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                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                            ----------------------
                              Amendment No. 2 on
                                  FORM 10-K/A
 
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
 
For the fiscal year ended March 31, 1997
 
                                       OR
 
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED].
 
For the transition period from _______________ to _______________
 
                          Commission file number 1-6715
 
                           NATIONAL MEDIA CORPORATION 
          (Exact Name of Registrant as Specified in Its Charter)
 
                 DELAWARE                                13-2658741
      (State of Other Jurisdiction                   (I.R.S. Employer
    of Incorporation or Organization)               Identification No.)
 
      Eleven Penn Center, Suite 1100, 
    1835 Market Street, Philadelphia, PA                    19103
  (Address of principal executive offices)                (Zip Code)
 
Registrant's telephone number, including area code: 215-988-4600
 
Securities registered pursuant to Section 12(b) of the Act:
 
                      Name of each exchange on which registered:
 
Title of Each Class:                         New York Stock Exchange
Common Stock, par value $.01 per share       Philadelphia Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act: None
 
    Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
 
    The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of May 30, 1997 was approximately
$177,134,940.

    There were approximately 24,965,534 issued and outstanding shares of the
Registrant's common stock, par value $.01 per share, at May 30, 1997. In
addition, there were 707,311 shares of treasury stock as of such date.

*   Calculated by excluding all shares that may be deemed to be beneficially
    owned by executive officers and directors of the Registrant, without
    conceding that all such persons are "affiliates" of the Registrant for
    purposes of the federal securities laws, but including the shares
    beneficially owned by others listed on the "Security Ownership of Certain
    Beneficial Owners" table included in Registrant's proxy statement. Based
    upon a market value per share of $7.375, which was the closing price of the
    Company's Common Stock on the New York Stock Exchange on May 30, 1997.
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           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
    This Report contains "forward-looking" statements regarding potential future
events and developments affecting the business of the Company. Such statements
relate to, among other things, (i) competition for customers for its products
and services; (ii) the uncertainty of developing or obtaining rights to new
products that will be accepted by the market and the timing of the introduction
of new products into the market; (iii) the limited market life of the Company's
products; and (iv) other statements about the Company or the direct response
industry.
 
    The Company's ability to predict results or the effect of any pending events
on the Company's operating results is inherently subject to various risks and
uncertainties, including competition for products, customers and media access;
the risks of doing business abroad; the uncertainty of developing or obtaining
rights to new products that will be accepted by the market; the limited market
life of the Company's products; and the effects of government regulations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
 
                                     PART I
 
ITEM 1. BUSINESS
 
    National Media is a global leader in the use of direct response
transactional television programming, known as infomercials, to market consumer
products. National Media makes infomercial programming available to more than
370 million households in 70 countries worldwide.
 
BACKGROUND
 
    The infomercial industry was first developed in the United States after the
FCC rescinded its limitations on advertising minutes per hour in 1984, thereby
permitting 30-minute blocks of television advertising. The deregulation of the
cable television industry and the resulting proliferation of cable channels
increased the available media time and led to the growth of the United States
infomercial industry. Producers of infomercials combined direct response
marketing and retailing principles within a television talk show-type format and
purchased media time from cable channels to air their infomercials. After an
initial growth period, the industry consolidated through the end of the 1980s.
At the same time, increased attention from the FTC and federal and state
consumer protection agencies led to greater regulation of the industry and to
the development of the National Infomercial Marketing Association as a
self-regulatory organization. By the early 1990s, infomercials and home shopping
cable channels had become a more accepted forum for obtaining information about
products and services and making purchases from home. As the infomercial
industry has matured, the variety of products marketed through infomercials has
steadily increased. Today, offerings as diverse as car care products and
computers are marketed through infomercials.

    The development of the international infomercial industry began in Western
Europe following the initial industry development in the United States. Quantum
Marketing International, which was acquired by the Company in 1991, was one of
the pioneers in the international infomercial industry's development, commencing
operations in 1990. The industry expanded throughout Europe and then into
non-European markets through the early 1990s and continues to expand into other
worldwide markets today. Whereas domestically, distribution of products through
infomercials is viewed as an alternative to retail, mail order and other means
of distribution, in many international markets distribution through traditional
channels is not readily accessible to many consumers. As a result of these
factors, the Company believes that it has an opportunity to be the primary
distributor of innovative consumer products in the international marketplace.
 
                                       2
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STRATEGY
 
    National Media's goal is to be recognized as a worldwide leader in direct
marketing. Through direct response transactional television programming and
integrated consumer marketing techniques, the Company is pursuing a business
strategy focusing on: (i) increasing the effective utilization and leveraging of
its global presence, (ii) continuing to develop and market innovative consumer
products to enhance its library of infomercial programs and (iii) engineering
the most efficient business model for the conduct of its worldwide direct
response business.
 
    LEVERAGING GLOBAL PRESENCE.  The Company is continuing its efforts to expand
its position as a worldwide leader in infomercial programming. Through its
existing media access and order fulfillment operations, the Company has the
ability to deliver infomercial programming and products to over 370 million
households worldwide. The Company intends to continue to explore new ways to
effectively utilize and leverage this worldwide distribution, reach and
capability, possibly, by offering such capability to other consumer
distributors; by entering into alliances with companies that need or desire to
reach the worldwide households that the Company's programming reaches; and by
taking advantage of the product/ brand awareness created by its programming in
other methods of consumer distribution, etc. In addition, the Company intends to
more aggressively utilize its assets such as its customer lists in order to
realize the true value thereof.
 
    DEVELOP AND MARKET INNOVATIVE PRODUCTS TO ENHANCE LIBRARY OF INFOMERCIAL
PROGRAMS. The Company continually seeks out innovative consumer products which
it can market and distribute profitably. The Company has an in-house product
development/marketing department responsible for researching, developing and
analyzing products and product ideas. The Company augments its product
development activities through relationships with third parties.
 
    The Company believes that its large library of infomercial programs,
together with its extensive international operations and experience in product
sourcing, telemarketing, order fulfillment and customer service, gives it a
significant competitive advantage over others desiring to enter its existing or
new markets. While the Company incurs certain initial and ongoing costs in
connection with adapting a product and infomercial for specific markets, the
primary expenses are incurred when the product/infomercial is first developed
for its initial target market. Thus, as the Company decides to introduce a
product into additional markets, it can do so quickly, efficiently and
relatively inexpensively.
 
