000 and $1,230,000, respectively.

In the first quarter of 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 issued in connection with the NBC
Distribution and Marketing Agreement which provides that additional warrants
will 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 warrants are immediately exercisable, and
have a term of five years. The fair value assigned to the distribution warrants
of $1,175,000 was determined using the Black Scholes warrant valuation model and
is being amortized over the seven-year weighted average term of the new
distribution agreements. As of January 31, 2002, accumulated amortization
related to this asset totaled $145,000.

INVESTMENTS AND OTHER ASSETS

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

As of January 31, 2002 and 2001, the Company had equity investments
totaling approximately $40,551,000 and $42,034,000, respectively, of which
$32,429,000 and $25,646,000, respectively, related to the Company's investment
in the Ralph Lauren Media joint venture after adjusting for the Company's equity
share of Ralph Lauren Media losses under the equity method of accounting. At
January 31, 2002 and 2001, investments in the accompanying consolidated balance
sheet also included approximately $6,111,000 and $7,567,000, respectively,
related to equity investments made in companies whose shares are traded on a
public exchange. As discussed above, investments in common stock are classified
as "available-for-sale" investments and are accounted for under the provisions
of SFAS No. 115. Investments in the form of stock purchase warrants are
accounted for under the provisions of SFAS No. 133. In addition to the Company's
investment in RLM, investments at January 31, 2002 and 2001 include certain
other nonmarketable equity investments in private and other enterprises totaling
approximately $2,011,000 and $8,821,000, respectively, which are carried at the
lower of cost or net realizable value.

As further discussed in Note 15, in February 2000, the Company entered into
a strategic alliance with Polo Ralph Lauren, NBC, NBCi and CNBC.com and created
RLM, a joint venture formed for the purpose of bringing the Polo Ralph Lauren
American lifestyle experience to consumers via multiple platforms, including the
Internet, broadcast, cable and print. The Company owns a 12.5% interest in RLM.
In connection with forming this strategic alliance, the Company has committed to
provide up to $50 million of cash for purposes of financing RLM's operating
activities of which approximately $46 million has been funded through January
31, 2002. At January 31, 2002, the Company's investment in RLM was $32,429,000
after adjusting for the Company's equity share of RLM's losses under the equity
method of accounting. The Company's equity share of RLM losses was $8,838,000 in
fiscal 2001 and $4,500,000 in fiscal 2000. The RLM joint venture is still
considered a start-up venture and to date has incurred significant operating
losses since it

56

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 2002 AND 2001

commenced operations in November 2000. Being a minority shareholder, the Company
does not have direct control over the strategic operational direction of this
joint venture. The Company has evaluated the carrying value of its RLM
investment at January 31, 2002 by evaluating the current and forecasted
financial condition of the entity, its liquidity prospects, its cash flow
forecasts and by comparing its operational results to plan. In the future, the
Company would record an impairment loss if events and circumstances indicate
that its RLM investment has been impaired and a decline in value is deemed other
than temporary. No assurance can be given that this alliance will be successful
or that the Company will be able to ultimately realize any return on its
ownership interest in RLM. The Company has also committed and spent significant
resources totaling over $12 million to develop facilities to allow the Company
to fulfill its service obligations to RLM. There can be no assurance that the
Company will recover its costs for developing and constructing these facilities
and, if the alliance were not successful, the Company would have limited ability
to recover such costs. The Company will continue to reevaluate the realizability
of its RLM investment, as it does with all of its investments, in conjunction
with the continued development and forecast of the entity's operations. The
following summarized financial information relates to the RLM joint venture as
of its fiscal years ended December 31, 2001 and 2000, respectively. Summarized
financial information for the year ended December 31, 2001 is unaudited. Net
sales: $15.0 million and $2.0 million, respectively; Gross profit: $9.3 million
and $1.2 million, respectively; Net loss: $23.3 million and $21.3 million,
respectively; Total assets: $13.2 million and $21.2 million, respectively; Total
liabilities: $12.0 million and $13.9 million, respectively.

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

Prepaid launch fees represent prepaid satellite transponder launch fees and
amounts paid to cable operators upon entering into cable affiliation agreements.
These fees are capitalized and amortized over the lives of the related
affiliation contracts, which range from 3-8 years.

