<PAGE>

                                  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 April 3, 1999

                                       OR

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

                       For the transition period from ___________ to ___________

                                     Commission File Number: 0-19902


                           DAMARK INTERNATIONAL, INC.
             (Exact name of Registrant as specified in its charter)

<TABLE>

<S>                                                               <C>
                    MINNESOTA                                                 41-1551116
(State or other jurisdiction of incorporation                     (IRS Employer Identification Number)
                        or organization)

            7101 WINNETKA AVENUE NORTH                                             612-531-0066
           MINNEAPOLIS, MINNESOTA 55428                               (Registrant's telephone number
        (Address of principal executive offices)                         including area code)

                                               NOT APPLICABLE
        (Former name, former address and former fiscal year, if changed since last report)
</TABLE>

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. YES  Y    NO 
                                       ----    ----

ON MAY 11, 1999, THERE WERE 5,998,698 SHARES OF CLASS A COMMON STOCK AND NO
SHARES OF CLASS B COMMON STOCK OUTSTANDING.


<PAGE>

                            DAMARK INTERNATIONAL, INC.

                                       INDEX
<TABLE>
<CAPTION>
PART I.   FINANCIAL INFORMATION                                                 PAGE
                                                                                ----
<S>                                                                            <C>
          Item 1:     Financial Statements

                      Consolidated Statements of Operations (unaudited)
                      For the quarters ended April 3, 1999
                      and March 28, 1998                                           3

                      Consolidated Balance Sheets
                      As of April 3, 1999 (unaudited) and December 31, 1998        4

                      Consolidated Statements of Cash Flows (unaudited)
                      For the quarters ended April 3, 1999
                      and March 28, 1998                                           5

                      Condensed Notes to Consolidated Financial Statements         6

          Item 2:     Management's Discussion and Analysis of
                      Financial Condition and Results of Operations               11


PART II.  OTHER INFORMATION

          Item 1:     Legal Proceedings                                           19

          Item 6:     Exhibits and Reports on Form 8-K                            19

                      Signature                                                   20
</TABLE>

<PAGE>



                         DAMARK INTERNATIONAL, INC.

                   CONSOLIDATED STATEMENTS OF OPERATIONS
                                (UNAUDITED)

<TABLE>
<CAPTION>
                                                       Quarter ended
                                                 -------------------------
                                                   April 3,      March 28,
                                                    1999           1998
                                                 ----------      ---------
                                                  (Amounts in thousands 
                                                   except per share data)
<S>                                              <C>             <C>
NET REVENUES:

Product and other revenues ..................     $  84,350      $ 113,733
Membership and related revenues .............        25,078         21,403
                                                  ---------      ---------
   Total net revenues .......................       109,428        135,136
                                                  ---------      ---------

COSTS AND EXPENSES:

Costs of products sold ......................        61,571         91,116
Operating and marketing expenses ............        35,574         29,357
General and administrative expenses .........        13,355         13,502
                                                  ---------      ---------
   Total costs and expenses .................       110,500        133,975
                                                  ---------      ---------

   OPERATING (LOSS) INCOME ..................        (1,072)         1,161

Interest expense, net .......................           289            853
Other expenses, net .........................            12            102
                                                  ---------      ---------
   (LOSS) INCOME BEFORE INCOME TAXES ........        (1,373)           206

Income tax benefit (provision) ..............           467            (71)
                                                  ---------      ---------

   NET (LOSS) INCOME ........................     $    (906)     $     135
                                                  ---------      ---------
                                                  ---------      ---------

Basic (loss) earnings per common share:

   Net (loss) earnings ......................     $   (0.15)     $    0.02
                                                  ---------      ---------
                                                  ---------      ---------
   Weighted average common shares outstanding         5,993          7,859
                                                  ---------      ---------
                                                  ---------      ---------

Diluted (loss) earnings per common share:

   Net (loss) earnings ......................     $   (0.15)     $    0.02
                                                  ---------      ---------
                                                  ---------      ---------
   Weighted average common shares 
      outstanding ...........................         5,993          8,250
                                                  ---------      ---------
                                                  ---------      ---------
</TABLE>

                                      3


SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

                          DAMARK INTERNATIONAL, INC.

                          CONSOLIDATED BALANCE SHEETS
                                 (UNAUDITED)

                                   ASSETS

<TABLE>
<CAPTION>
                                                                              April 3,    December 31,
                                                                                1999          1998
                                                                            -----------   ------------
                                                                              (Amounts in thousands 
                                                                               except per share data)
<S>                                                                          <C>          <C>
Current Assets:

   Cash and cash equivalents ...........................................     $     400      $      49
   Trade accounts receivable, net ......................................        38,257         47,795
   Merchandise inventories, net ........................................        39,048         40,055
   Deferred membership solicitation and catalog costs ..................        20,172         13,988
   Other current assets ................................................         5,245          5,187
                                                                             ---------      ---------
      Total current assets .............................................       103,122        107,074

Property and equipment, net ............................................        29,453         30,150
Deferred income taxes ..................................................         2,909          2,442
Officer note receivable ................................................         1,500             --
Other assets, net ......................................................           644            681
                                                                             ---------      ---------
         Total assets ..................................................     $ 137,628      $ 140,347
                                                                             ---------      ---------
                                                                             ---------      ---------

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

   Accounts payable ....................................................     $  39,110      $  44,683
   Accrued liabilities .................................................        31,177         34,012
   Deferred membership income, net .....................................        21,560         21,957
   Deferred income taxes ...............................................           493            493
   Borrowings under revolving credit facility ..........................        13,732          5,140
                                                                             ---------      ---------
      Total current liabilities ........................................       106,072        106,285

Commitments and contingencies (Note 6)

Shareholders' Equity:

   Class A Common Stock, $.01 par, 20 million shares authorized; 
      5,925,931 and 6,119,208 shares issued and outstanding at
      April 3, 1999 and December 31, 1998, respectively ................            59             61
   Class B Common Stock, $.01 par, 2 million shares authorized;
      none issued and outstanding ......................................            --             --
   Paid-in capital .....................................................        58,889         60,485
   Accumulated deficit .................................................       (27,392)       (26,484)
                                                                             ---------      ---------
      Total shareholders' equity .......................................        31,556         34,062
                                                                             ---------      ---------
         Total liabilities and shareholders' equity ....................     $ 137,628      $ 140,347
                                                                             ---------      ---------
                                                                             ---------      ---------
</TABLE>