    The Company believes that by further expanding its coverage into other parts
of the world it will be able to further leverage its library of infomercial
programs and associated products by extending the time period during which each
product generates revenues and, therefore, the total worldwide revenues for a
particular product. At present, the Company's total product/infomercial library
available for introduction into each new market consists of over 100 products.
 
    ENGINEERING THE MOST EFFICIENT BUSINESS MODEL FOR THE COMPANY. The Company
continues to explore methods to better control each step in the development and
life cycle of a product/infomercial and develop its expertise in, and refine its
systems with regards to, product sourcing, in-bound telemarketing, order
fulfillment and customer service. National Media believes that its current
competitive advantages of international media partnerships, multi-country
coverage and fully-integrated program production, product sourcing and order
fulfillment, as well as the development of new long-term media and marketing
partners, provide it with a strong base from which it can lower its costs and
engineer a business model which is the most efficient for a worldwide direct
response business.
 
PRODUCT DEVELOPMENT
 
    The Company's product development/marketing department researches and
develops new products that may be suited for direct response television
marketing and subsequent marketing through non-infomercial distribution
channels. The Company's product development staff develops new product ideas
from a variety 

 
                                       3
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of sources, including inventors, suppliers, trade shows, industry 
conferences, strategic alliances with manufacturing and consumer product 
companies and the Company's ongoing review of new developments within its 
targeted product categories. As a result of the Company's prominence in the 
infomercial industry, it also receives unsolicited new product proposals from 
independent third parties. During the evaluation phase of product 
development, the Company evaluates the suitability of the product for 
television demonstration and explanation as well as the anticipated perceived 
value of the product to consumers, determines whether an adequate and timely 
supply of the product can be obtained and analyzes whether the estimated 
profitability of the product satisfies the Company's criteria.
 
    In order to develop or acquire the rights to distribute or market new
products, the Company sometimes works with consumer product companies. A clear
advantage of these relationships is that the Company's partner typically will
provide research and development support, thereby reducing the Company's
financial risk as well as its working capital requirements.
 
    The Company has continued to devote attention to the development of products
specifically targeted at markets outside of North America. In fiscal 1997, the
Company introduced 14 new products for non-domestic infomercial markets. The
Company reviews its infomercial library on an ongoing basis to select those
products which it believes will be successful in Europe and/or Asia and/or its
other international markets. When a product which was initially sold
domestically is selected for international distribution, the infomercial is
dubbed and product literature is created in the appropriate foreign languages.
In addition, a review of the product's and the infomercial's compliance with
local laws is completed. The Company then begins airing the infomercial
internationally. As competition in the international marketplace has increased,
the Company has begun introducing domestically originated products
internationally on a much more rapid basis. While the majority of the programs
aired internationally have historically come from the Company's United States
operating companies, the Company also airs shows and distributes products of
other independent domestic infomercial companies. The Company brought
approximately 47 new products to market globally during fiscal 1997.
 
    The Company obtains the rights to new products created by third parties
through various licensing arrangements generally involving royalties related to
sales of the product. The amount of the royalty is negotiated and generally
depends upon the level of involvement of the third party in the development and
marketing of the product. The Company generally pays the smallest royalty to a
third party that only provides a product concept. A somewhat higher royalty is
paid to a third party that has fully developed and manufactured a product. The
Company also obtains the rights to sell products which have already been
developed, manufactured and marketed through infomercials produced by other
companies. In such cases, the Company generally pays a higher royalty rate to
the third party because of the relatively small amount of the Company's
resources required to develop the product. The Company generally seeks exclusive
worldwide rights to all products in all means of distribution. In some cases,
the Company does not obtain all marketing and distribution rights, but seeks to
receive a royalty on sales made by the licensor pursuant to the rights retained
by the licensor.

INFOMERCIAL DEVELOPMENT AND TEST MARKETING
 
    Once the Company decides to bring a product to market, it arranges for the
production of a 30-minute infomercial that will provide in-depth demonstrations
and explanations of the product. The Company attempts to present a product in an
entertaining and informative manner utilizing a variety of program formats,
including live talk shows and live paid studio audience programs. The Company's
infomercials are currently produced in-house or by independent production
companies with experience in the Company's product categories in the United
States and other countries. The cost of producing an infomercial generally
ranges from $175,000 to $350,000. In addition, producers, hosts and
spokespersons generally receive fees based upon sales of the product.
 
                                       4
<PAGE>
 
    Following completion of the production of an infomercial, the program is
then tested in the United States in specific time slots on both national cable
networks and targeted broadcast stations. If a show achieves acceptable results
in the market tests, it is generally aired on a rapidly increasing schedule on
cable networks and broadcast channels. During this initial phase, the Company
may modify the creative presentation of the infomercial and/or the retail
pricing, depending upon viewer response. After the initial marketing phase, the
Company may adjust the frequency of a program's airings to achieve a schedule of
programs that it believes maximizes the profitability of all of the Company's
products being marketed through infomercial programming at a given time. While
in the past, the Company generally aired each successful infomercial
domestically for 4 to 10 months or more, after which the potential existed for
additional international airings which may have ranged from 12 to 24 months, or
longer in some instances, the Company has begun introducing products
internationally soon after, or simultaneously with, its domestic introduction of
the products.
 
    The Company believes that it has the largest library of infomercials and
associated products in the world. The Company's library includes over 100
infomercials and products. The Company believes that this library is a
significant asset when it negotiates to gain access to media time, particularly
in new markets.
 
MEDIA ACCESS
 
    An important part of the Company's ability to successfully market products
is its access to media time. The Company's infomercial programming is presently
available to more than 370 million households in 70 countries worldwide,
including Argentina, Australia, Austria, Belarus, the Benelux countries, Brazil,
China, Denmark, Ecuador, most Eastern European countries, Finland, France,
Germany, Greece, Ireland, Italy, Japan, Mexico, most Middle Eastern countries,
New Zealand, Norway, Peru, Portugal, Russia, Spain, most South American
countries, Sweden, Switzerland, Taiwan, Turkey, Ukraine and the United Kingdom.
 