Other assets consist principally of long-term deposits, notes receivable
and Federal Communication Commission License fees, all of which are carried at
cost, net of accumulated amortization. Costs are amortized on a straight-line
basis over the estimated useful lives of the assets, ranging from 5 to 25 years.
At January 31, 2002, other assets also includes a $142,000 long-term receivable
related to the third-party sale of the Company's divested HomeVisions catalog
trade name and customer lists.

57

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 2002 AND 2001

ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

INCOME TAXES

The Company accounts for income taxes under the liability method of
accounting under which deferred tax assets are recognized for deductible
temporary differences, and operating loss and tax credit carry forwards and
deferred tax liabilities are recognized for taxable temporary differences.
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.

NET INCOME (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, 2002 and 2001, respectively, approximately
7,815,000 and 8,465,000 in-the-money dilutive common share equivalents have been
excluded from the computation of diluted earnings per share, as required under
SFAS No. 128, as the effect of their inclusion would be anti-dilutive.

COMPREHENSIVE INCOME (LOSS)

The Company reports comprehensive income (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 income (loss) includes net income (loss) and other comprehensive
income (loss), which consists of unrealized holding gains and losses from equity
investments, classified as "available-for-sale." Total comprehensive

58

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 2002 AND 2001

income (loss) was $(9,721,000), $(39,598,000) and $41,062,000 for the years
ended January 31, 2002, 2001 and 2000, respectively.

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 amounts presented do not represent the
underlying value of the Company.

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

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

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

USE OF ESTIMATES

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

RECLASSIFICATIONS

In September 2000, the EITF of the Financial Accounting Standards Board
reached a final consensus on EITF Issue No. 00-10, "Accounting for Shipping and
Handling Fees and Costs." The consensus requires that all amounts billed to a
customer in a sale transaction related to shipping and handling, if any,
represent revenue and should be classified as revenue. With respect to the
classification of costs related to shipping and handling incurred by the seller,
the EITF determined that the classification of such costs is an accounting
policy decision that should be disclosed. The Company has historically
classified shipping charges to customers and related shipping and handling costs
on a net basis as components of distribution and selling expense in the
statement of operations. The Company adopted the consensus reached by the EITF
relating to Issue No. 00-10 in the fourth quarter of fiscal 2000 and, as
required, reflects amounts collected from customers as revenue in the
accompanying financial statements. The Company includes shipping and handling
costs as a component of cost of sales. Comparative financial statements for
prior periods have been reclassified to comply with the new classification
guidelines with no impact on previously reported net income (loss).

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS No. 141"), and Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141

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requires all business combinations initiated after June 30, 2001 to use the
purchase method of accounting. SFAS No. 142 addresses how intangible assets that
are acquired individually or with a group of other assets (but not those
acquired in a business combination) should be accounted for in financial
statements upon their acquisition. SFAS No. 142 also addresses how goodwill and
other intangible assets should be accounted for after they have been initially
recognized in the financial statements. The Company's adoption of SFAS No. 141
in fiscal 2001 did not have a material effect on its financial position or
results of operations nor will the Company's adoption of SFAS No. 142 in fiscal
2002.

In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supercedes FASB Statement No.
121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" and
the accounting and reporting provisions of APB Opinion No. 30. The changes
required by SFAS No. 144 resolve significant implementation issues related to
SFAS No. 121 and improve financial reporting by requiring that one accounting
model be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired. The requirements of SFAS No. 144
also broaden the presentation of discontinued operations to include more
disposal transactions. The Company will adopt SFAS No. 144 in fiscal 2002 and
does not anticipate a significant impact from the adoption on its financial
position or results of operations.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998 and amended by SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities -- Deferral of the Effective
Date of SFAS No. 133" to require adoption at the beginning of the Company's
fiscal year ending January 31, 2002. The standard requires every derivative to
be recorded on the balance sheet as either an asset or liability measured at
fair value with changes in the derivative's fair value recognized in earnings
unless specific hedge accounting criteria are met. The Company's adoption of
SFAS No. 133 on February 1, 2001 resulted in a charge of $329,000 in fiscal 2001
and is reflected in the consolidated statement of operations as a cumulative
effect of change in accounting principle.

3. WRITE-OFF DUE TO BANKRUPTCY:

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

4. DISPOSITIONS:

BEAUTIFUL IMAGES, INC.