                                      4


SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

                          DAMARK INTERNATIONAL, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)
<TABLE>
<CAPTION>
                                                                              Quarter Ended
                                                                           ----------------------
                                                                            April 3,    March 28,
                                                                              1999        1998
                                                                           ----------------------
                                                                           (Amounts in thousands)
<S>                                                                       <C>           <C>
OPERATING ACTIVITIES:

   Net (loss) income ................................................     $   (906)     $    135
   Adjustments to reconcile net (loss) income to net cash (used for)
      provided by operations:

      Depreciation and amortization .................................        2,091         2,559
      Deferred income taxes .........................................         (467)
      Gain on disposal of property and equipment ....................          (16)           (2)
      Changes in working capital items -

         Trade accounts receivable, net .............................        9,538        (4,001)
         Merchandise inventories, net ...............................        1,007         9,419
         Deferred membership solicitation and catalog costs and other
            current assets ..........................................       (6,242)       (7,797)
         Accounts payable and accrued liabilities ...................       (8,408)        8,680
         Deferred membership revenue, net ...........................         (397)        1,129
                                                                          --------      --------

   Net cash (used for) provided by operations .......................       (3,800)       10,122
                                                                          --------      --------

INVESTING ACTIVITIES:

   Property and equipment additions, net ............................       (1,329)       (3,874)
   Issuance of officer note receivable ..............................       (1,500)           --
   Other, net .......................................................          (12)          283
                                                                          --------      --------

   Net cash used for investing activities ...........................       (2,841)       (3,591)
                                                                          --------      --------

FINANCING ACTIVITIES:

   Borrowings (payments) under revolving credit facility, net .......        8,592        (2,900)
   Repurchase and retirement of common stock ........................       (1,741)       (4,373)
   Net proceeds from employee exercise of stock options and
      issuance of stock .............................................          141           497
                                                                          --------      --------

   Net cash  provided by (used for) financing activities ............        6,992        (6,776)
                                                                          --------      --------

   Net increase (decrease) in cash and cash equivalents .............          351          (245)

   Cash and cash equivalents, beginning of period ...................           49           474
                                                                          --------      --------

   Cash and cash equivalents, end of period .........................     $    400      $    229
                                                                          --------      --------
                                                                          --------      --------

SUPPLEMENTAL CASH FLOW  INFORMATION:

   Interest paid during the period ..................................     $    233      $    611
   Income taxes paid (refunded) during the period ...................     $   (781)     $    980
                                                                          --------      --------
                                                                          --------      --------
</TABLE>

                                        5

SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>


                          DAMARK INTERNATIONAL, INC.

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.   BASIS OF PRESENTATION

      The unaudited consolidated financial statements included herein have 
been prepared by 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 1998 Annual 
Report on Form 10-K filed with the SEC.

      Due to the seasonality of the Catalog Retail segment of the Company's
business, net revenues and operating results for the quarter ended April 3, 1999
are not necessarily indicative of the results to be expected for the full year.

      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 1999 and 1998 included 93 and 87 days,
respectively. Management believes that the difference in days does not
materially affect the comparability of financial results for the periods
presented.

NOTE 2.  EARNINGS PER COMMON SHARE

      Basic earnings per share ("EPS") is computed based on the weighted average
shares of common stock outstanding during the applicable periods while diluted
EPS is computed based on the weighted average shares of common stock outstanding
plus potentially dilutive securities outstanding during the applicable periods.
Potentially dilutive securities include stock options, which have been granted
to employees and directors of the Company. The components of basic and diluted
EPS are as follows:

<TABLE>
<CAPTION>
                                                       Weighted
                                                        average
                                        Net income       shares     Per share
                                          (loss)      outstanding     amount
                                        ----------    -----------   ---------
    <S>                                 <C>           <C>           <C>
     QUARTER ENDED APRIL 3, 1999:

        Basic and diluted EPS .....          $(906)         5,993      $(0.15)
                                             -----          -----      ------
                                             -----          -----      ------

     QUARTER ENDED MARCH 28, 1998:

        Basic EPS .................          $ 135          7,859      $ 0.02
        Assumed conversion of stock
           options ................                           391
                                             -----          -----      ------
                                             -----          -----      ------
        Diluted EPS ...............          $ 135          8,250      $ 0.02
                                             -----          -----      ------
                                             -----          -----      ------
</TABLE>


      For the quarter ended April 3, 1999, options to purchase 1,962,333 shares
of the Company's Class A Common Stock (the "Common Stock") were not included in
the computation of diluted loss per share as their inclusion would have been
anti-dilutive.

                                      6
<PAGE>

                          DAMARK INTERNATIONAL, INC.

       CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3.  SHAREHOLDERS' EQUITY

      During the first quarters of 1999 and 1998, the Company repurchased
approximately 230,000 and 237,500 shares respectively, of its Common Stock in
open market transactions at aggregate costs of approximately $1.7 million and
$2.5 million, respectively. During third quarter 1998, the Board authorized a
two million share open market repurchase program, and at April 3, 1999,
authorization to purchase approximately 560,600 shares remained under this
program. During first quarter 1998, an additional 213,550 shares of Common Stock
were purchased at an aggregate cost of approximately $1.9 million under an
option to purchase shares from a former officer of the Company.

NOTE 4.  BUSINESS SEGMENTS

      The Company operates in two business segments: Membership Services and
Catalog Retail. These reportable operating segments are strategic business units
that offer different products and services and are managed separately based on
fundamental differences in their operations. Both operating segments sell
exclusively to customers in the U.S. A Corporate segment is also used to account
for certain unallocated items, capital allocation and tax purposes. The
disaggregated financial information presented below is consistent with the basis
and manner in which management evaluates results for purposes of assisting in
making internal operating decisions.

      The Membership Services operating segment develops, markets and manages
membership programs that provide purchase price discounts and other benefits
related to consumer needs in the areas of shopping, travel, hospitality,
entertainment, health/fitness and household financial management. The Company's
Catalog Retail segment offers brand name, value-priced merchandise through a
variety of catalog titles in the categories of computers, home office, consumer
electronics, home decor, home improvement and sports/fitness.