    In peak periods, the Company utilizes upwards of 1000 hours of cable and
broadcast television time per week in the United States and upwards of 650 hours
per week internationally, most of which is satellite and terrestrial broadcast
time, to air its infomercials. For the most part, cable broadcast technology is
not as prevalent internationally as it is in North America. Historically,
approximately one-half of the Company's cable air time in the United States and
a majority of the Company's satellite and terrestrial air time internationally
has been purchased under long-term contracts that provide for specific time
slots over the life of the respective contracts. More recently, the Company
effectuated a reduction in the United States market to the point where
approximately one-quarter of its time is pursuant to longer term contracts.
 
    DOMESTIC.  Domestically, the Company purchases most of its cable 
television time directly from cable networks and their respective media 
representatives, and presently has commitments for cable television time 
slots for periods ranging from one month to two years. Such commitments for 
cable television access are generally longer in duration than broadcast 
television time, which is often purchased on an "as available" basis. These 
cable networks presently include: CNBC, Discovery, E!, The Family Channel, 
FX, Home Team Sports, The Learning Channel, Lifetime Television, The 
Nashville Network, The New Inspirational Network, Product Information 
Network, SCIFI, TV Food Network and USA Network. The Company believes that at 
least one of the above networks is carried by every local cable system 
carrier throughout the United States.
 
    In addition to domestic air time purchased on cable networks, the Company
also purchases broadcast television time from network affiliates and independent
stations. Broadcast television time segments are purchased primarily in
30-minute spots. The Company also purchases 60 and 120-second spots where
economically feasible and adapts portions of its infomercials for airings in
such spots. The time segments on broadcast television are purchased primarily on
a quarterly basis based on the availability of programming time. In the event
that the Company determines that such time slots are not advantageous to the
Company, the Company is able to terminate such agreements quickly. The Company
intends to continue to pursue opportunities in new television markets through
other cable channels, cable operators and with additional 

 
                                       5
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broadcast television stations in existing television markets. The Company 
believes that there is currently more than an adequate supply of broadcast 
television time available from these sources in the United States to satisfy 
the Company's needs. In fiscal 1997 in the United States, approximately 52% 
(in dollar terms) of the media time purchased by the Company came from cable 
television and approximately 48% came from network affiliates and independent 
television. The Company's infomercials generally are aired in the United 
States between the hours of 3:00 a.m. and 2:00 p.m., Eastern time, seven days 
a week.
 
    Larger multiple system operators in the United States now sell air time
which was previously left unutilized, or "dark." The Company believes that this
may create an opportunity to lower its cost of air time as well as obtain
additional air time in desired markets. The Company generally has the right to
sell any media time it may have the right to use. During fiscal 1997, the
Company maintained a broker relationship with several companies to which it sold
air time. In addition to generating revenues, this ability to resell excess time
can reduce some of the risk associated with large purchases of media time.
 
    As discussed above, the Company purchases a significant amount of its media
time from cable television and satellite networks. These cable television and
satellite networks assemble programming for transmission to multiple and local
cable system operators. These operators may not be required to carry all the
network's programming. The Company currently does not pay and is not paid for
the "privilege" of being broadcast by these operators. It is possible that, if
demand for air time grows, and because of cable legislation in the United
States, these operators will begin to charge the Company to continue
broadcasting the Company's infomercials or limit the amount of air time
available to the Company. The Company is dependent on having access to media
time to televise its infomercials on cable networks, satellite networks, network
affiliates and local stations.
 
    INTERNATIONAL.  Internationally, the Company's infomercials are aired on 
one or more of three technologies in its market territories: (i) satellite 
transmission direct to homes with satellite reception dishes, (ii) cable 
operators who retransmit satellite broadcasts to cable-ready homes and (iii) 
terrestrial broadcast television. The Company's satellite air time is 
obtained through long-term agreements with companies that own or lease 
satellite transponder time. When negotiating to gain access to media time in 
a new market, the Company believes that its existing library of infomercials 
which are available for immediate introduction into such new market, together 
with its general industry experience, gives it a competitive advantage. Since 
1991, the Company has entered into a number of long-term, exclusive contracts 
with pan-European satellite channels such as Eurosport, Flextech (Starstream) 
and The NBC Super Channel. During the term of these contracts, the Company is 
generally entitled to broadcast programming continuously for a specified 
period of time and is guaranteed a specified amount of satellite television 
hours per month. Under some of these arrangements, the Company has rights of 
first refusal for any additional infomercial air time that becomes available. 
In Japan, the Company purchases its media time exclusively through its 
partner, Mitsui & Co., Ltd. As a result of these media relationships, the 
Company's transactional television programming can be seen in the Middle 
East, Asia and in virtually every country in Europe, and its products are 
available for purchase in approximately 70 countries. The Company's long-term 
media contracts in Europe expire at various dates through 2010. The Company 
expects that it will face increases in costs associated with the renewal of 
certain of its media contracts, which increases may or may not have a 
material adverse effect on the Company. The Company intends to strategically 
pursue additional markets.
 
SOURCING AND MANUFACTURING
 
    The Company uses sources in the United States and several countries in
Europe and Asia to manufacture products sold through its infomercials. The
Company monitors the availability of supplies of products and adjusts the air
time of an infomercial for a product which cannot be adequately supplied.
Additionally, the Company uses the services of a technical/engineering firm in
Hong Kong to coordinate and direct the Company's manufacturing sources in Asia
and to monitor the quality of the products manufactured in such countries. The
same product manufacturing sources may be utilized irrespective of whether an
infomercial is being aired in the United States or internationally.
 
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    In general, before the Company takes any sizeable inventory position in a
product, the Company test markets the product. The Company then purchases
additional inventory for roll-out of the product. Sometimes, due to issues of
timing and payment relating to sourcing, the Company does take an inventory
position in a product before testing is completed.
 