In fiscal 1999, the Company, through VVDM, completed the sale of Beautiful
Images, Inc. ("BII"), a direct marketer of women's apparel and acquired by the
Company in 1996, for a total of $5,000,000, which was received in the form of a
promissory note, representing the net book value of BII on the date of sale.
Accordingly, no gain or loss was recorded on the closing of the sale. As a
result of the former subsidiary's subsequent earnings erosion, negative
earnings, negative cash flow, interest payment default, all which culminated
with the inability of the acquiring entity to obtain additional bank financing,
the Company determined that the promissory note was uncollectible and wrote off
the $5,000,000 note in the third quarter of

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fiscal 2000. Management believes that the sale of BII will not have a
significant impact on the ongoing operations of the Company.

CATALOG VENTURES, INC.

In fiscal 1999, the Company, through VVDM, completed the sale of Catalog
Ventures, Inc. ("CVI"), a catalog direct marketing company to privately held
Massachusetts-based Potpourri Holdings, Inc. acquired by the Company in 1996,
for approximately $7,300,000 cash and up to an additional $5,500,000 contingent
upon CVI's performance over the twelve months following the sale. A pre-tax loss
of approximately $128,000 was recorded on the initial closing of the sale of CVI
and was recognized in fiscal 1999. In fiscal 2000, the Company received
$2,130,000 of additional consideration, net of fees incurred, in connection with
the sale of CVI and recorded the pre-tax gain in the fourth quarter of fiscal
2000. Management believes that the sale of CVI will not have a significant
impact on the ongoing operations of the Company.

SALE OF BROADCAST STATIONS

In fiscal 1999, the Company completed the sale of its KVVV-TV full power
television broadcast station, Channel 33, and K53 FV low power station, serving
the Houston, Texas market, for a total of $28 million to Visalia,
California-based Pappas Telecasting Companies. The Company acquired KVVV-TV in
March 1994 for approximately $5.8 million. The pre-tax gain recorded on the sale
of the television station was approximately $23.3 million and was recognized in
the third quarter of fiscal 1999. Also in fiscal 1999, the Company received a
contingent payment of $10 million relating to the sale of KBGE-TV Channel 33,
which served the Seattle, Washington market, and recognized a $10 million
pre-tax gain, net of applicable closing fees, in the first quarter of fiscal
1999.

Management believes that the sale of these television stations will not
have a significant impact on the ongoing operations of the Company.

5. LOW POWER TELEVISION STATIONS:

The FCC through the Communications Act of 1934 regulates the licensing of
LPTV stations' transmission authority. LPTV construction permits and the
licensing rights that result upon definitive FCC operating approval are awarded
solely at the discretion of the FCC and are subject to periodic renewal
requirements. As of January 31, 2002, the Company held licenses for eleven LPTV
stations.

6. SHAREHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK:

COMMON STOCK

The Company currently has authorized 100,000,000 shares of undesignated
capital stock, of which approximately 38,061,000 shares were issued and
outstanding as Common Stock as of January 31, 2002. The Board of Directors can
establish new classes and series of capital stock by resolution without
shareholder approval.

REDEEMABLE PREFERRED STOCK

As discussed further in Note 13, in fiscal 1999, pursuant to an Investment
Agreement between the Company and GE Capital Equity Investments, Inc., the
Company sold to GE Equity 5,339,500 shares of 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

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JANUARY 31, 2002 AND 2001

share, its stated value. The excess of the redemption value over the carrying
value is being accreted by periodic charges to retained earnings over the
ten-year redemption period.

WARRANTS

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

As discussed further in Note 13, in fiscal 1999, the Company issued to NBC
warrants to purchase 1,450,000 shares of the Company's common stock at an
exercise price of $8.29 per share. The warrants were issued in connection with
the Company's execution of a Distribution and Marketing Agreement with NBC. In
the first quarter of 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 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. The warrants are immediately exercisable, and
have a term of 5 years.

