UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549  FORM 10-Q (Mark One) x
  QUARTERLY REPORT
  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
the quarterly period ended March 31, 2001 OR o
  TRANSITION REPORT
  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
the transition period from ________ to ________ Commission
File Number: 0-19902 Provell, Inc.(Exact
name of Registrant as specified in its charter)  Minnesota
  41-1551116(State or other jurisdiction of
  incorporationor
  organization)
  (IRS Employer Identification Number)301 Carlson
  Parkway, Suite 201Minneapolis,
  Minnesota  55305(Address
  of principal executive offices)
  952-258-2000(Registrants
  telephone numberincluding
  area code)
 Damark International, Inc.(Former name, former address and former fiscal year, if
changed since last report) Indicate
by check mark whether the Registrant: (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Act of 1934 during the
preceding 12 months; and (2) has been subject to such filing requirements for
the past 90 days.  YesxNoo On May 8 2001, there were 6,016,097 shares of Class A Common Stock and
no shares of Class B Common Stock outstanding. 
 
 PROVELL, INC.

INDEX

Part
  I.  FINANCIAL INFORMATIONItem 1:
  Financial StatementsConsolidated
  Statements of Operations (unaudited)For
  the three months ended March 31, 2001 and April 1, 2000Consolidated
  Balance SheetsAs of
  March 31, 2001 (unaudited) and December 31, 2000Consolidated
  Statements of Cash Flows (unaudited)For
  the three months ended March 31, 2001 and April 1, 2000Condensed
  Notes to Consolidated Financial StatementsItem 2:
  Management's
  Discussion and Analysis ofFinancial
  Condition and Results of OperationsPart
  II.  OTHER INFORMATIONItem 1:
  Legal
  ProceedingsItem 2:
  Changes in
  Securities and Use of ProceedsItem 5:
  Other InformationItem 6:
  Exhibits and Reports
  on Form 8-KSignaturePROVELL, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS(Unaudited)

Quarter endedMarch 31,
  2001

  April 1,
  2000(Amounts in thousands
  except
  per share data)Net
  revenues

  $32,948

  $36,139Costs and expenses:Operating
  and marketing expenses

  33,932

  20,232General
  and administrative expenses

  5,504

  4,537Total costs and expenses

  39,436

  24,769Operating (loss) income

  (6,488)

  11,370Other income (expense), net

  7

  (56)(Loss) income before interest, income taxes and other

  (6,481)

  11,314Interest expense

  129

  Amortization
  of discount on Senior Convertible Notes

  11,485

  (Loss)
  income from continuing operations before income taxes and cumulative effect   of change in accounting

  (18,095)

  11,314Income tax benefit (provision)

  2,266

  (4,117)(Loss) income from continuing operations before cumulative
  effect of change   in accounting

  (15,829)

  7,197Loss from discontinued operations, net of taxes of $10,959

  

  (19,157)Cumulative
  effect of change in accounting, net of taxes of $8,703

  

  (14,201)Net
  loss

  (15,829)

  (26,161)Preferred stock dividends and amortization

  (790)

  Net
  loss available to common shareholders

  $(16,619)

  $(26,161)Basic and diluted loss per common share:(Loss) income from continuing operations
  before cumulative effect of change       in accounting

  $(2.69)

  $1.27Discontinued operations, net of tax

  

  (3.39)Cumulative effect of change in
  accounting, net of tax

  

  (2.52)Preferred stock dividends and
  amortization

  (0.13)

  Net loss available to common shareholders

  $(2.82)

  $(4.64)Weighted average common shares
  outstanding

  5,892

  5,643See
accompanying condensed notes to consolidated financial statements.

PROVELL, INC.

CONSOLIDATED BALANCE SHEETS(Unaudited)



ASSETSMarch 31,
  2001

  December 31,
  2000(Dollars in thousands
  except
  per share data)Current Assets:Cash and cash equivalents

  $5,925

  $13,107Restricted cash

  3,134

  Trade accounts receivable, net

  28,581

  39,586Deferred membership solicitation costs

  64,322

  57,136Deferred income taxes

  26,490

  26,490Other

  2,761

  1,731Total current assets

  131,213

  138,050Property and equipment, net

  4,218

  3,959Other assets, net

  1,660

  50Noncurrent deferred
  income taxes

  16,931

  14,665Total assets

  $154,022

  $156,724LIABILITIES AND SHAREHOLDERS DEFICITCurrent Liabilities:Borrowings under revolving credit
  facility