IN-BOUND TELEMARKETING
 
    The Company strives to create a problem-free fulfillment process for its
customers. This process consists of in-bound telemarketing, order fulfillment
and customer services. The first step in this process is the order-taking
function known as in-bound telemarketing. Customers may order products marketed
through infomercials during or after the infomercial by calling a telephone
number (toll-free in the United States), which is shown periodically on the
television screen during the broadcast. Both domestically and, in most cases,
internationally, the Company currently subcontracts its telemarketing function
to one of various third parties that provide this service for a fee-based
principally on the number of telephone calls answered. In Australia and New
Zealand, the Company operates its own in-bound telemarketing. In all instances
domestically and in most instances internationally, in-bound telemarketers
electronically transmit orders to the Company's order fulfillment centers where
the product is packaged and shipped. In certain cases, at the time of purchase,
the in-bound telemarketers also promote, cross-sell and upsell complementary
and/or additional products relating to the product for which the inquiry is
received. Such sales efforts are orchestrated by the Company's marketing
personnel who script the sales approaches of the telemarketing personnel.
 
    The majority of customer payments in the United States are made by credit
cards over the telephone with the remainder paid by check. In Europe and Asia,
products are generally delivered to consumers on a "cash on delivery" basis. In
other areas of the world, payment by check at the time of delivery is not
uncommon.
 
ORDER FULFILLMENT
 
    The Company's North American order fulfillment center is located in Phoenix,
Arizona. Activities at this facility include receiving merchandise from
manufacturers, inspecting merchandise for damages or defects, storing and
assembling product for later delivery, packaging and shipping of products and
processing of customer returns. The Company's Phoenix fulfillment center, an
approximately 188,000 square foot facility, processes substantially all orders
for the Company's products sold in North America. The Company primarily uses
bulk shippers to deliver products to customers in the United States. In certain
instances, the manufacturer of the product ships orders directly to the
customer. Each customer is charged a shipping and handling fee, which varies
among products.
 
    Throughout most of Europe and Asia, the Company operates the warehousing,
order fulfillment, distribution and customer service functions of its business
through independent agents, each of which is responsible for a particular
territory. In New Zealand and Australia, the Company performs these
functions internally. European products are shipped by the Company or the
manufacturer to independent warehouses in Rotterdam, The Netherlands and
Middlesex, England. Products are then shipped to independent fulfillment centers
throughout Europe that process the Company's European sales orders. In Asia,
products are primarily shipped to warehouses in Japan controlled by the
Company's partner, Mitsui & Co., Ltd., from which the orders are fulfilled and
shipped. Outside Europe and Asia, the Company generally contracts with
independent licensees who buy the Company's products outright and then sell them
to consumers, both through infomercials and through other local distribution
channels, under conditions and standards prescribed and monitored by the
Company. In many international countries, the Company's products are delivered
to purchasers through the postal system on a "cash on delivery" basis. In some
countries, consumers who order products in response to an infomercial pick up
their product at a central warehouse facility.
 
                                       7
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CUSTOMER SERVICE
 
    An important aspect of the Company's marketing strategy is to maintain and
improve the quality of customer service. Domestically, the Company operates
toll-free customer service telephone numbers and maintains its own customer
service department in Phoenix, Arizona to respond to customer inquiries, provide
product information to customers and process product returns. Outside of the
United States and Canada, customer service is generally provided on a contract
basis through third parties whose operations are monitored by the Company. The
Company's New Zealand and Australian subsidiaries perform these functions
internally.
 
    The Company generally offers an unconditional 30-day money back return
policy to purchasers of any of its products. In addition, products are generally
covered by warranties offered by the manufacturer for defective products. The
terms of such warranties vary depending upon the product and the manufacturer.
The average return rate of the Company's products for each of fiscal 1997, 1996
and 1995 was 10.3%, 9.2% and 14.3%, respectively. International sales carry a
higher average return rate due to the "cash on delivery" terms of a significant
portion of this business. In countries where the Company depends upon the postal
system for deliveries on a "cash on delivery" basis, official return rates
include instances where there is no answer at the attempted delivery site and
where a person at the delivery site does not have the cash on hand at the time
of delivery. The Company believes that its return experience is within the
customary range for direct marketing businesses.
 
NON-INFOMERCIAL MARKETING
 
    Based on the success of certain of its products in traditional retail
markets and the evolution of its business, the Company believes that its
transactional television programming is effective in building consumer awareness
of its products, as well as positioning the Company to act as the media
marketing partner for manufacturers of consumer products. The Company attempts
to capitalize on its ability to create product awareness and its ability to act
as a media marketing partner to extend the sales life of its products by
shifting products from traditional infomercial programming to non-infomercial
marketing channels such as retail distribution, catalogs, direct mail, direct
response print ads, television home shopping programs, credit card statement
inserts and other channels resulting from the development of strategic
partnerships. The Company believes that established manufacturers are
increasingly regarding infomercials as a desirable vehicle to showcase their
products to create and build brand awareness and generate follow-up product
sales through traditional retail outlets.
 
    Prior to fiscal 1992, a limited amount of the Company's sales had been
through non-infomercial distribution channels that did not include retail
distribution. In fiscal 1992, the Company began selling products through
traditional retail channels, such as mass merchandisers, specialty retailers and
wholesale clubs. During fiscal 1994, the Company began entering into agreements
with partners who handle the retail marketing and pay a royalty to the Company
based on retail sales in consideration of the television advertising for the
product funded by the Company. In fiscal 1997, 1996 and 1995, non-infomercial
distribution channels accounted for 6.6%, 3.3% and 6.2%, respectively, of the
Company's net revenues. The increase in fiscal 1997 over fiscal 1996 was
primarily due to the increase in royalties related to the sale of the Ab Roller
Plus product in the retail marketplace.
 
    The Company intends to pursue further expansion of its retail operations in
order to capitalize on the consumer brand-awareness created by the Company's
infomercials and reinforced by the "As Seen On TV" in-store signage. The Company
believes that the product exposure created by the Company's transactional
television programming enables the Company and its partners to utilize
traditional retail distribution channels without incurring any of the additional
advertisement costs that other consumer product companies may incur. In this
manner, the Company believes that it will be able to market products to
consumers who view its programming, but do not traditionally purchase products
through direct response marketing. In New Zealand, Australia and parts of Asia,
the Company operates small retail locations of its own.
 