In fiscal 1999, and in conjunction with a previous electronic commerce
alliance, the Company issued to Xoom.com, Inc. ("Xoom") a warrant (the
"ValueVision Warrant") to acquire 404,760 shares of the Company's common stock
at an exercise price of $24.706 per share. In consideration, Xoom issued a
warrant (the "Xoom Warrant," and collectively with the ValueVision Warrant, the
"Warrants") to the Company to acquire 244,004 shares of Xoom's common stock,
$.0001 par value, at an exercise price of $40.983 per share. Both Warrants are
subject to customary anti-dilution features and have a five-year term. The
exchange of warrants was made pursuant to the Company's original rebranding and
strategic electronic commerce alliance with NBCi. In fiscal 1999, Xoom.com, Inc.
and Snap! LLC, along with several Internet assets of NBC, were merged into NBCi
and in fiscal 2001, NBCi was repurchased by NBC. As a result of the NBC
acquisition, the Xoom.com warrant was converted into the right to purchase
shares of common stock of General Electric Company, the parent company of NBC.
In connection with the issuance of the ValueVision Warrant to Xoom, the Company
agreed to provide Xoom certain customary piggyback registration rights with no
demand registration rights. Xoom also provided the Company with similar
customary piggyback registration rights with no demand registration rights with
respect to the Xoom Warrant.

STOCK OPTIONS

In June 2001, the shareholders of the Company voted to approve the 2001
Omnibus Stock Plan (the "2001 Plan"), which provides for the issuance of up to
3,000,000 shares of the Company's common stock. The 2001 Plan is administered by
the Company's Compensation Committee (the "Committee") and has two basic
components, discretionary options for employees and consultants and options for
outside directors. All employees of the Company or its affiliates are eligible
to receive awards under the 2001 Plan. The Committee may also award nonstatutory
stock options under the 2001 Plan to individuals or entities who are not
employees but who provide services to the Company in capacities such as
advisors, directors and consultants. The types of awards that may be granted
under the 2001 Plan include restricted and unrestricted stock, incentive and
nonstatutory stock options, stock appreciation rights, performance units and
other stock-based awards. Incentive stock options may be granted to participants
at such exercise prices as the Committee may determine but not less than 100% of
the fair market value of the underlying stock as of the date of grant. With

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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
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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.

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

The Company accounts for its stock options under Accounting Principles
Board Opinion No. 25 and has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Accordingly, no compensation cost has been
recognized in the accompanying consolidated statements of operations. Had
compensation cost related to these options been determined based on the fair
value at the grant date for awards granted in fiscal 2001, 2000 and 1999,
consistent with the provisions of SFAS No. 123, the Company's net income (loss)
available to common shareholders and net income (loss) per common share would
have been reduced to the following pro forma amounts:

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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
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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 2001, 2000 and 1999, respectively:
risk-free interest rates of 4.5, 5.0 and 6.5 percent; expected volatility of 51,
54 and 65 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.

A summary of the status of the Company's stock option plan as of January
31, 2002, 2001 and 2000 and changes during the years then ended is presented
below:

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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
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The following table summarizes information regarding stock options
outstanding at January 31, 2002:

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 $2,778,000, $4,348,000 and $17,923,000 in fiscal 2001, 2000 and
1999, respectively. The Company has not recorded the tax benefit through paid in
capital in fiscal 2001, as the related tax deduction was not taken due to the
loss incurred. The benefit will be recorded in the applicable future period.

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. 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, 2002, the Company had
repurchased 977,000 shares of its common stock under the new stock repurchase
program for a total net cost of $14,218,000 at an average price of $14.60 per
share.

The Company had previously established a stock repurchase program whereby
the Company was able to repurchase shares of its common stock in the open market
up to a total of $26 million through negotiated transactions, at prices and
times deemed to be beneficial to the long-term interests of shareholders and the
Company. As of January 31, 2002, the Company had repurchased under the program
an aggregate of

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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
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$26 million of its common stock. During fiscal 2001, the Company repurchased
115,000 common shares under the program for a total net cost of $1,443,000.
During fiscal 2000, the Company repurchased 214,000 common shares under the
program for a total net cost of $2,922,000. No common shares were repurchased by
the Company under the program in fiscal 1999.

7. INCOME TAXES:

The Company records deferred taxes for differences between the financial
reporting and income tax bases of certain assets and liabilities, computed in
accordance with tax laws in effect at that time. The differences which give rise
to deferred taxes were as follows:

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

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

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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
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A reconciliation of income taxes computed at the statutory rates to the
Company's effective tax rate is as follows:

The Company has recorded a valuation allowance at January 31, 2002 and 2001
because a portion of the deferred tax asset created upon the write down of
certain of the Company's investments, as discussed further in Note 2, may not be
realizable. The ultimate realization of these deferred tax assets depends on the
ability of the Company to generate sufficient capital gains in the future. As of
January 31, 2002, the Company has federal net operating loss carryforwards of
approximately $19.8 million that will expire through January 31, 2022.