      The Catalog Retail segment provides certain discounts to members of the 
PREFERRED BUYERS' CLUB-Registered Trademark- and INSIDERS-Registered 
Trademark- membership programs managed by the Membership Services segment. 
The Catalog Retail segment experiences significantly higher advertising 
leverage on catalogs sent to club members due to the fact that member 
response rates are typically up to two times higher than those of other 
customer segments. In addition, member sales per catalog are typically two to 
three times higher than those of other customer segments. For these reasons, 
discounts are allocated entirely to the Catalog Retail segment.

      The Company's Catalog Retail segment also provides names of potential
members to its Membership Services segment on an on-going basis. Consequently,
inter-segment charges intended to approximate the success fees and commissions
paid by the Membership Services segment to external clients for name acquisition
are reflected to the benefit of the Catalog Retail segment. Since independent
parties did not negotiate such commissions, the charges do not necessarily
reflect what a third party might receive in an actual business transaction.

      Selected statement of operations and statement of cash flows data for the 
quarters ended April 3, 1999 and March 28, 1998 by business segment are set
forth below.


                                      7

<PAGE>

                          DAMARK INTERNATIONAL, INC.

       CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4.   BUSINESS SEGMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                           Catalog      Membership 
                                          Retail(1)     Services        Corporate    Consolidated
                                          ---------     ----------      ---------    ------------
                                                          (Amounts in thousands)
<S>                                       <C>           <C>             <C>          <C>
QUARTER ENDED APRIL 3, 1999

Net revenues ........................     $  84,350      $  25,078      $      --      $ 109,428
Cost of products sold ...............        61,571             --             --         61,571
Other expenses (2) ..................        27,675         21,254             --         48,929
                                          ---------      ---------         ------      ---------
   Operating (loss) income ..........        (4,896)         3,824             --         (1,072)
Interest and other expense, net .....            --             --            301            301
                                          ---------      ---------         ------      ---------
   (Loss) income before taxes .......        (4,896)         3,824           (301)        (1,373)
Income tax benefit ..................            --             --            467            467
                                          ---------      ---------         ------      ---------
   Net (loss) income ................        (4,896)         3,824            166           (906)
Depreciation and amortization .......         1,543            499             49          2,091
Net changes in working capital and
  other .............................         2,367         (6,979)          (373)        (4,985)
                                          ---------      ---------         ------      ---------
     Net cash used for operations ...     $    (986)     $  (2,656)     $    (158)     $  (3,800)
                                          ---------      ---------         ------      ---------
                                          ---------      ---------         ------      ---------

QUARTER ENDED MARCH 28, 1998

Net revenues ........................     $ 113,733      $  21,403            $--      $ 135,136
Cost of products sold ...............        91,116             --             --         91,116
Other expenses (2) ..................        28,029         14,624            206         42,859
                                          ---------      ---------         ------      ---------
   Operating (loss) income ..........        (5,412)         6,779           (206)         1,161
Interest and other expense, net .....            --             --            955            955
                                          ---------      ---------         ------      ---------
   (Loss) income before taxes .......        (5,412)         6,779         (1,161)           206
Income tax provision ................            --             --            (71)           (71)
                                          ---------      ---------         ------      ---------
   Net (loss) income ................        (5,412)         6,779         (1,232)           135
Depreciation and amortization .......         1,741            580            238          2,559
Net changes in working capital and
   other ............................        10,660         (1,898)        (1,334)         7,428
                                          ---------      ---------         ------      ---------
      Net cash provided by (used for)
      operations ....................     $   6,989      $   5,461      $   2,328      $  10,122
                                          ---------      ---------         ------      ---------
                                          ---------      ---------         ------      ---------
</TABLE>

-----------------------------
(1) Discounts provided to PREFERRED BUYERS' CLUB-Registered Trademark- and 
    INSIDERS-Registered Trademark- members are allocated entirely to 
    Catalog Retail and totaled $3.2 million and $5.9 million during first 
    quarter 1999 and 1998, respectively.

(2) Includes inter-segment transfers to Catalog Retail from Membership Services
    of $5,149 and $5,221 during first quarter 1999 and 1998, respectively.


                                      8

<PAGE>


                          DAMARK INTERNATIONAL, INC.

       CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4.  BUSINESS SEGMENTS (CONTINUED)

Selected balance sheet data as of April 3, 1999 and March 28, 1998 by business
segment is as follows:

<TABLE>
<CAPTION>
                                                      Catalog      Membership 
                                                       Retail       Services         Corporate     Consolidated
                                                     --------      ----------        ---------     ------------
                                                                         (Amounts in thousands)
<S>                                                  <C>           <C>               <C>           <C>
AT APRIL 3, 1999
Cash and cash equivalents ...................        $     --        $     --         $    400         $    400
Non-cash current assets .....................          73,469          22,242            7,011          102,722
Net property, equipment and other assets ....          21,781           7,845            4,880           34,506
                                                     --------        --------         --------         --------
   Total assets .............................        $ 95,250        $ 30,087         $ 12,291         $137,628
                                                     --------        --------         --------         --------
                                                     --------        --------         --------         --------
Non-interest bearing current liabilities ....        $ 46,518        $ 45,324         $    498         $ 92,340
Short-term borrowings .......................              --              --           13,732           13,732
Investment in segment/shareholders' equity ..          48,732         (15,237)          (1,939)          31,556
                                                     --------        --------         --------         --------
   Total liabilities and equity .............        $ 95,250        $ 30,087         $ 12,291         $137,628
                                                     --------        --------         --------         --------
                                                     --------        --------         --------         --------

AT DECEMBER 31, 1998
Cash and cash equivalents ...................        $     --        $     --         $     49         $     49
Non-cash current assets .....................          78,103          21,821            7,101          107,025
Net property, equipment and other assets ....          22,381           7,932            2,960           33,273
                                                     --------        --------         --------         --------
   Total assets .............................        $100,484        $ 29,753         $ 10,110         $140,347
                                                     --------        --------         --------         --------
                                                     --------        --------         --------         --------
Non-interest bearing current liabilities ....        $ 48,774        $ 51,878         $    493         $101,145
Short-term borrowings .......................              --              --            5,140            5,140
Investment in segment/shareholders' equity ..          51,710         (22,125)           4,477           34,062
                                                     --------        --------         --------         --------
   Total liabilities and equity .............        $100,484        $ 29,753         $ 10,110         $140,347
                                                     --------        --------         --------         --------
                                                     --------        --------         --------         --------
</TABLE>


NOTE 5.  OFFICER NOTE RECEIVABLE

      On January 4, 1999 the Company made a loan to its chief executive officer
for $1.5 million evidenced by a promissory note which bears interest on the
unpaid principal balance at the prime rate plus 1%. Payment of principal and
interest is due January 4, 2001.