                                       8
<PAGE>
 
PRODUCTS
 
    The Company markets consumer products in a variety of categories. In fiscal
1997, the Company offered a total of over 150 products to consumers in one or
more geographic markets worldwide, of which, on a revenue basis, approximately
80% were products sold through the Company's infomercials and approximately 20%
were products sold through infomercials produced by other companies and aired by
the Company. Of the products sold through the Company's infomercials in fiscal
1997, approximately 62 were products first introduced by the Company in fiscal
1997 and approximately 91 were products that were originally offered in previous
years. Through its international programming, the Company has brought to the
international marketplace many of its products that had been successfully
marketed in the United States, including Ab Roller Plus, Auri car polish,
Perfect Smile, the Fitness Strider, the Flying Lure fishing lure, Bruce Jenner's
Super Step Stair Climber and the Minimax Exercise System, Tony Little's Target
Training System video tapes and Regal Ware Royal Diamond Cookware.
 
    The Company's five most successful products in each of fiscal 1997, 1996 and
1995 accounted for approximately 41.2%, 46.0% and 54.0%, respectively, of the
Company's net revenues for such periods. The Company continues to be dependent,
in significant part, upon its ability to develop or obtain rights to new
products to supplement and replace existing products as they mature through
their product life cycles. The Company's expansion into international markets
reduces somewhat its dependency on new shows by lengthening the potential
duration of the life cycle of programs that comprise the Company's infomercial
library. Historically, the majority of the Company's products generate their
most significant domestic revenues in the first 6 months following initial
airing of the product's infomercial. Internationally, however, products
typically generate revenues more evenly over a longer period due, in part, to
the introduction of such products into new markets each year. To illustrate an
infomercial's life cycle, the Company derived fiscal 1997 net infomercial
revenue as follows: approximately 22% from products introduced during fiscal
1997, approximately 66% from products introduced during fiscal 1996 and 1995 and
approximately 12% from products introduced prior to fiscal 1995.
 
BACKLOG
 
    The timing of orders is largely influenced by the degree of consumer
response to product offerings, inventory levels, marketing strategies,
seasonality and overall economic conditions. Backlog orders for the Company at
April 30, 1997 and 1996 were approximately $12.0 million and $13.7 million,
respectively. Average monthly backlog orders for fiscal 1997 were approximately
$11.6 million as compared to $8.5 million in fiscal 1996. The consumer is
notified upon placement of an order that normal shipping time is four to six
weeks. Orders in excess of anticipated production capacity are included in
backlog figures. However, product shortages, cancellations, returns and
allowances may reduce the amount of sales realized from the fulfillment of
backlog orders.

COMPETITION
 
    The Company competes directly with several companies which generate sales
from infomercials. The Company also competes with a large number of consumer
product companies and retailers which have substantially greater financial,
marketing and other resources than the Company, some of which have recently
commenced, or indicated their intent to conduct, direct response marketing. The
Company also competes with companies that make imitations of the Company's
products at substantially lower prices. Products similar to the Company's
products may be sold in department stores, pharmacies, general merchandise
stores and through magazines, newspapers, direct mail advertising and catalogs.
 
                                       9
<PAGE>
 
MANAGEMENT INFORMATION SYSTEMS
 
    The Company's computer system features programs which allow the Company 
to manage its media time purchases and program scheduling, the flow of 
product order information among its telemarketers, its order fulfillment 
center, its credit card clearing house and the flow of shipping, billing and 
payment information. The Company believes that its management information 
systems are in need of improvement and it is currently in the process of 
doing so, including discussions regarding the outsourcing of this function. 
In order to facilitate growth and to integrate fully its international 
operations, the Company is enhancing its computer systems related to all 
phases of its operations. The Company expended approximately $3.1 million for 
this project in fiscal 1997. The Company is considering proposals submitted 
by several national service providers to outsource its management information 
systems function.
 
GOVERNMENT REGULATION
 
    Various aspects of the Company's business are subject to regulation and
ongoing review by a variety of federal, state, and local agencies, including the
FTC, the United States Post Office, the CPSC, the FCC, FDA, various States'
Attorneys General and other state and local consumer protection and health
agencies. The statutes, rules and regulations applicable to the Company's
operations, and to various products marketed by it, are numerous, complex and
subject to change.
 
    As a result of prior settlements with the FTC, the Company has agreed to two
consent orders. Prior to the Company's May 1996 acquisition of Positive Response
Television, Inc. ("PRTV"), PRTV and its Chief Executive Officer, Michael S.
Levey, also agreed to a consent order with the FTC. Among other things, such
consent orders require the Company, PRTV and Mr. Levey to submit compliance
reports to the FTC staff. The Company, PRTV and Mr. Levey have submitted
compliance reports as well as additional information requested by the FTC staff.
In addition, in connection with the acquisition by the Company of PRTV, both the
Company and PRTV were required pursuant to such consent orders to, and did,
notify the FTC of such acquisition and Michael S. Levey was required to, and
did, notify the FTC of his pending affiliation with the Company. In June 1996,
the Company received a request from the FTC for additional information regarding
two of the Company's infomercials in order to determine whether the Company is
operating in compliance with the consent orders referred to above. Such request
also included a request for additional information concerning the acquisition of
PRTV. The Company responded to such request. The FTC later advised the Company
that it believed the Company had violated one of the consent orders by allegedly
failing to substantiate certain claims made in one of its infomercials which was
aired by the Company between 1993 and 1995. The Company provided information to
the FTC to demonstrate substantiation. If the Company's substantiation is deemed
to be insufficient by the FTC, the FTC has a variety of enforcement mechanisms
available to it, including, but not limited to, monetary penalties. While no
assurances can be given, the Company does not believe that any remedies to which
it may become subject will have a material adverse effect on the Company's
results of operations or financial condition.
 
    The Company's international business is subject to the laws and 
regulations of England, the European Union, Japan and other countries in 
which the Company sells its products, including, but not limited to, the 
various consumer and health protection laws and regulations in the countries 
in which the programming is broadcast, where applicable. If any significant 
actions were brought against the Company or any of its subsidiaries in 
connection with a breach of such laws or regulations, including the 
imposition of fines or other penalties, or against one of the entities 
through which the Company obtains a significant portion of its media access, 
the Company could be materially adversely affected. There can be no assurance 
that changes in the laws and regulations of any territory which forms a 
significant portion of the Company's market will not adversely affect the 
Company's business or results of operations.
 