8. COMMITMENTS AND CONTINGENCIES:

CABLE AND SATELLITE AFFILIATION AGREEMENTS

As of January 31, 2002, the Company had entered into 3 to 12 year
affiliation agreements with 50 cable system operators along with the satellite
companies DIRECTV and EchoStar (DISH Network) which require each to offer the
Company's television home shopping programming on a full-time basis over their
systems. Under certain circumstances, these television operators may cancel
their agreements prior to expiration. The affiliation agreements provide that
the Company will pay each operator a monthly access fee and marketing support
payment based upon the number of homes carrying the Company's television home
shopping programming. For the years ended January 31, 2002, 2001 and 2000, the
Company paid approximately $65,710,000, $45,486,000 and $28,134,000 under these
long-term affiliation agreements.

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

EMPLOYMENT AGREEMENTS

On December 2, 1999, the Company entered into an employment agreement with
its Chief Executive Officer, which was due to expire on March 31, 2001. The
employment agreement specifies, among other things, the term and duties of
employment, compensation and benefits, termination of employment and non-
compete restrictions. In addition, the employment agreement also provides for a
$1,000,000 retention bonus payable by the Company if the officer remains
employed through the end of the contract period. This bonus was accrued at
January 31, 2001 and was paid in April 2001. On October 9, 2000, the Company
amended and extended the term of the employment agreement with its Chief
Executive Officer by an additional 36 months, which now expires on April 1,
2004. The employment agreement provides for an additional $1,000,000 retention
bonus, which is being accrued and expensed over the remaining contract term, and
is payable by the Company if the officer remains employed through the end of the
extended contract period.

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The Company had entered into employment agreements with its former chief
executive officer and chief operating officer, which expired on January 31,
1999. The employment agreements provided that each officer be granted options to
purchase 375,000 shares of common stock at $8.50 per share and 375,000 shares of
common stock at $10.50 per share. The options were to vest and become
exercisable at the earliest of the Company achieving certain net income goals,
as defined, or in September 2003. As of January 31, 2002, 300,000 of these
options were exercisable, 900,000 had been exercised and 300,000 options had
been forfeited.

In addition, the Company has entered into employment agreements with a
number of officers of the Company and its subsidiaries for original terms
ranging from 12 to 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, 2002 was approximately $8,650,000.

OPERATING LEASE COMMITMENTS

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

Future minimum lease payments at January 31, 2002 were as follows:

Total lease expense under such agreements was approximately $4,465,000 in
fiscal 2001, $3,924,000 in fiscal 2000 and $4,028,000 in fiscal 1999.

CAPITAL LEASE COMMITMENTS

The Company leases certain computer equipment under noncancelable capital
leases and includes these assets in property and equipment in the accompanying
consolidated balance sheet. At January 31, 2002, the capitalized cost of leased
equipment was approximately $747,000. As of January 31, 2002 the capitalized
leased assets have not yet been put into service.

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Future minimum lease payments for assets under capital leases at January
31, 2002 are as follows:

RETIREMENT AND SAVINGS PLAN

The Company maintains a qualified 401(k) retirement savings plan covering
substantially all employees. The plan allows the Company's employees to make
voluntary contributions to the plan. The Company's contribution, if any, is
determined annually at the discretion of the Board of Directors. Starting in
January 1999, the Company has elected to make matching contributions to the
plan. The Company will match $.25 for every $1.00 contributed by eligible
participants up to a maximum of 6% of eligible compensation. The Company made
plan contributions totaling approximately $140,000, $78,000 and $72,000 during
fiscal 2001, 2000 and 1999, 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 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.

Iosota, Inc. ("Iosota"), the parent company of FanBuzz, Inc. (See Note 17)
is subject to an Agreement Containing Consent Order with the Federal Trade
Commission (FTC File No. 012 3151; the "Iosota Consent Order"). Under the terms
of the Iosota Consent Order, Iosota has agreed to comply with those FTC
regulations that apply to the labeling of textiles and apparel with country of
origin information, including the requirement that certain origination
information be posted to Iosota's website as part of the apparel's description.
In the event of noncompliance with the Iosota Consent Order, the Company could
be subject to civil penalties. Iosota's execution of the Iosota Consent Order
did not have a material impact on Iosota and will not have a material impact on
the Company. The Company has been and is currently in compliance with the Iosota
Consent Order.