NOTE 6.  LEGAL MATTERS

      On March 11, 1999, a group of current and former employees of the Company
commenced a lawsuit against the Company in the Fourth Judicial District Court of
Hennepin County Minnesota. The claim was filed on their behalf and on the behalf
of a class of the Company's current and former employees. The plaintiffs allege
that the Company violated state law when it modified its vacation and sick time
policies in 1998 and 1999. Compensatory and punitive damages are sought. The
Company has investigated the merits of the plaintiffs' claim and is actively
pursuing settlement discussions. As of May 10, 1999, management has assessed the
likelihood that a loss has been incurred as probable and has estimated the
contingent loss to range from $328,000 to $1.5 million. As of April 3, 1999, the
Company has recorded a $328,000 reserve on its balance sheet for the settlement
of this litigation.


                                      9

<PAGE>

                          DAMARK INTERNATIONAL, INC.

       CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6.  LEGAL MATTERS (CONTINUED)

      On July 31, 1998, the Minnesota Office of the Attorney General (the "OAG")
commenced a civil investigation into certain selling and renewal practices of
the Company's Membership Services business. In a letter dated April 29, 1999,
the OAG informed the Company that it has completed its preliminary review and
has concluded that certain of the Company's practices may violate Minnesota
consumer protection laws. The letter also requests that Damark engage in
pre-complaint settlement discussions. The Company continues to provide full
cooperation to the OAG during its investigation and believes that its practices
do not violate Minnesota consumer protection laws. Management believes that the
resolution of this investigation will not have a material adverse effect on the
financial condition or results of operations of the Company.

      On October 25, 1996, a current PREFERRED BUYERS' CLUB-Registered 
Trademark- member commenced an action against the Company in a New Jersey 
state court. This action was styled on his behalf and on behalf of a class of 
the Company customers, each of which are members of the Company's PREFERRED 
BUYERS' CLUB-Registered Trademark-. The plaintiff alleges that he and the 
other members of the proposed class have not received their full anticipated 
benefits as PREFERRED BUYERS' CLUB-Registered Trademark- members. The 
complaint alleges various violations of state consumer fraud and contract law 
and seeks compensatory and punitive damages. Discovery has been substantially 
completed. The court has preliminarily denied a motion for an injunctive or 
damages class certification on a national basis and has preliminarily granted 
a certification for a damages class consisting of PREFERRED BUYERS' 
CLUB-Registered Trademark- members in New Jersey alone. It is likely that the 
case will be tried in 1999. The Company believes it has strong factual and 
legal defenses and is defending the action aggressively.


                                      10

<PAGE>

                           DAMARK INTERNATIONAL, INC.

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

RESULTS OF OPERATIONS

      The data presented below are derived from the Company's consolidated
financial statements and notes thereto and should be read in conjunction
therewith. The Company operates in two business segments, Membership Services
and Catalog Retail. These reportable operating segments offer different products
and services and are managed separately based on fundamental differences in
their operations. A Corporate segment is also used to account for taxes, capital
allocation and certain unallocated items.

<TABLE>
<CAPTION>
                                                                             Quarter ended
                                                             ---------------------------------------------
                                                                April 3, 1999            March 28, 1998          Percentage change
                                                             --------------------      -------------------      ------------------
                                                                                     (Amounts in thousands)
<S>                                                          <C>                       <C>                       <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:

   Catalog Retail (1)...................................         $     84,350             $     113,733               (25.8)%
   Membership Services..................................               25,078                    21,403                17.2%
                                                             --------------------      -------------------
     Total..............................................              109,428                   135,136               (19.0)%

Costs and expenses:

   Catalog Retail cost of products sold.................               61,571                    91,116               (32.4)%
   Catalog Retail expenses (2)..........................               27,675                    28,029                (1.3)%
   Membership Services expenses (2).....................               21,254                    14,624                45.3%
   Corporate expenses ..................................                   --                       206              (100.0)%
                                                             --------------------      -------------------
     Total..............................................              110,500                   133,975               (17.5)%
                                                             --------------------      -------------------

Operating (loss) income:

   Catalog Retail.......................................               (4,896)                   (5,412)                9.5%
   Membership Services..................................                3,824                     6,779               (43.6)%
   Corporate............................................                   --                      (206)              100.0%
                                                             --------------------      -------------------
     Total..............................................               (1,072)                    1,161              (192.3)%

Interest expense, net...................................                  289                       853               (66.1)%
Other expense, net......................................                   12                       102               (88.2)%
                                                             --------------------      -------------------
   (Loss) income before income taxes....................               (1,373)                      206              (766.5)%
Income tax benefit (provision) .........................                  467                       (71)              757.8%
                                                             --------------------      -------------------
   Net (loss) income....................................         $       (906)            $         135              (771.1)%
                                                             --------------------      -------------------
                                                             --------------------      -------------------
STATEMENT OF CASH FLOWS DATA:
Net cash (used for) provided by operations:

   Catalog Retail (2)...................................         $       (986)            $       6,989              (114.1)%
   Membership Services (2)..............................               (2,656)                    5,461              (148.6)%
   Corporate ...........................................                 (158)                   (2,328)               93.2%
                                                             --------------------      -------------------
                                                             --------------------      -------------------
     Total..............................................         $     (3,800)            $      10,122              (137.5)%
                                                             --------------------      -------------------
                                                             --------------------      -------------------
</TABLE>
--------------------------------
(1)   Discounts provided to the PREFERRED BUYERS CLUB-Registered Trademark- 
      and INSIDERS-Registered Trademark- members are allocated entirely to 
      Catalog Retail and totaled $3.2 million and $5.9 million in the 
      quarters ended April 3, 1999 and March 28, 1998, respectively.

(2)  Includes inter-segment transfers to Catalog Retail from Membership Services
     of $5,149 and $5,221 for the quarters ended April 3, 1999 and March 28,
     1998, respectively.


                                     11

<PAGE>

                           DAMARK INTERNATIONAL, INC.