  $

  $5,150Senior Convertible Notes, net of
  unamortized discount of $2,715

  11,614

  Accounts payable

  22,250

  20,387Accrued liabilities

  51,954

  56,601Deferred membership revenue

  55,998

  55,683Net liabilities of discontinued
  operations, current

  18,485

  23,830Total current liabilities

  160,301

  161,651Net liabilities of discontinued operations, long term

  2,877

  2,696Commitments and Contingencies (Note 7)Series D redeemable convertible preferred stock, liquidation preference
  $25,000,   net of unamortized discount of
  $3,117 and $3,583, respectively

  16,883

  16,417Series E convertible
  preferred stock, $.01 par, 210,000 shares authorized; none   issued or outstanding

  

  Shareholders Deficit:Class A Common Stock, $.01 par, 20
  million shares authorized; 5,896,104 and      5,857,019 shares issued and
  outstanding at March 31, 2001 and December 31, 2000,     
  respectively

  59

  58Class B Common Stock, $.01 par, 2 million
  shares authorized; none issued or outstanding

  

  Series C Junior Participating Preferred
  Stock, $.01 par, 400,000 shares authorized; none    issued or outstanding

  

  Paid-in capital

  72,263

  58,594Common stock warrants

  2,800

  2,800Preferred stock dividends payable

  325

  165Accumulated deficit

  (101,486)

  (85,657)Total shareholders deficit

  (26,039)

  (24,040)Total liabilities and shareholders
  deficit

  $154,022

  $156,724See
accompanying condensed notes to consolidated financial statements.

PROVELL, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS(Unaudited)

Quarter EndedMarch 31,
  2001

  April 1,
  2000(Amounts in thousands)OPERATING
  ACTIVITIES:Net loss available to common shareholders

  $(16,619)

  $(26,161)Adjustments to reconcile net loss to net
  cash used for continuing operations:Discontinued operations, net of tax

  

  19,157Cumulative effect of accounting change,
  net of tax

  

  14,201Preferred stock dividends and
  amortization

  790

  Depreciation and amortization

  590

  294Amortization of note discount

  11,485

  Interest expense on Senior Convertible
  Notes

  129

  Deferred income taxes

  (2,266)

  4,117Loss on disposal of property and
  equipment

  

  19Changes in working capital items:Trade accounts receivable, net

  11,005

  2,812Deferred costs and other current
  assets

  (7,308)

  2,510Accounts payable and accrued
  liabilities

  (3,508)

  (8,301)Deferred membership revenue

  315

  (12,647)Net cash used for operating
  activities

  (5,387)

  (3,999)INVESTING ACTIVITIES:Property and equipment additions, net

  (609)

  (466)Other, net

  

  (12)Net cash used for investing activities

  (609)

  (478)FINANCING ACTIVITIES:(Repayments) borrowings under revolving
  credit facility, net

  (5,150)

  13,731Net proceeds from issuance of Senior
  Convertible Notes

  9,999

  Payment of loan origination fee

  (900)

  Dividends paid

  (165)

  Net proceeds from exercise of stock
  options

  35

  1,602Net cash provided by financing
  activities

  3,819

  15,333Net cash used for discontinued
  operations

  (5,005)

  (14,103)Net decrease in cash and cash
  equivalents

  (7,182)

  (3,247)Cash and cash equivalents, beginning of
  period

  13,107

  3,927Cash and cash equivalents, end of
  period

  $5,925

  $680SUPPLEMENTAL CASH FLOW  INFORMATION:Interest paid during the period

  $195

  $218Income taxes paid during the period

  

  1,874Non-cash increase in restricted cash and
  Senior Convertible Notes

  3,134

  Non-cash increase in note discount and
  paid-in capital for beneficial conversion feature

  14,200

  See accompanying condensed notes to consolidated financial
statements.





PROVELL,
INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

Note 1. Basis of
Presentation

The unaudited consolidated
financial statements included herein have been prepared by Provell, Inc.,
formerly Damark International, Inc. (the Company), pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC).  The information furnished in these financial
statements includes normal recurring adjustments and reflects all adjustments
which are, in the opinion of management, necessary for a fair presentation of
such financial statements.  Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.  Although the Company believes that the
disclosures are adequate to make the information presented not misleading, it
is suggested that these financial statements be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Companys 2000 Annual Report on Form 10-K filed with the SEC.

The Company's fiscal year ends on
December 31; however, each quarter ends on the last Saturday of a thirteen-week
period.  As a result, the operating
results for the first quarter in 2001 and 2000 included 90 and 92 days,
respectively.  Management believes that
the difference in days does not materially affect the comparability of
financial results for the periods presented.