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JANUARY 31, 2002 AND 2001

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

10. RELATED PARTY TRANSACTIONS:

At January 31, 2002 the Company held a note receivable totaling $4,006,000,
including accrued interest (the "Note"), from an officer of the Company for a
loan made in connection with loan provisions as stipulated in the officer's
employment agreement. The Note is reflected as a reduction of shareholders'
equity in the accompanying consolidated balance sheet as the Note is
collateralized by a security interest in vested stock options and in shares of
the Company's common stock to be acquired by the officer upon the exercise of
such vested stock options.

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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, which through fiscal 2000 segregated the strategic
business units into two segments: electronic media and print media. In fiscal
1999, the Company sold its remaining direct-mail catalog subsidiaries and exited
from the print media business segment. The Company's remaining business units,
which are categorized as the electronic media segment, consist 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 meets the aggregation criteria as outlined in the
Statement since the Company's remaining business units (television and Internet
home shopping) have similar customers, products and sales processes. As a
result, the Company now reports as a single business segment.

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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 2002 AND 2001

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

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

(b) Electronic Media capital expenditures in fiscal 2000 includes capital
expenditures totaling $16,091,000 which were made to the Company's
distribution facility and new call center to prepare for the Company's
service obligations made in connection with the agreements entered into
with RLM.

13. NBC AND GE EQUITY STRATEGIC ALLIANCE:

In March 1999, the Company entered into a strategic alliance with NBC and
GE Capital Equity Investments, Inc. ("GE Equity"). Pursuant to the terms of the
transaction, NBC and GE Equity acquired 5,339,500 shares of the Company's Series
A Redeemable Convertible Preferred Stock (the "Preferred Stock"), and NBC was
issued a warrant to acquire 1,450,000 shares of the Company's Common Stock (the
"Distribution Warrants") under a Distribution and Marketing Agreement discussed
below. The Preferred Stock was sold for aggregate consideration of $44,265,000
(or approximately $8.29 per share) and the Company will receive an additional
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

72

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 2002 AND 2001

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

SHAREHOLDER AGREEMENT

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

The Shareholder Agreement provides that during the Standstill Period (as
defined in the Shareholder Agreement), and with certain limited exceptions, GE
Equity and NBC shall be 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

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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 2002 AND 2001

inquiry has been made regarding a "takeover transaction" or "change in control"
which has not been rejected by the Board, or the Board pursues such a
transaction, or engages in negotiations or provides information to a third party
and the Board has not resolved to terminate such discussions, then GE Equity or
NBC may propose to the Company a tender offer or business combination proposal.

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

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

REGISTRATION RIGHTS AGREEMENT

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

DISTRIBUTION AND MARKETING AGREEMENT

NBC and the Company entered into the Distribution and Marketing Agreement
dated March 8, 1999 (the "Distribution Agreement") which provides that NBC shall
have the exclusive right to negotiate on behalf of the Company for the
distribution of its home shopping television programming service. The agreement
has a 10-year term and NBC has committed to delivering an additional 10 million
FTE subscribers over the first 42 months of the term. In compensation for such
services, the Company will pay NBC an annual fee of $1.5 million (increasing no
more than 5% annually) and issue NBC the Distribution Warrants. The exercise
price of the Distribution Warrants is approximately $8.29 per share. Of the
aggregate 1,450,000 shares subject to the Distribution Warrants, 200,000 shares
vested immediately, with the remainder vesting 125,000 shares annually over the
10-year term of the Distribution Agreement. In conjunction with the Company's
November 2000 execution of the Trademark License Agreement with NBC, the Company
agreed to accelerate the vesting of the remaining unvested Distribution
Warrants. The Distribution Warrants is exercisable for five years after vesting.
The value assigned to the Distribution Agreement and Distribution