    The Company collects and remits sales tax in the states in which it has a
physical presence. Certain states in which the Company's only activity is direct
marketing have attempted to require direct marketers, such as the Company, to
collect and remit sales tax on sales to customers residing in such states. A
1995 United 

 
                                       10
<PAGE>

States Supreme Court decision held that Congress can legislate such a change. 
Thus far, Congress has taken no action to that effect. The Company is 
prepared to collect sales taxes for other states, if laws are passed 
requiring such collection. The Company does not believe that a change in the 
tax laws requiring the collecting of sales tax will have a material adverse 
effect on the Company's financial condition or results of operations.
 
EMPLOYEES
 
    As of March 31, 1997, the Company had approximately 450 full-time employees.
The Company also utilizes contract laborers at its order fulfillment center in
Phoenix, Arizona. None of the Company's employees are covered by collective
bargaining agreements and management considers relations with its employees to
be good.
 
TRADEMARKS
 
    The Company has a number of registered trademarks and other common law
trademark rights for certain of its products and marketing programs. It is the
Company's policy that it will seek to fully protect and vigorously defend its
trademark rights in its products and programs.
 
ITEM 2. PROPERTIES
 
    The Company currently leases approximately 25,200 square feet of office
space pursuant to an eleven-year lease for its principal executive offices in
Philadelphia, Pennsylvania. The lease, which commenced in December 1996,
provides for annual rent payments of $479,000 in years one through five, and
$568,000 in years 6 through 11. Pursuant to the terms of such Lease, the
Company's rent is abated until November 1, 1997.
 
    On May 1, 1997, the Company began leasing approximately 23,000 square feet
in Los Angeles, California for its new production facility and offices. The
lease is for 126 months and requires payments at varying rates from $520,000 in
year one to $662,000 in the final year.
 
    The Company leases approximately 188,000 square feet in Phoenix, Arizona for
warehousing, order fulfillment and customer service operations. The Company
currently has approximately 30,000 square feet of office space available for
subletting or expansion. The annual lease payments for this lease range from
approximately $565,000 for fiscal year 1998 to $1.1 million for fiscal years
2010 through 2014.
 
    The Company leases approximately 10,800 square feet of office space in
London, England. The lease expires in February 2001. The lease requires annual
rent payment of L254,905 ($404,662 as of March 31, 1997) for fiscal year 1998
and L269,436 ($427,730 as of March 31, 1997) thereafter. Additionally, pursuant
to the terms of such lease, the Company must pay a basic service charge for
services provided by the landlord. For the fiscal year ended March 31, 1997, the
Company paid a basic service charge of L67,449 ($107,075 as of March 31, 1997).

    As a result of the purchase of Prestige Marketing, the Company now leases an
office building, warehouse, and showroom facility in Auckland, New Zealand. The
lease, which commenced on April 1, 1996, runs for ten years and currently
requires annual payments of NZ$296,000 per year ($205,000 as of March 31, 1997).
In addition, Suzanne Paul Ltd. has entered into a three year lease, beginning in
August 1997, for its primary offices and warehouse in New South Wales,
Australia. The lease requires annual payments of AUS$571,000 ($450,500 as of
March 31, 1997). This amount includes AUS$78,000 ($61,500 as of March 31, 1997)
per year for general area charges and maintenance.
 
                                       11
<PAGE>
 
ITEM 3. LEGAL PROCEEDINGS
 
NATIONAL MEDIA LITIGATION
 
SHAREHOLDERS' FEDERAL CLASS ACTIONS
 
    In fiscal year 1996, the Company settled a class action complaint involving
allegations concerning disclosure by the Company of its ongoing relationship
with PRTV, an independent infomercial producer at the time, and Ronic, S.A., a
supplier of the Company. The settlement resulted in cash payments by the
Company's insurer of $2,175,000 and the issuance of 106,000 shares of Company
common stock to the class. The Company recorded a charge in fiscal year 1995 of
$725,000 in connection with this matter.
 
TERMINATED TENDER OFFER AND MERGER AGREEMENT WITH VALUEVISION INTERNATIONAL,
INC.
 
    In April 1994, the company filed suit in federal court against ValueVision
International, Inc. ("ValueVision") alleging that ValueVision had wrongfully
terminated its amended tender offer. In May 1994, ValueVision answered the
Company's complaint and set forth various counterclaims. In April 1995, parties
to this litigation entered into a settlement agreement. In connection with the
settlement agreement, the Company and ValueVision executed a Telemarketing,
Production and Post-Production Agreement (the "Telemarketing Agreement") and a
Joint Venture Agreement. The Telemarketing Agreement obligated ValueVision to
provide to the Company over a three-year period inbound telephone call-taking
services at rates more favorable than those then being paid by the Company. The
Telemarketing Agreement also obligated ValueVision to provide to the Company
certain production and post-production services.
 
    As additional consideration for the services to be provided by ValueVision
under the Telemarketing Agreement, the Company granted to ValueVision ten (10)
year warrants (the "Warrants") to purchase up to 500,000 shares of the Company's
common stock at a price of $8.865 per share (subject to adjustment pursuant to
the antidilution provision of the Warrants). This price was based on a premium
over the average 20-day market value prior to the date of settlement. The
Warrants were scheduled to vest with respect to an equal number of shares on
each of the thirteen-month, 2-year and 3-year anniversaries of the effective
date (November 24, 1995), provided that ValueVision satisfied certain
conditions. In November 1996, the parties entered into an amendment to the
Telemarketing Agreement pursuant to which ValueVision was no longer obligated to
provide in-bound Telemarketing Services and is required to pay $1.3 million for
the right to have the Warrants vest.
 
    As part of the settlement, the Company and ValueVision also entered into a
Joint Venture Agreement. Pursuant to the Joint Venture Agreement, the Company is
required, subject to certain exceptions, to negotiate in good faith with
ValueVision to form a joint venture to pursue home shopping opportunities
outside the United States and Canada before pursuing such opportunities by
itself or with certain third parties. ValueVision granted the Company similar
rights with respect to infomercial opportunities ValueVision may have outside of
the United States and Canada.
 