Note 2. Revenue and
Solicitation Costs Recognition

The Company adopted Staff
Accounting Bulletin No. 101 - Revenue Recognition in Financial Statements (SAB
101) effective January 1, 2000 and recorded a non-cash charge of $22.9 million
($14.2 million net of taxes).  Under SAB
101, the Company defers all membership revenues, net of estimated returns, and
amortizes them into revenue on a straight-line basis after the trial period has
elapsed and over the remaining membership period, generally eleven months.  The allowance for returns is based on the
Companys most recent return experience and is updated each quarter.  Most of the Companys members can return
their memberships at any time prior to expiration of the membership term and receive
either a pro-rated or full refund for the remaining portion of the membership
period.

In accordance with SAB 101, the
cost of membership kits and vouchers are expensed when distributed.  Direct response advertising costs (i.e.,
telemarketing and direct mail), refundable fees for commissions paid to clients
and transaction processing costs, net of expected refunds, are capitalized as
part of deferred membership solicitation costs and are amortized as expense in
the same manner in which the related revenue is recognized.  Other direct and indirect costs incurred
with enrolling customers are expensed when incurred.  Deferred membership solicitation costs incurred to obtain new
members are generally less than the associated fees.  However, if deferred membership solicitation costs were to exceed
expected membership fees, an adjustment would be made to the extent of any
impairment.

Activity in the deferred membership
revenue and accrued membership returns accounts for the first quarters of 2001
and 2000 is summarized as follows (in thousands):

Balance
  at
  Beginning of
  Period

  Additions

  Reductions

  Adjustments
  (1)

  Balance
  at
  End of PeriodDeferred membership
  revenue:2001

  $55,683

  32,393

  (29,935)

  (2,143)

  $55,9982000

  $24,749

  17,814

  (32,286)

  37,790

  $48,067Accrued membership
  returns:2001

  $40,339

  49,580

  (60,371)

  2,089

  $31,6372000

  $16,911

  31,073

  (30,189)

  8,706

  $26,501(1) Adjustments relate primarily to the initial
adoption of SAB 101 in 2000 and reclassifications between accrued returns and
deferred revenue.

During the first quarter of 2000,
the Company recognized $16.8 million of net revenue which was included as a
component of the cumulative effect of change in accounting adjustment.

Note 3.Discontinued
Operations

In January 2000, the Company
announced its plans to wind-down its non-member catalog marketing and related
merchandising activities. The wind-down was substantially completed by the end
of the second quarter of 2000 and catalog mailings are now limited to members
of the Companys shopping clubs.  The
order capture, product fulfillment and customer service capabilities developed
by the Company were re-deployed into a subsidiary named ClickShip Direct, Inc.
(ClickShip), which was formed in January 2000. The Company had planned to separate
ClickShip as an independent company.  In
December 2000, the Company announced that substantial negative changes in
capital market conditions prevented the Company from obtaining sufficient
capital to permit a spin-off of ClickShip to shareholders on an acceptable
basis and the Company therefore adopted a plan to liquidate the ClickShip
business.  Accordingly, both the former
non-member catalog business and ClickShip, as well as specific items reported
under the corporate segment, were reported as discontinued operations at March
31, 2001 and December 31, 2000.  The
prior year consolidated financial statements have been restated to report
separately the net liabilities and operating results of the discontinued businesses.  Prior to the fourth quarter of 2000, these
businesses had been reported by the Company as the Catalog Retail segment.

Net liabilities of discontinued
operations include the following (in thousands):

Assets:

  March
  31,
  2001

  December
  31,
  2000Net
  current assets

  $666

  $1,909Property
  and equipment, net of estimated loss on disposal

  500

  500Lease
  deposit and other

  1,939

  2,312Note
  receivable from former officer

  891

  871Liabilities:Accounts
  payable

  (6,944)

  (6,529)Future
  lease obligations

  (5,599)

  (6,906)Operating
  losses through disposal date

  (716)

  (4,000)Interest

  (1,822)

  (1,300)Other
  wind-down related expenses

  (10,277)

  (13,383)Net liabilities of discontinued
  operations

  (21,362)

  (26,526)Less:
  Current portion

  (18,485)

  (23,830)Net liabilities of discontinued
  operations, long term

  $(2,877)

  $(2,696)The
note receivable from a former officer is due on January 2, 2003, bears interest
on the unpaid principal balance at the Companys borrowing rate and is secured
by future payments owing to the former officer.

Summary
operating results of the discontinued operations for the quarter ended April 1,
2000 are as follows (in thousands):

Net revenues

  $39,383Operating loss

  (29,845)Interest expense and
  other

  (271)Loss before taxes

  (30,116)Tax benefit

  10,959Net loss

  $(19,157)Note 4. Income (Loss)
Per Share

Basic income per share is computed
based on the weighted average shares of common stock outstanding during the
applicable periods while diluted earnings per share assumes conversion of
potentially dilutive securities to shares of common stock outstanding during
the applicable periods. Potentially dilutive securities include stock options
that have been granted to employees and directors of the Company, convertible
preferred stock and warrants.