74

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 2002 AND 2001

Warrants of $6,931,000 was determined pursuant to an independent appraisal and
is being amortized on a straight-line basis over the term of the agreement.
Assuming certain performance criteria above the delivery by NBC to the Company
of 10 million FTE homes are met, NBC will be entitled to additional warrants to
acquire Common Stock at the then current market price. In April 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 as a result of NBC meeting
its performance target. The Company has a right to terminate the Distribution
Agreement after the twenty-fourth, thirty-sixth and forty-second month
anniversary if NBC is unable to meet the performance targets. If terminated by
the Company in such circumstance, the unvested portion of the Distribution
Warrants will expire. In addition, the Company will be entitled to a $2.5
million payment from NBC if the Company terminates the Distribution Agreement as
a result of NBC's failure to meet the 24-month performance target. NBC may
terminate the Distribution Agreement if the Company enters into certain
"significant affiliation" agreements or a transaction resulting in a "change of
control."

14. NBC INTERNET, INC. ELECTRONIC COMMERCE ALLIANCE:

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

15. RALPH LAUREN MEDIA, LLC ELECTRONIC COMMERCE ALLIANCE:

In February 2000, the Company entered into an electronic commerce strategic
alliance with Polo Ralph Lauren Corporation ("Polo Ralph Lauren"), NBC, NBCi and
CNBC.com LLC ("CNBC") whereby the parties created Ralph Lauren Media, LLC
("RLM"), a joint venture formed for the purpose of bringing the Polo Ralph
Lauren American lifestyle experience to consumers via multiple media platforms,
including the Internet, broadcast, cable and print. RLM is currently owned 50%
by Polo Ralph Lauren, 37.5% by NBC and its affiliates and 12.5% by the Company.
In exchange for their ownership interest in RLM, NBC agreed to contribute $110
million of television and online advertising on NBC and CNBC properties, NBCi
agreed to contribute $40 million in online distribution and promotion and the
Company has contributed a cash funding commitment of up to $50 million, of which
approximately $46 million has been funded through January 31, 2002. RLM's
premier initiative is Polo.com, an Internet website dedicated to the American
lifestyle that includes original content, commerce and a strong community
component. Polo.com officially launched in November 2000 and includes an
assortment of men's, women's and children's products across the Ralph Lauren
family of brands as well as unique gift items. In connection with the formation
of RLM, the Company entered into various agreements setting forth the manner in
which certain aspects of the business of RLM are to be managed and certain of
the members' rights, duties and obligations with respect to RLM, including the
following:

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF RALPH LAUREN MEDIA

Each of Polo Ralph Lauren, NBC, NBCi, CNBC and the Company executed the
Amended and Restated Limited Liability Company Agreement (the "LLC Agreement"),
pursuant to which certain terms and conditions regarding operations of RLM and
certain rights and obligations of its members are set forth, including but not
limited to: (a) certain customary demand and piggyback registration rights with
respect to
75

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 2002 AND 2001

equity of RLM held by the members after its initial public offering, if any; (b)
procedures for resolving deadlocks among managers or members of RLM; (c) rights
of each of Polo Ralph Lauren on the one hand and NBC, the Company, NBCi and
CNBC, on the other hand, to purchase or sell, as the case may be, all of their
membership interests in RLM to the other in the event of certain material
deadlocks and certain changes of control of either Polo Ralph Lauren and/or its
affiliates or NBC or certain of its affiliates, at a price and on terms and
conditions set forth in the agreement; (d) rights of Polo Ralph Lauren to
purchase all of the outstanding membership interests of RLM from and after its
12th anniversary, at a price and on terms and conditions set forth in the
agreement; (e) rights of certain of the members to require RLM to consummate an
initial public offering of securities; (f) restrictions on Polo Ralph Lauren
from participating in the business of RLM under certain circumstances; (g)
number and composition of the management committee of RLM, and certain voting
requirements; (h) composition and duties of officers of RLM; (i) requirements
regarding meetings of members and voting requirements; (j) management of capital
contributions and capital accounts; (k) provisions governing allocations of
profits and losses and distributions to members; (l) tax matters; (m)
restrictions on transfers of membership interests; (n) rights and
responsibilities of the members in connection with the dissolution, liquidation
or winding up of RLM; and (o) certain other customary miscellaneous provisions.