    In connection with the matters discussed above, the Company (1) 
reimbursed its former Chairman, John Turchi, $50,000 for certain legal costs, 
(2) paid substantially all amounts due to the former Chairman under the 
Consulting Agreement described in Note 9 to the Company's consolidated 
financial statements, and (3) paid $220,000 in connection with the exercise 
of the Company's early termination option for its then principal offices 
which were located in a building owned by a company controlled by Mr. Turchi.
 
    The issuance of the Warrants to ValueVision required the prior consent of
the holders of the promissory notes issued pursuant to the Note and Warrant
Purchase Agreement as discussed in Note 5 to the Company's consolidated
financial statements. As an inducement to the noteholders to permit the issuance
of the Warrants, the Company issued to the noteholders warrants (the "Waiver
Warrants") to purchase 

 
                                       12
<PAGE>

500,000 shares of the Company's common stock at a price of $10.00 per share. 
These warrants expired unexercised on November 28, 1996.
 
SHAREHOLDERS' CLASS ACTIONS
 
    In 1994, class action lawsuits were filed in Federal Court and Delaware
Chancery Court against the Company and certain of its present and former
officers and directors in connection with an aborted merger transaction with
ValueVision. The Company and other parties to the litigation entered into
agreements to settle these actions. These agreements provided for cash payments
of approximately $1,500,000 to the class, 75% of which were paid by the
Company's insurer. The consummation of the settlements received Federal court
approval during fiscal year 1996.
 
AB ROLLER PLUS PATENT LITIGATION
 
    On March 1, 1996, Precise Exercise Equipment ("Precise") filed suit in the
United States District Court for the Central District of California against
certain parties, including the Company, alleging patent infringement, unfair
competition and other intellectual property claims. Such claims relate to an
alleged infringement of Precise's initial US patent for an exercise device. The
suit claims that a product marketed by the Company pursuant to a license granted
by a third party violates Precise's initial US patent. Pursuant to the terms of
such license, the third party is contractually obligated to indemnify the
Company in this suit. The suit seeks an injunction and treble damages. The
Company's independent legal counsel issued an opinion to the Company that the
product marketed by the Company does not infringe Precise's initial US patent. A
second US patent was issued to Precise on November 26, 1996 for its exercise
device. Precise amended its pleading to include additional claims based on such
new patent. Upon the issuance of the new patent, the Company terminated active
marketing of the Ab Roller Plus product in the US.
 
    The Company has recently been involved in active negotiations with the other
parties to the action to settle this matter prior to trial. It is not yet
certain whether such negotiations will result in a mutually agreeable
settlement. The Company believes that it has made adequate provision for this
matter.
 
FITNESS FLYER LITIGATION
 
    In February 1997, the Company filed suit in a Los Angeles, California state
court against Guthy Renker Corporation ("Guthy Renker") in connection with a
joint venture between Guthy Renker and the Company concerning the marketing of a
fitness product. Guthy Renker also filed actions against the Company in
California Federal and state court concerning the same circumstances. In early
March 1997, the parties reached a settlement of these actions pursuant to which
the Company retained its rights to market a competing product that it had
developed and gave up the right to sell the original fitness product.
 
WWOR LITIGATION
 
    In March 1997, WWOR-TV filed a breach of contract action in the United
States District Court for New Jersey against one of the Company's operating
subsidiaries alleging that the subsidiary wrongfully terminated a contract for
the purchase of media time, seeking in excess of $1,000,000 in compensatory
damages. The Company is contesting the action and believes it has meritorious
defenses to the plaintiff's claims for damages.
 
                                       13
<PAGE>
PRTV LITIGATION
 
PRTV SHAREHOLDERS' CALIFORNIA CLASS ACTION
 
    On May 1, 1995, prior to the acquisition of PRTV by the Company, a 
purported class action suit was filed in the United States District Court for 
the Central District of California against PRTV and its principal executive 
officers alleging that PRTV made false and misleading statements in its 
public filings, press releases and other public statements with respect to 
its business and financial prospects. The suit was filed on behalf of all 
persons who purchased PRTV common stock during the period from January 4, 
1995 to April 28, 1995. The suit sought unspecified compensatory damages and 
other equitable relief. On or about September 25, 1995, the plaintiffs filed 
a second amended complaint which added additional officers as defendants and 
attempted to set forth new facts to support plaintiff's entitlement to legal 
relief. The Company reached an agreement in principle to settle this action 
in fiscal year 1997 which provides for the payment of $550,000 to the class, 
66% of which is to be paid by PRTV's insurance carrier. The Company recorded 
a charge of $187,000 during fiscal 1997 in connection with this matter. Such 
settlement is contingent upon court approval.
 
EDMARK INDUSTRIES LITIGATION
 
    In February 1996, prior to the acquisition of PRTV by the Company, Edmark
Industries ("Edmark"), a supplier of the Super Slicer kitchen product, filed
suit in the U.S. District Court for the Southern District of Texas against PRTV
and the retail distributor of the product, alleging certain breach of contract,
false advertising and copyright infringement claims in connection with the
marketing of such product. Pursuant to PRTV's agreement with the retail
distributor, PRTV defended such distributor and such distributor's retail
customers in connection with this suit. In November 1996, the Court provided
injunctive relief to the plaintiff on the issues of copyright infringement and
false advertising. The action was settled in April 1997 upon the payment by the
Company, on behalf of PRTV, of $200,000, in cash, at closing, a $200,000 note
payable, on June 30, 1997, the issuance of a note requiring the payment of
$50,000 per month for 24 months beginning July 31, 1997, with interest at 8%,
and certain other nonmaterial matters. The Company recorded a charge of
$2,656,000 during the fourth quarter of fiscal year 1997 in connection with this
matter.
 
SUNTIGER
 
    In late March 1997, Suntiger, Inc. ("Suntiger"), a distributor of
sunglasses, filed suit against PRTV and certain other parties alleging patent
infringement. PRTV is indemnified by third parties in connection with this
action.
 
BLUBLOCKER LITIGATION
 
    In September 1995, prior to the acquisition of PRTV by the Company, suit was
filed by Blublocker Corp., a distributor of sunglasses, against PRTV, alleging
unfair competition and false advertising relating to a PRTV product campaign. In
April 1997, the suit was settled by the parties with PRTV agreeing to pay
$400,000 to Blublocker Corp. The Company recorded this charge in the fourth
quarter of fiscal year 1997.
 