At March 31, 2001 and April 1,
2000, options to purchase 2.2 million and 1.5 million shares of the Companys
Class A Common Stock (the Common Stock), respectively, were not included in
the computation of diluted loss per share as their effect would be anti-dilutive.  At March 31, 2001, 7.7 million shares
issuable upon conversion of the Series D preferred stock and exercise of the
related common stock warrants and 4.8 million shares issuable upon conversion
of the Senior Convertible Notes/Series E Preferred Stock were also excluded
from the calculation of diluted loss per share.

Note 5. Financing
Arrangements

In February 2001, the Company
terminated its $10.0 million commercial credit facility which was available for
working capital and general corporate needs. 
Borrowings outstanding under this line of credit bore interest at the
federal funds rate of interest plus 0.5%, bank prime or LIBOR plus 3.25% and
were secured by all assets of the Company except real property.

On March 27, 2001, the Company
entered into a $20.0 million revolving credit agreement.  This facility expires on September 27, 2002,
and is available for working capital and general corporate needs.  Borrowings outstanding under the credit
facility bear interest at the prime rate of interest plus 3.0% and are secured
by all assets of the Company.   The
credit facility includes covenants which require the Company to satisfy certain
quarterly financial tests, including minimum earnings before interest and taxes
and net worth.  In addition to such
covenants, the lender may call for payment of the entire outstanding balance if
the Senior Convertible Notes issued by the Company in February 2001 (see Note
6) are not converted to Series E Preferred Stock prior to January 5, 2002.  As of March 31, 2001, the Company was in
compliance with all covenant requirements and had no amounts outstanding under
the credit facility.

Note 6. Senior
Convertible Notes

On February 27, 2001, the Company
completed a private placement with five institutional investors of $14.2 million
in 10% Senior Convertible Notes due February 4, 2002.  The Senior Convertible Notes are convertible into the Company's
Series E Preferred Stock upon satisfaction of certain conditions.  The Senior Convertible Notes and Series E
Preferred Stock are convertible into the Companys Common Stock at $3.00 per
share subject to certain adjustments for future dilutive events.  The number of shares issuable upon
conversion of the Senior Convertible Notes is limited to 19.99% of the
outstanding common shares until certain shareholder approvals have been
obtained. The Company received $10.0 million of the proceeds at closing and the
balance, less transaction fees of approximately $1.1 million, will be held in
escrow until certain shareholder approvals have been obtained and a
registration statement covering the resale of the common shares upon conversion
of the Senior Convertible Notes is effective. 
When these conditions are satisfied, the Senior Convertible Notes will
automatically convert at the outstanding balance into shares of the Company's
Series E Preferred Stock with a stated value of $100 per share.   As of March 31, 2001, $3.1 million was held
in escrow and is reported on the Companys balance sheet as restricted cash.

Because the conversion
price on the notes was less than the stock price on the date of issuance, the
Company recorded a $14.2 million beneficial conversion feature as additional
paid-in-capital and as a discount on the note obligation.  The discount is being amortized ratably over
the term of the note using the effective interest method.  During the first quarter of 2001, the
Company recorded a charge of $11.5 million, or $1.95 per share, of amortization
expense pertaining to the note discount which is not deductible for tax return
purposes.

The Senior Convertible Notes and the Series E Preferred
Stock are redeemable at 125% of the outstanding principal amount or stated
value plus interest upon the occurrence of a triggering event (such as failure
to maintain an applicable resale registration statement covering the Company's
Class A Common Stock issuable upon conversion of the Senior Convertible Notes
or Series E Preferred Stock or inability to maintain Nasdaq listing of the
Companys Common Stock) or a major transaction (such as a sale or merger of the
Company) as defined in the Senior Convertible Notes and the Certificate of
Designations for the Series E Preferred Stock. Unless converted to Common
Stock, the Series E Preferred Stock will be redeemed on February 27, 2003 at
the stated value of the shares in cash or, at the Companys option, for shares
of the Company's Common Stock valued at 90% of the then current market price.
The Series E Preferred Stock ranks pari passu with the Series D Preferred Stock
issued in September 2000.