AGREEMENT FOR SERVICES

RLM and VVIFC entered into an Agreement for Services under which VVIFC
agreed to provide to RLM, on a cost plus basis, certain telemarketing services,
order and record services, and merchandise 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 merchandise management functions and developing a system for such
purposes. The term of this agreement continues until June 30, 2010, subject to
one-year renewal periods, under certain conditions.

16. NBC TRADEMARK LICENSE AGREEMENT

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

76

VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 2002 AND 2001

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. In certain events, the
termination by NBC of the License Agreement may result in the acceleration of
vesting of the License Warrants.

17. UNAUDITED SUBSEQUENT EVENT

On February 25, 2002, the Company announced it had signed a definitive
agreement to acquire Minneapolis-based FanBuzz, Inc., an e-commerce and
fulfillment solutions provider of affinity based merchandise to some of the most
recognized sports, media and other well known entertainment brands in the world,
including ESPN, CNN/Sports Illustrated, the Salt Lake 2002 Winter Games, the
Chicago Bears and many other professional sports teams, leagues and colleges.
FanBuzz, Inc., with annualized revenues of approximately $20 million, has
pioneered the business model of operating private label online stores for
already-established brands and destinations. The purchase price of the
acquisition, which closed on March 8, 2002, was $14 million in cash and will be
accounted for using the purchase method of accounting as stipulated by SFAS No.
141.

77

SCHEDULE II
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

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

(2) Refunds or credits on products returned.

(3) Reduced through divestiture.

78

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

None.

79

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

80

PART IV

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

EXHIBIT INDEX

a) Exhibits

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

(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.

83

(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.
(C) Incorporated herein by reference to the Registrant's
Registration Statement on Form S-3 filed on October 13,
1993, as amended, File No 33-70256.
(D) Incorporated herein by reference to the Registrant's Annual
Report on Form 10-K, for the year ended January 31, 1996,
filed April 29, 1996, as amended, File No. 0-20243.
(E) Incorporated herein by reference to the Registrant's Proxy
Statement in connection with its annual meeting of
shareholders held on August 17, 1994, filed on July 19,
1994, File No. 0-20243.
(F) Incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended January 31, 1998,
filed on April 30, 1998, File No. 0-20243.
(G) Incorporated herein by reference to the Registrant's Current
Report on Form 8-K dated March 8, 1999, filed on March 18,
1999, File No. 0-20243.
(H) Incorporated herein by reference to the Registrant's Current
Report on Form 8-K dated April 15, 1999, filed on April 29,
1999, File No. 0-20243.
(I) Incorporated herein by reference to the Registrant's
Registration Statement on Form S-8 dated September 25, 2000,
filed on September 25, 2000, Filing No. 333-46572.
(J) Incorporated herein by reference to the Registrant's Current
Report on Form 8-K dated October 12, 1999, filed on October
12, 1999, File No. 0-20243.
(K) Incorporated herein by reference to the Registrant's Current
Report on Form 8-K dated May 3, 1999, filed on May 3, 1999,
File No. 0-20243.
(L) Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 31,
1999, filed on September 14, 1999, File No. 0-20243.
(M) Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October
31, 1999, filed on December 15, 1999, File No. 0-20243.
(N) Incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended January 31, 2000,
File No. 0-20243.
(O) Incorporated herein by reference to the Registrant's
Registration Statement on Form S-8 dated September 25, 2000,
filed on September 25, 2000, File No. 333-46576.
(P) Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October
31, 2000, Filed on December 14, 2000 File No. 0-20243.
(Q) Incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended January 31, 2001,
File No. 0-20243.
(R) Incorporated herein by reference to the Registrant's
Registration Statement on Form S-8 filed on January 25,
2002, File No. 333-81438.
(S) Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended April
30, 2001, filed On June 14, 2001, File No. 0-20243.
(T) Filed herewith.
+ Management compensatory plan/arrangement

b) Reports on Form 8-K

(i) The Registrant filed a Form 8-K on March 6, 2002 reporting under Item 5,
that the Registrant announced that it has signed a definitive agreement to
acquire Minneapolis-based FanBuzz, an e-commerce and fulfillment solutions
provider of affinity based merchandise to some of the most recognized
sports, media and entertainment brands. As part of the agreement, FanBuzz
will operate independently as a wholly owned subsidiary of the Registrant.

84

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on April 9, 2002.

ValueVision International, Inc.
(Registrant)

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

Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated on April 9, 2002.