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

                        SELECTED KEY OPERATING STATISTICS

<TABLE>
<CAPTION>
                                                                                 QUARTER ENDED
                                                                    ----------------------------------------
                                                                        APRIL 3,              MARCH 28,           PERCENTAGE 
                                                                          1999                   1998               CHANGE
                                                                    -----------------      -----------------     ------------
<S>                                                                 <C>                    <C>                   <C>
CATALOG RETAIL

CATALOGS MAILED (IN THOUSANDS)

   Front-end prospect.........................................                29,900                 18,600            60.8%
   Back-end customer..........................................                11,600                 19,100           (39.3)%
                                                                    -----------------      -----------------
      Total...................................................                41,500                 37,700            10.1%

SALES PER CATALOG

   Front-end prospect.........................................                 $1.75                  $2.20           (20.5)%
   Back-end customer..........................................                  4.68                   5.28           (11.4)%
                                                                    -----------------      -----------------
      Weighted average, total company.........................                 $2.57                  $3.76           (31.7)%

AVERAGE ORDER

   Front-end prospect.........................................                  $133                   $135            (1.5)%
   Back-end customer..........................................                   184                    184              --
                                                                    -----------------      -----------------
      Weighted average, total company.........................                  $155                   $167            (7.2)%

RESPONSE RATES

   Front-end prospect.........................................                 1.32%                  1.63%           (19.0)%
   Back-end customer..........................................                 2.28%                  2.66%           (14.3)%
                                                                    -----------------      -----------------
      Weighted average, total company.........................                 1.59%                  2.15%           (26.1)%

SALES MIX BY CUSTOMER TYPE

   Front-end prospect.........................................                 49.1%                  28.9%            69.9%
   Back-end customer..........................................                 50.9%                  71.1%           (28.4)%
                                                                    -----------------      -----------------
      Weighted average, total company.........................                100.0%                 100.0%

SALES MIX BY PRODUCT CATEGORIES

   Computers and related......................................                 18.2%                  31.1%           (41.5)%
   Consumer electronics.......................................                 19.0%                  17.5%             8.6%
   Home Office................................................                 15.1%                  15.7%            (3.8)%
                                                                    -----------------      -----------------
      Subtotal, hard lines....................................                 52.3%                  64.3%           (18.7)%
                                                                    -----------------      -----------------
   Home improvements..........................................                 18.6%                  15.1%            23.2%
   Home decor.................................................                 20.8%                  15.4%            35.1%
   Sporting goods/fitness.....................................                  8.3%                   5.2%            59.6%
                                                                    -----------------      -----------------
      Subtotal soft lines.....................................                 47.7%                  35.7%            33.6%
                                                                    -----------------      -----------------
         Total................................................                100.0%                 100.0%
                                                                    -----------------      -----------------
                                                                    -----------------      -----------------

GROSS PRODUCT MARGINS BY PRODUCT CATEGORIES (1)

   Computers and related......................................                 15.1%                  11.5%            31.3%
   Consumer electronics.......................................                 27.8%                  25.6%             8.6%
   Home Office................................................                 32.3%                  28.7%            12.5%
                                                                    -----------------      -----------------
      Weighted average, hard lines............................                 24.7%                  19.5%            26.7%
                                                                    -----------------      -----------------
   Home improvements..........................................                 37.9%                  36.7%             3.3%
   Home decor.................................................                 42.8%                  36.8%            16.3%
   Sporting goods/fitness.....................................                 44.6%                  35.4%            26.0%
                                                                    -----------------      -----------------
      Weighted average, soft lines............................                 41.2%                  36.5%            12.9%
                                                                    -----------------      -----------------
         Weighted average, total company......................                 32.5%                  25.6%            27.0%
                                                                    -----------------      -----------------     ------------
                                                                    -----------------      -----------------     ------------
</TABLE>
---------------------------------------
(1) Product margins are computed on a post-discount basis and exclude
    shipping and handling revenues and related freight out costs, other
    miscellaneous revenues, product returns and indirect costs of goods sold.


                                      12

<PAGE>

                          DAMARK INTERNATIONAL, INC.

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
                                                                             QUARTER ENDED
                                                               ----------------------------------------
                                                                    APRIL 3,               MARCH 28,             PERCENTAGE
                                                                     1999                    1998                  CHANGE
                                                               -----------------      -----------------
<S>                                                            <C>                    <C>                     <C>
MEMBERSHIP SERVICES
MEMBERSHIP COUNTS (IN THOUSANDS)
   Net membership, beginning of period......................          1,731                  1,358                27.5%
      New membership acquisitions:
         Direct-to-consumer.................................            329                    250                31.6%
         Client services....................................            252                     67               276.1%
      Membership renewals...................................            265                    228                16.2%
      Cancellations, returns and expirations................           (806)                  (461)               74.8%
                                                               -----------------      -----------------
   Net membership, end of period............................          1,771                  1,442                22.8%
                                                               -----------------      -----------------
                                                               -----------------      -----------------
WEIGHTED AVERAGE MEMBERSHIP FEE.............................         $61.21                 $55.54                10.2%

BUSINESS MIX BY MEMBER TYPE
   New......................................................          68.7%                  58.2%                18.0%
   Renewals.................................................          31.3%                  41.8%               (25.1)%
                                                               ----------------- 
         Total..............................................         100.0%                 100.0%
                                                               -----------------      -----------------
                                                               -----------------      -----------------
</TABLE>

MEMBERSHIP SERVICES

      One of the Company's key operating priorities for 1999 is to expand its
position in the Membership Services industry by increasing revenues, programs
and relationships with large customer list owners ("clients"). Aggressive
outbound telemarketing in both the direct-to-consumer and client channels and
enhanced membership benefits resulted in an increase in Membership Services net
revenue of 17.2% in the first quarter of 1999 as compared to the first quarter
of 1998. In addition, during first quarter 1999, new members added through the
client services channel increased 276.1% over first quarter 1998 and accounted
for 43.4% of all new membership acquisitions. During the quarter, the Company
also introduced its tenth membership services club and several new client
programs.