Note 7. Legal
Proceedings

On
August 29, 2000, the Company was served with a complaint styled as a class
action in Minnesota State Court.  The
complaint is similar to complaints previously settled by the Company with the
Minnesota Attorney General on December 3, 1999, but also contends that certain
business practices violate other Minnesota consumer protection laws.  The Company believes it has strong factual
and legal defenses and is vigorously defending the allegations both on the
merits and in regard to class status. 
The case is currently in the early stages of discovery.  Management believes that the resolution of
this action will not have a material adverse effect on the financial condition
or results of operations of the Company.

On April 17, 2001, a complaint
styled as a class action was filed in Federal District Court in Minnesota
against the Company on behalf of four former ClickShip employees, alleging that
the Company failed to follow legal requirements for notice to employees and
payment of wages and bonuses prior to the shutdown of ClickShips
business.  The Company believes it has
strong factual and legal defenses and intends to vigorously defend the
allegations.  Although the matter is at
an early stage, management believes that the resolution of this action will not
have a material adverse effect on the financial condition or results of
operations of the Company.

PROVELL,
INC.

MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Provell develops, markets, and
manages leading edge membership and customer relationship management
programs.  The Companys proprietary
programs provide purchase price discounts and other benefits related to
consumer and small business needs in areas of shopping, travel, hospitality,
entertainment, health/fitness, and finance.

Results of
Continuing Operations

Gross new member acquisitions
during the first quarter of 2001 increased 52.2% over the comparable prior year
period from 0.7 million in 2000 to 1.1 million in 2001.  At March 31, 2001 the Companys membership
count was 2.6 million members as compared to 2.3 million members at April 1,
2000, a 13% increase.  The significant
increase in membership acquisitions was driven by the Companys effort to grow
its membership base and replace membership acquisition leads lost due to the
wind-down of its non-member catalog retail business through increasing
revenues, programs and relationships with large consumer list owners
(clients).  The Company significantly
expanded its client roster and now serves several of the nations largest
credit card issuers, as well as a number of premier consumer marketing
organizations.  Member acquisition from
new client business accounted for 98% of the new member acquisitions in 2001,
as compared to 67% in 2000.

Net revenues before the deferral
adjustment were $30.4 million for the first quarter of 2001, a 62.6% increase
over the prior year first quarter amount of $18.7 million.  The significant increase resulted from the Companys
aggressive efforts to expand its client business and from higher average
membership fees.  The average membership
fee in the first quarter of 2001 was $78 compared to $60 for the first quarter
of 2000.  First quarter 2001 net
revenues were $32.9 million as compared to $36.1 million in 2000. The decline
in net revenues in 2001 as compared to 2000 was due primarily to a significant
build up of deferred revenues in response to significantly increased membership
acquisition levels.

The Company reported an operating loss of $6.5 million for the
first quarter of 2001 as compared to operating income of $11.3 million for the
prior year comparable period.   The loss
reported in 2001 is the result of two factors, rapid membership acquisition growth
during first quarter 2001, which generally generates losses in year one of a
membership investment, and an ongoing trend in the market toward front end
loaded commission structures.  Operating
results can also be significantly impacted by the mix of acquisition and
renewal revenues in a given period. 
During the first quarter of 2001, 80.7% of gross revenues were generated
by new member acquisitions versus 61.8% during the first quarter of 2000.  The Company continued to build its book of
renewal business in the first quarter of 2001 reducing its reliance on the
former Damark house file.  The house
file accounted for 48% of gross renewal revenue in the first quarter of 2001 as
compared to 73% in the comparable quarter of 2000.

Net losses of $16.6 million and
$26.2 million were reported for the first quarters of 2001 and 2000,
respectively.  First quarter 2001 net
results were significantly impacted by an $11.5 million non-cash charge for
amortization of the note discount related to the private placement of Senior
Convertible Notes in February 2001. 
First quarter 2000 earnings included $19.2 million of operating losses,
net of taxes, from the Companys discontinued operations and a $14.2 million
after tax non-cash charge related to the cumulative effect of adopting Staff
Accounting Bulletin No. 101  Revenue Recognition in Financial Statements.

The Companys effective tax rate
was 12.5% in 2001 and 36.4% in 2000. 
The net loss for the first quarter of 2001 included a non-deductible
charge of $11.6 million for the amortization of discount and interest
associated with the Senior Convertible Notes which will be treated as a
permanent difference for tax purposes. 
The effective tax rate excluding this charge was 35.0%.

As of March 31, 2001, the Company has recorded on its
consolidated balance sheet a net deferred tax asset of $43.4 million.  Despite incurring net losses in recent
quarters and becoming subject to limitations on net operating loss (NOL)
utilization, the Company has not recorded a deferred tax valuation allowance
since management believes that it is more likely than not that its operating
strategies will allow the Company to generate sufficient taxable income in
current and future years to realize this asset.  Should the Companys operating strategies fail to produce
sufficient current and future taxable income, or if future changes in
circumstances further limit NOL utilization, the Company will record a
valuation allowance in the appropriate future reporting period for all or a
portion of its net deferred tax asset, as required by generally accepted
accounting principles.