      Costs and expenses incurred by the Company's Membership Services segment
include direct membership solicitation costs, payments to external vendors to
provide certain club benefits, customer service costs, commissions and success
fees paid to clients for use of their customer lists and general and
administrative expenses. The financial statements of the Company's Membership
Services segment also provide for inter-company charges from Catalog Retail
intended to approximate the costs the segment would pay an external client for
name acquisition. Since independent parties did not negotiate such commissions,
the charges do not necessarily reflect what a third party might receive in an
actual business transaction. Consequently, financial information prepared as if
the segments were companies operating independently without such allocation
could differ materially from that presented. Such inter-segment commissions
totaled $5.1 million and $5.2 million for first quarter 1999 and 1998,
respectively.

                                      13


<PAGE>

                           DAMARK INTERNATIONAL, INC.

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

      Segment expenses as a percentage of segment revenues in first quarter 1999
increased 16.5 percentage points over first quarter 1998 to 84.8%. To achieve
its growth objective in the membership services business, the Company increased
spending on commissions and success fees paid to clients and outbound
telemarketing costs. The increase in expenses led to a 43.6% decrease in segment
operating income for first quarter 1999 as compared to first quarter 1998.

      During first quarter 1999 the segment used $2.7 million of cash from
operations compared to generating $5.5 million of cash from operations during
first quarter 1998. The decline in cash generated from operations resulted
primarily from the decrease in operating income and a decline in current
liabilities partially offset by reduced receivable levels.

CATALOG RETAIL

      Catalog Retail net revenues were $84.3 million, a decrease of 25.8% 
from first quarter 1998. The decrease in revenues was due primarily to 
changes in promotional strategies that limit free shipping and handling and 
installment payment offerings, a decrease in the percentage of sales from the 
back-end customer segment, the Company's most profitable segment, and due to 
continued soft response rates. The decline in the percentage of sales from 
the back-end customer segment was due primarily to a revised circulation 
strategy implemented during 1998. This year under this strategy, the Company 
is aggressively increasing circulation to front-end prospect customers and is 
mailing less frequently to its PREFERRED BUYERS CLUB-Registered Trademark- 
and INSIDERS-Registered Trademark- members but is sending larger catalogs 
with more product offerings. The number of catalogs mailed to front-end 
prospects increased 60.8% in the first quarter of 1999 to 29.9 million while 
the number of catalogs mailed to back-end customers decreased 39.3% to 11.6 
million in the same period.

      Marketed sales generated by the Company's web site increased 62.4% from
$1.2 million during first quarter 1998 to $2.0 million during first quarter
1999. Near the end of first quarter 1999, the Company added thousands of product
offerings to its web site and a product quick search feature in an effort to
begin aggressively expanding its electronic-commerce business.

      The Company's Catalog Retail segment provides certain discounts to 
PREFERRED BUYERS' CLUB-Registered Trademark- and INSIDERS-Registered 
Trademark- members. Due to response rates that are typically two to three 
times higher than those experienced in Catalog Retail's other customer 
segments and the consequent increase in advertising leverage, such discounts 
are allocated entirely to the Catalog Retail segment. First quarter 1999 
discounts totaled $3.2 million while first quarter 1998 discounts totaled 
$5.9 million. Segment compensation for commissions could vary significantly 
in an arm's length transaction and could differ materially from the 
information presented.

      Improving the economic model of the Catalog Retail segment to position it
for future profitable growth in new customer segments and channels is another of
the Company's key operating priorities for 1999. The Catalog Retail gross margin
increased to $22.8 million in first quarter 1999 from $22.6 million in the 1998
period. The operating loss generated by the Catalog Retail segment decreased
9.5% for first quarter 1999 as compared to first quarter 1998, despite a 25.8%
decrease in net revenues. Several initiatives contributed to the decline in the
operating loss. The Company's efforts to recapture margins resulted in a 7.1
percentage point increase in gross margin to 27.0% in first quarter 1999 from
19.9% in first quarter 1998. The Company experienced improved margins in all
product categories and additional margin benefit from the decline in computer
sales, which carry the lowest gross margin percentage, as a percentage of the
total product sales mix. Shipping and handling profits increased 127.6% due to
changes in promotional strategies that limit free shipping and handling
offerings and newly added order processing fees. The Company also implemented a
new return policy late in 1998, which resulted in a return rate of 12.0% during
first quarter 1999 as compared to 13.2% during first quarter 1998.

                                      14


<PAGE>

                           DAMARK INTERNATIONAL, INC.

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

      Operating expenses as a percentage of segment net revenues increased to
32.8% in first quarter 1999 from 24.6% in first quarter 1998. The increase was
due primarily to a decline in the ratio of shipped to marketed sales
("ship-to-gross"), and a decrease in advertising leverage. Ship-to-gross
decreased primarily due to higher credit denials resulting from a more
conservative credit policy and the addition of a new catalog concept marketed to
individuals seeking additional credit. Advertising leverage decreased as a
result of lower response rates and a higher mix of front end sales. These
expense increases were partially offset by a reduction in inbound teleservices
costs as a result of new inbound call management strategies introduced during
fourth quarter 1998. Additional cost savings were also realized from salaried
staff reductions made during fourth quarter 1998 and the implementation of other
cost control and process improvement measures.

      The Catalog Retail segment used $986,000 of cash and provided $7.0 million
cash from operations during first quarter 1999 and 1998, respectively. The
segment continued to generate cash through the reduction of longer-duration
installment plan receivables during first quarter 1999 which was offset by an
increase in deferred costs and a decrease in current liabilities. The Company's
investment in the Catalog Retail segment has decreased significantly from the
first quarter of 1998 as total assets have decreased from $160.0 million at
March 28, 1998 to $95.3 million at April 3, 1999.

CORPORATE

      The Company realized a 66.1% reduction in interest expense during first
quarter 1999 as compared to first quarter 1998. During 1998 the Company
significantly reduced its offerings of longer duration installment plans. The
Company's reduced investment in these receivable balances has resulted in a
corresponding decrease in borrowings.

      The Company's effective tax rate was 34.0% for first quarter 1999 and
1998. As of April 3, 1999, the Company has recorded on its consolidated balance
sheet a net deferred tax asset of $2.4 million. Despite incurring net losses in
recent quarters, the Company has not recorded a deferred tax valuation allowance
since management believes that its operating strategies will allow the Company
to generate sufficient income in early future years in order to realize this
asset. Should the Company's operating strategies fail to produce sufficient
taxable income in early future years, the Company will record a valuation
allowance for all or a portion of its net deferred tax asset as required by
generally accepted accounting principles.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW

      The Company's liquidity, as measured by its working capital net of cash
and debt, was $10.4 million at April 3, 1999, as compared with $5.9 million at
December 31, 1998. The Company's current ratio was .97 to 1.0 at April 3, 1999
as compared to 1.0 to 1.0 at December 31, 1998. The increase in the Company's
net working capital from year-end is due primarily to reduced accounts payable
and current liability balances. The decline in the current ratio resulted
primarily from a decrease in receivables and increased borrowings from year-end.