Discontinued Operations

The aggregate loss from
discontinued operations for the first quarter of 2000 was $19.2 million, net of
taxes of $11.0 million, and included losses from the Companys non-member
catalog marketing and merchandising activities and from its subsidiary
ClickShip as well as certain corporate expenses.

Summary
operating results of the discontinued operations for the quarter ended April 1,
2000 are as follows (in thousands):

Net
  revenues

  $39,383Operating
  loss

  (29,845)Interest
  expense and other

  (271)Loss
  before taxes

  (30,116)Tax
  benefit

  10,959Net
  loss

  $(19,157)

Net liabilities of discontinued
operations include the following (in thousands):

Assets:

  March
  31,
  2001

  December
  31,
  2000Net current assets

  $666

  $1,909Property and
  equipment, net of estimated loss on disposal

  500

  500Lease deposit and
  other

  1,939

  2,312Note receivable from
  former officer

  891

  871Liabilities:Accounts payable

  (6,944)

  (6,529)Future lease obligations

  (5,599)

  (6,906)Operating losses
  through disposal date

  (716)

  (4,000)Interest

  (1,822)

  (1,300)Other wind-down
  related expenses

  (10,277)

  (13,383)Net liabilities of discontinued
  operations

  (21,362)

  (26,526)Less: Current portion

  (18,485)

  (23,830)Net liabilities of discontinued
  operations, long term

  $(2,877)

  $(2,696)The note receivable from a former
officer is due on January 2, 2003, bears interest on the unpaid principal
balance at the Companys borrowing rate and is secured by future payments owing
to the former officer.

The ClickShip operation was closed
in February of 2001.  The Company funded
$5.0 million of net liabilities for all discontinued operations during the
first quarter of 2001 and will continue to settle obligations for the remainder
of 2001, with certain amounts continuing thereafter.  As of March 31, 2001 the Company believes that its reserves
established for the liquidation of its discontinued operations are adequate to
cover remaining obligations.

Liquidity and Capital Resources

General

Currently, the Companys liquidity
needs arise primarily from funding the growth of its continuing membership
services business, liquidating its discontinued operations, and capital
expenditures.

At March 31, 2001, the Companys
liquidity, as measured by its working capital, was $(29.1) million.  The negative working capital balance is due
primarily to two factors. First, the membership business collects membership
fees early in the membership period prior to recognizing the entire fee as
income and processes most membership returns within three months following
collection.  As a result, the Companys
balance sheet reflects a significant non-cash liability for deferred membership
revenue and a large liability for accrued returns.  These liabilities are greater than the corresponding asset for
deferred membership solicitation costs. 
Secondly, the Company has recorded net liabilities of $21.4 million for
discontinued operations, $18.5 million of which are classified as current.  Partially offsetting these factors is a
current deferred income tax balance of $26.5 million.

Management believes that cash
expected to be generated from continuing operations, proceeds from the issuance
of Senior Convertible Notes (see below) and availability under its new credit
facility (see below) will be sufficient to fund the operations of Provell,
anticipated capital expenditures and the net liquidation costs for exiting the
ClickShip business in 2001.  However,
there can be no assurance that the cash generated from these sources will be
sufficient to meet these funding needs.

Cash Flow

The Company used $5.4 million of
cash for operations during the first quarter of 2001 as compared to $4.0
million during the first quarter of 2000.  
Aggressive management of accounts receivable in 2001 led to a reduction
of $11.0 million during the quarter which was largely offset by an increase in
deferred costs as a result of the Companys accelerated marketing efforts.  Operating cash flow was also negatively
impacted by a reduction in accrued liabilities, primarily accrued membership
returns.

Capital Expenditures

During the first quarter of 2001,
the Company incurred capital expenditures of $0.6 million as compared to $0.5
million during the first quarter of 2000. 
The investment in 2001 was primarily for enhancements to the Companys
current infrastructure and management information systems.  The prior year investment was primarily for
the Companys new corporate headquarters. 
Management estimates that the Company will invest $4.0 million in
capital expenditures during 2001, principally related to computer hardware and
software.

Financing

In February 2001, the Company
terminated its $10.0 million commercial credit facility which was available for
working capital and general corporate needs. 
Borrowings outstanding under this line of credit bore interest at the
federal funds rate of interest plus 0.5%, bank prime or LIBOR plus 3.25% and
were secured by all assets of the Company except real property.

On March 27, 2001, the Company
entered into a $20.0 million revolving credit agreement.  This facility expires on September 27, 2002,
and is available for working capital and general corporate needs.  Borrowings outstanding under the credit
facility bear interest at the prime rate of interest plus 3.0% and are secured
by all assets of the Company.   The
credit facility includes covenants which require the Company to satisfy certain
quarterly financial tests, including minimum earnings before interest and taxes
and net worth.  In addition to such
covenants, the lender may call for payment of the entire outstanding balance if
the Senior Convertible Notes issued by the Company in February 2001 (see below)
are not converted to Series E Preferred Stock prior to January 5, 2002.  As of March 31, 2001, the Company was in
compliance with all covenant requirements and had no amounts outstanding under
the credit facility.

On February 27, 2001, the Company
completed a private placement with five institutional investors of $14.2
million in 10% Senior Convertible Notes due February 4, 2002.  The Senior Convertible Notes are convertible
into the Company's Series E Preferred Stock upon satisfaction of certain
conditions.  The Senior Convertible
Notes and the Series E Preferred Stock are convertible into the Companys
Common Stock at $3.00 per share subject to certain adjustments for future
dilutive events. The number of shares issuable upon conversion of the Senior
Convertible Notes is limited to 19.99% of the outstanding common shares until
certain shareholder approvals have been obtained. The Company received $10.0
million of the proceeds at closing and the balance, less transaction fees of
approximately $1.1 million, is being held in escrow until certain shareholder
approvals have been obtained and a registration statement covering the resale
of the common shares upon conversion of the Senior Convertible Notes is
effective.  When these conditions are
satisfied, the Senior Convertible Notes will automatically convert at the
outstanding balance into shares of the Company's Series E Preferred Stock with
a stated value of $100 per share.   As
of March 31, 2001, $3.1 million was held in escrow and is reported on the
Companys balance sheet as restricted cash.

Because the conversion price on the
notes was less than the stock price on the date of issuance, the Company
recorded a $14.2 million beneficial conversion feature as additional
paid-in-capital and as a discount on the note obligation.  The discount is being amortized ratably over
the term of the note using the effective interest method.  During the first quarter of 2001, the
Company recorded a charge of $11.5 million, or $1.95 per share, of amortization
expense pertaining to the note discount.

The Senior Convertible Notes and
the Series E Preferred Stock are redeemable at 125% of the outstanding
principal amount or stated value plus interest upon the occurrence of a
triggering event (such as failure to maintain an applicable resale registration
statement covering the Company's Class A Common Stock issuable upon conversion
of the Senior Convertible Notes or Series E Preferred Stock or inability to
maintain Nasdaq listing of the Companys Common Stock) or a major transaction
(such as a sale or merger of the Company) as defined in the Senior Convertible
Notes and the Certificate of Designations for the Series E Preferred Stock.
Unless converted to Common Stock, the Series E Preferred Stock will be redeemed
on February 27, 2003 at the stated value of the shares in cash or, at the
Companys option, for shares of the Company's Common Stock valued at 90% of the
then current market price. The Series E Preferred Stock ranks pari passu with
the Series D Preferred Stock issued in September 2000.

Seasonality

Following the wind-down of the
Catalog Retail Segment, management expects the seasonal variation in consumer
demand to have less of an impact on the operations of Provell; however, as the
Company enters into more marketing arrangements with retailers and catalog
companies, seasonality could have a greater impact on the Company.

Inflation

Excluding increases in postage and
paper costs, inflation has not had, and the Company does not expect it to have,
a material impact on operating results. There can be no assurances, however,
that the Company's business will not be affected by inflation in the future.

Recently Issued Accounting Pronouncements

The Company adopted Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Investments and Hedging Activities," as of January 1, 2001.  This accounting standard establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The adoption of SFAS No. 133 had no impact on the Company's
financial position or results of operations.

Forward-Looking
Information

Certain of the matters discussed
herein are "forward-looking statements" intended to qualify for the
safe harbor provisions from liability provided by the Private Securities
Litigation Reform Act of 1995. Important factors exist that could cause results
to differ materially from those anticipated by some of the statements herein.
In addition to statements that are forward-looking by reason of context, the
words believe, expect, anticipate, intend, designed, goal,
priority, will and similar expressions identify forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from
expectations, including those identified below:



  The
  economic outlook and its effects on credit availability, interest rates, and
  consumer spending patterns;

  Adverse
  changes in relationships with vendors and partners who provide club benefits
  or process credit card transactions;

  Inability
  to develop replacement shopping club programs;

  Lower
  than expected membership renewal rates;