      Net cash used for operations totaled $3.8 million for first quarter 1999
as compared with net cash provided by operations of $10.1 million for the same
period in 1998. The Company generated $9.5 million in cash from receivables due
to continued reductions in longer duration installment plan balances. This was
offset by a decrease in current liabilities. During first quarter 1998 the
Company generated $9.4 million of cash from operations as a result of inventory
level reductions and $8.7 million as a result of its leveraging of accounts
payable.


                                      15

<PAGE>



                           DAMARK INTERNATIONAL, INC.

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

CAPITAL EXPENDITURES

      During first quarter 1999, the Company made capital expenditures of
approximately $1.3 million, compared with $3.9 million during first quarter
1998. In April, 1999, the Company's Board of Directors authorized the Company to
spend an additional $3.3 million in infrastructure improvements to aggressively
expand the Company's electronic commerce activities. Management currently
anticipates that it will spend an aggregate of approximately $7.0 to $9.0
million on capital expenditures during 1999.

FINANCING

      The Company has a $75 million revolving line of credit and letter of
credit facility to be used for general working capital and other corporate
purposes. Available borrowings are determined based upon the Company's levels of
eligible inventories, accounts receivable and real estate. Borrowings
outstanding under the line of credit are secured by certain assets of the
Company and bear interest, at the Company's option, at the prime rate or LIBOR
plus spreads that vary based on excess availability, as defined. At April 3,
1999, the Company had $13.7 million of borrowings and $5.6 million of letters of
credit outstanding, was in compliance with its financial covenant under the
agreement and has $21.7 million available for additional borrowings.

STOCK REPURCHASES

      During first quarter 1999 and 1998, the Company repurchased, in open
market transactions, 230,000 and 237,500 shares of its Common Stock at aggregate
costs of $1.7 million and $2.5 million, respectively. During third quarter 1998,
the Board authorized a two million share open-market repurchase program and, at
April 3, 1999, authorization to purchase approximately 560,600 shares remained
under this program. During first quarter 1998, 213,550 shares of Common Stock
were purchased at an aggregate cost of approximately $1.9 million under an
option to purchase shares from a former officer of the Company.

      The Company anticipates that cash generated from operations and available
borrowing capacity under its current credit facility will be sufficient to fund
the Company's operations and capital expenditures for the remainder of 1999.

YEAR 2000 COMPLIANCE

      The Company utilizes both information technology ("IT") and non-IT systems
that will likely be affected by the date change in the Year 2000. The Company
has performed an extensive review of its systems, including assessing the affect
of, and developing plans directed at, achieving compliance. In addition, the
Company has and will be investing resources dedicated to achieving compliance.
The Company's primary objective with respect to such compliance is to mitigate
the risk of a significant business interruption. Progress toward achieving
compliance is reported on a regular basis to management and the Board.

      To date, the Company has assessed its exposure to the issue and
ascertained areas of potential risk. The Company has exercised its best efforts
to identify and remedy any potential Year 2000 exposures within its internal
systems and will continue to do so. Based on the reviews and analysis performed
to date, the Company believes that the risk of significant non-compliance in its
internal IT systems is minimal since a majority have been developed or modified
within the last five years.

                                      16


<PAGE>

                           DAMARK INTERNATIONAL, INC.

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

      The Company has also identified and corresponded with key vendors and
other third parties whose inability to achieve compliance in a timely fashion
would negatively impact or disrupt operations. The Company believes that failure
by third parties to achieve compliance presents the largest risk of a
significant business interruption. Key services provided to the Company by
external parties, include, but are not limited to, telecommunications, credit
processing, printing, funds transfer and utilities. In addition, while the
Company values its relationships with its key vendors, it is identifying
secondary vendors in the event that certain of its business partners are delayed
in achieving compliance.

      The Company has incurred operating and capital expenses related to the
evaluation and implementation of solutions to resolve the Year 2000 issue and
expects certain expenditures to continue through 2000. In accordance with the
Company's financial policies, software and hardware maintenance or modification
costs are expensed as incurred. The costs of new hardware and software assets
that primarily provide enhanced functionality beyond achieving compliance are
capitalized and amortized over their respective useful lives. The Company
anticipates total expenditures related to the issue of approximately $3.5
million, of which $2.3 million has been incurred to date. In addition to
expenditures made to achieve Year 2000 compliance, $2.3 million of software was
written off in 1998.

      The Company has begun, but not yet completed, the development of
contingency plans for operational problems that may occur if the Company or
certain third parties fail to achieve year 2000 compliance. Completion of such a
plan is anticipated by July 1999. The Company believes its internal systems will
be year 2000 compliant, however, internal resources will be allocated to address
potential isolated incidences of non-compliance. The Company is dependent on
third parties to provide telecommunications, credit processing, printing, funds
transfer and utilities and is developing plans to minimize the adverse impact
which would result if any of its key vendors fail to achieve year 2000
compliance.

      The costs of addressing the Year 2000 issue are not expected to materially
affect the Company's financial position, results of operations or cash flows in
future periods. However, the Company's current estimates of the amount of time
and cost necessary to modify and test its IT and non-IT systems for compliance
are based upon assumptions regarding future events. New developments may occur
that could affect such estimates and, accordingly, there can be no assurance
that actual costs will not be materially higher than those anticipated.

SEASONALITY

      Similar to most retail businesses, the Company's Catalog Retail segment is
subject to significant seasonal variations in consumer demand. Historically, the
Company's net retail revenues have been the largest during the fourth quarter
and a significant portion of its earnings have been realized during that period.
The Company's annual operating results may be affected by holiday spending
patterns, as well as the timing and effectiveness of catalog mailings and
general economic and other conditions. In anticipation of its peak season, the
Company hires additional flextime employees in its call centers and order
processing and distribution areas, increases its merchandise inventories and
incurs significant catalog production and mailing costs. The Company's annual
operating results could be adversely affected if, among other factors, the
Company's revenues were to be substantially below seasonal expectations during
the fourth quarter, or if a sufficient number of qualified employees would not
be available on a flex-time or other non-permanent basis.