  Higher
  than expected membership cancellation and return rates;

  Inability
  to profitably expand in the membership services market;

  Excessive
  new member acquisition costs;

  Inability
  to retain existing clients and attract new clients in the membership services
  market;

  Inability
  to develop new membership programs;

  Effects
  of possible system failures and rapid changes in technology;

  Future
  cash outlays to complete the wind-down of ClickShip;

  Externally
  mandated changes in accounting guidelines and telemarketing practices;

  Availability
  of capital on acceptable terms;

  Availability
  of financing on acceptable terms; and

  Inability
  to retain Nasdaq listing of the Companys Common Stock.Shareholders, potential investors
and other readers are urged to consider these and other factors in evaluating
the forward-looking statements made herein, all of which speak only as of the
date on which they are made and as to which the Company has no obligation to
update publicly.

Part II.  Other Information

Item 1. Legal Proceedings

On August 29, 2000, the Company was
served with a complaint styled as a class action in Minnesota State Court.  The complaint is similar to complaints
previously settled by the Company with the Minnesota Attorney General on
December 3, 1999, but also contends that certain business practices violate
other Minnesota consumer protection laws. 
The Company believes it has strong factual and legal defenses and is
vigorously defending the allegations both on the merits and in regard to class
status.  The case is currently in the
early stages of discovery.  Management
believes that the resolution of this action will not have a material adverse
effect on the financial condition or results of operations of the Company.

On April 17, 2001, a complaint styled as a class action
was filed in Federal District Court in Minnesota against the Company on behalf
of four former ClickShip employees, alleging that the Company failed to follow
legal requirements for notice to employees and payment of wages and bonuses
prior to the shutdown of ClickShips business. 
The Company believes it has strong factual and legal defenses and
intends to vigorously defend the allegations. 
Although the matter is at an early stage, management believes that the
resolution of this action will not have a material adverse effect on the
financial condition or results of operations of the Company.

Item 2. Changes in Securities and Use
of Proceeds

On February 27, 2001 the Company authorized the issuance
of 210,000 shares of a newly created Series E Preferred Stock, stated value of
$100 per share, in conjunction with the private placement of $14.2 million of
Senior Convertible Notes with five investors. Shares are convertible into the
Company's Class A Common Stock at $3.00 per share subject to certain
adjustments for future dilutive events. The Senior Convertible Notes and the
Series E Preferred Stock are redeemable at 125% of the outstanding principal
amount plus interest upon the occurrence of a triggering event (such as failure
to maintain an applicable resale registration statement covering the Company's
Class A Common Stock issuable upon conversion of the Senior Convertible Notes
or Series E Preferred Stock or inability to maintain Nasdaq listing of the
Companys Common Stock) or a major transaction (such as a sale or merger of the
Company) as defined in the Senior Convertible Notes and the certificate of
designations for the Series E Preferred Stock. Unless converted to Class A
Common Stock, the Series E Preferred Stock will be redeemed on February 27,
2003 at the stated value of the shares plus accrued interest, in cash or for
shares of the Company's Class A Common Stock valued at 90% of the then current
market price. The Series E Preferred Stock ranks pari passu with the Series D
Preferred Stock issued in September 2000.  
The Company has also entered into a registration rights agreement with
the purchasers of the Series E Preferred Stock pursuant to which the Company
agreed to register the resale of the shares of its Class A Common Stock that
are issued upon conversion of the Series E Preferred Stock.  The Company has filed a Form S-3
registration statement with the Securities Exchange Commission for the resale
of those shares of its Class A Common Stock.

Item 5. Other Information

The Company has received notice from Nasdaq that it has
not maintained the minimum stock price and minimum market value of public float
requirements of Nasdaq.  The Company is
exploring means of regaining compliance before July 23, 2001, the date by which
Nasdaq has indicated these requirements must be addressed.

Item 6. Exhibits
and Reports on Form 8-K

(a)         Exhibits

10.1      Amendment
to Securities Purchase Agreement dated April 23, 2001

(b)        Reports
of Form 8-K

The Company filed a Report on Form 8-K dated February
27, 2001 (date of the event) to report the private placement of $14.2 million
in 10% Senior Convertible Notes, the termination of its bank credit line with
Bank of America because the bank refused to advance funds on the credit line
and the resignation of the Companys founder and chairman.

The Company filed a Report on Form 8-KA dated March 29,
2001 to report an amendment to the 10% Senior Convertible Notes to change the
maturity date to February 4, 2002.

Signature

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



PROVELL, INC.Date:  May 15, 2001
  By:
  /s/ Kim M. MageauKim
  M. MageauSenior
  Vice President Chief
  Financial Officer