                                      17

<PAGE>

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.

PENDING SECURITIES AND EXCHANGE COMMISSION INTERPRETATION

      Currently, when any trial period has elapsed, membership revenues with
respect to clubs for which the Company has an on-going obligation to provide
benefits are deferred net of direct solicitation costs and are amortized into
income over the membership period, generally 12 months, in accordance with what
the Company believes to be generally accepted accounting principles. In August
1998, the Securities and Exchange Commission ("SEC") required another company in
the membership services industry to defer the recognition of revenue from the
sale of memberships until the expiration of the period during which a full
refund is offered and to record the expenses of soliciting memberships as
incurred rather than deferring and recognizing such expenses over the membership
period. In September 1998, the SEC issued a press release stating that the "SEC
will formulate and augment new and existing accounting rules and interpretations
covering revenue recognition, restructuring reserves, materiality, and
disclosure" for all publicly traded companies. The timing of issuance of such
guidelines as well as the specific requirements of the final SEC interpretation
is uncertain and, therefore, the impact such guidance will have on the Company's
current accounting practices cannot be quantified. However, if the Company is
required to change its current accounting treatment for revenue and expense
recognition, it could have a material non-cash impact on the Company's financial
position and results of operations.

GOVERNMENTAL REGULATIONS

      A 1992 Supreme Court decision confirmed that the Commerce Clause of the
United States Constitution prevents a state from requiring the collection of its
use tax by a mail order company unless the company has a physical presence in
the state. However, there continues to be uncertainty due to inconsistent
application of the Supreme Court decision by state and federal courts. The
Company attempts to conduct its operations in compliance with its interpretation
of the applicable legal standard, but there can be no assurance that such
compliance will not be challenged.

      From time to time the Company has received notices and inquiries from
states with respect to collection of use taxes for sales to residents of these
states. The Company currently collects sales tax and pays state income tax where
it has a physical presence. The Company has not collected sales tax or paid
income taxes in other states, nor has it established significant reserves for
the payment of such taxes. Management believes that the amount of any income tax
the Company might ultimately be required to pay for prior periods would not
materially and adversely affect the Company's business, consolidated financial
position, results of operations or cash flows.

      In October 1998, The Internet Tax Freedom Act (the "Act") was signed into
law. Among the provisions of this Act is a three-year moratorium on multiple and
discriminatory taxes on electronic commerce. An Advisory Commission on
Electronic Commerce has been appointed to study and report back to Congress on
whether, and if so, how, electronic commerce should be taxed. The company is
monitoring the activities of the Commission, as well as any proposed changes in
the sales and use tax laws and policies in general.


                                      18
<PAGE>

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 which could 
cause actual results to differ materially from expectations, including those 
identified below:

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

-    Adverse changes in product mix and margins;

-    Adverse changes in relationships with vendors; - Competitive pressures on
     sales and pricing;

-    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;

-    Inability to develop new membership programs;

-    Increases in costs which cannot be recovered through product and service
     price increases;

-    Failure by the Company or key third parties to achieve Year 2000
     compliance;

-    Externally mandated changes in accounting guidelines; and

-    Availability of financing on acceptable terms.

         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.

                                       19
<PAGE>

                          PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

               On March 11, 1999, a group of current and former employees
         of the Company commenced a lawsuit against the Company in the
         Fourth Judicial District Court of Hennepin County Minnesota. The
         claim was filed on their behalf and on the behalf of a class of
         the Company's current and former employees. The plaintiffs allege
         that the Company violated state law when it modified its vacation
         and sick time policies in 1998 and 1999. Compensatory and
         punitive damages are sought. The Company has investigated the
         merits of the plaintiffs' claim and is actively pursuing
         settlement discussions. As of May 10, 1999, management has
         assessed the likelihood that a loss has been incurred as probable
         and has estimated the contingent loss to range from $328,000 to
         $1.5 million. As of April 3, 1999, the Company has recorded a
         $328,000 reserve on its balance sheet for the settlement of this
         litigation.

               On July 31, 1998, the Minnesota Office of the Attorney
         General (the "OAG") commenced a civil investigation into certain
         selling and renewal practices of the Company's Membership
         Services business. In a letter dated April 29, 1999, the OAG
         informed the Company that it has completed its preliminary review
         and has concluded that certain of the Company's practices may
         violate Minnesota consumer protection laws. The letter also
         requests that Damark engage in pre-complaint settlement
         discussions. The Company continues to provide full cooperation to
         the OAG during its investigation and believes that its practices
         do not violate Minnesota consumer protection laws. Management
         believes that the resolution of this investigation will not have
         a material adverse effect on the financial condition or results
         of operations of the Company.

               On October 25, 1996, a current PREFERRED BUYERS' 
         CLUB-Registered Trademark- member commenced an action against 
         the Company in a New Jersey state court. This action was styled 
         on his behalf and on behalf of a class of the Company customers, 
         each of which are members of the Company's PREFERRED BUYERS' 
         CLUB-Registered Trademark-. The plaintiff alleges that he and the 
         other members of the proposed class have not received their full 
         anticipated benefits as PREFERRED BUYERS' CLUB-Registered Trademark- 
         members. The complaint alleges various violations of state consumer 
         fraud and contract law and seeks compensatory and punitive damages. 
         Discovery has been substantially completed. The court has 
         preliminarily denied a motion for an injunctive or damages class 
         certification on a national basis and has preliminarily granted a 
         certification for a damages class consisting of PREFERRED BUYERS' 
         CLUB-Registered Trademark- members in New Jersey alone. It is 
         likely that the case will be tried in 1999. The Company believes 
         it has strong factual and legal defenses and is defending the 
         action aggressively.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         a.  EXHIBITS:

             Exhibit 27 - Financial Data Schedule

         b.  REPORTS ON FORM 8-K:

             The registrant did not file any reports on Form 8-K
             during the quarter ended April 3, 1999.


                                      20

<PAGE>

                                   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.

                                         DAMARK INTERNATIONAL, INC.

Date:  May 14, 1999                      By: /s/ Stephen P. Letak
                                             --------------------
                                             Stephen P. Letak
                                             Executive Vice President -
                                             Chief Financial Officer








                                      21