OTHER MATTERS
 
    The Company, in the normal course of business, is a party to litigation
relating to trademark and copyright infringement, product liability,
contract-related disputes, and other actions. It is the Company's policy to
vigorously defend all such claims and enforce its rights in these areas. The
Company does not believe any of these actions either individually or in the
aggregate, will have a material adverse effect on the Company's results of
operations or financial condition.
 
                                       14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of the fiscal year ended March 31, 1997.
 




 
                                       15
<PAGE>
                                    PART II
 
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON STOCK AND 
        RELATED STOCKHOLDER MATTERS
 
    The Company's common stock is listed on the New York Stock Exchange and the
Philadelphia Stock Exchange under the symbol "NM".
 
    The following table sets forth the quarterly high and low last sales prices
as reported on the New York Stock Exchange and dividends declared for the last
two fiscal years. The Company's common stock has been traded on the New York
Stock Exchange since September 14, 1990.
<TABLE>
<CAPTION>
                                                                         FISCAL 1997                            FISCAL 1996
                                                         ---------------------------------  --------------------------------------
                                                                                    CASH                                   CASH
                                                                                  DIVIDENDS                              DIVIDENDS
QUARTER ENDED                                              HIGH        LOW        DECLARED        HIGH        LOW         DECLARED
------------------------------------------------------  ---------  ---------  ---------------  ---------  ---------   ------------
<S>                                                         <C>        <C>        <C>              <C>        <C>        <C>
 
June 30...............................................   20 5/8      16               --         9 7/8      7 1/8             --
September 30..........................................   18          14 5/8           --         14 1/2     9 3/8             --
December 31...........................................   15 3/8      5 3/4            --         21         13 3/4            --
March 31..............................................   10 1/8      6 1/2            --         21 1/2     15                --

</TABLE>
 
    The number of record holders of the Company's common stock on May 30, 1997
was approximately 860. The Company is currently restricted in its ability to pay
dividends under the terms of its principal debt financing as more fully
described in Note 5 to the consolidated financial statements.
 
                                       16
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                                                  FISCAL YEAR ENDED MARCH 31,
                                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                               ------------------------------------------------------------------
                                                      1997            1996        1995        1994        1993
                                               ------------------  ----------  ----------  ----------  ----------
<S>                                            <C>                 <C>         <C>         <C>         <C>
 
Operating Data:
Net revenues.................................            $358,179  $  292,607  $  176,167  $  172,602  $  141,997
(Loss) income before income taxes............             (43,794)     20,104        (372)     (8,699)      6,335
Net (loss) income............................             (45,691)     16,579        (672)     (8,699)      6,259
                                                         --------  ----------  ----------  ----------  ----------
 
Net (loss) income per common share:
  Primary....................................               (2.07)        .74        (.05)       (.72)        .48
  Fully-diluted..............................               (2.07)        .71        (.05)       (.72)        .48
Cash dividends...............................                 --          --          --          --          --
                                                         --------  ----------  ----------  ----------  ----------
 
Weighted average number of shares
  Primary....................................              22,072      23,176      14,024      12,078      13,046
  Fully-diluted..............................              22,072      23,288      14,024      12,078      13,046
                                                         --------  ----------  ----------  ----------  ----------
 
Balance Sheet Information:
Working capital..............................            $ 19,768    $ 38,722     $22,081     $ 1,377     $ 7,995
Total assets.................................             165,632     116,548      64,143      47,475      46,771
Short-term debt(1)...........................              17,901         876         184       4,770       2,917
Long-term debt(2)............................                 959       4,054       3,613         448       1,090
Shareholders' equity.........................              88,560      56,462      26,625      10,571      17,630
                                                         --------  ----------  ----------  ----------  ----------
                                                         --------  ----------  ----------  ----------  ----------
</TABLE>
 
------------------------
 
(1) Net of loan discount of $768 as of March 31, 1997.
 
(2) Net of loan discount of $1,251 and $1,650 as of March 31, 1996 and March 31,
    1995, respectively.
 
(3) Fiscal 1997 includes the operating results of certain of the Company's
    operating subsidiaries, namely PRTV from May 17, 1996 forward and Prestige
    and Suzanne Paul from July 1, 1996 forward. In addition, the fiscal 1997
    loss included $8.7 million in provisions for inventory obsolescence, $5.7
    million in bad debt expense, $13.3 million in legal fees and settlements,
    $6.9 million of amortization primarily related to the new acquisitions,
    especially PRTV, and PRTV's significant operating loss, all as discussed in
    Management's Discussion and Analysis of Financial Condition and Results of
    Operations. Fiscal 1995 included $5.3 million in expenses related to certain
    legal settlements and associated fees, $1.0 million in relocation costs, and
    $1.8 million in anti-takeover and aborted stock offering costs.
 
 
                                       17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS
 
    As more fully described elsewhere herein, the Company is engaged in the 
direct marketing of consumer products, primarily through the use of 
infomercials, in both domestic and international markets. Domestically, the 
Company has historically been dependent on a limited number of successful 
products to generate a significant portion of its net revenue. The Company's 
strategies for future periods are being designed to reduce the risk 
associated with relying on a limited number of successful products for a 
disproportionate amount of its revenues and tailoring the Company's domestic 
operations to more efficiently deal with the cyclical nature of the Company's 
domestic business. These include the more effective utilization and 
leveraging of its global presence, the continued development and marketing of 
innovative products to enhance its library of infomercial programs, and 
engineering the most efficient business model for the Company's future 
operations. International expansion has resulted in an increasing amount of 
the Company's revenues being generated from the international infomercial 
marketplace. As the Company enters new markets overseas, it is able to air 
the shows from its existing library, prolonging the life of products and 
related productions, thus reducing its dependence on new products and new 
show productions. The Company takes advantage of product awareness created by 
its infomercials and also extends the sales life of its products through 
non-infomercial distribution channels. These include retail arrangements and 
agreements with the Company's strategic partners who supply new products and 
retail distribution channels.
 
RESULTS OF OPERATIONS
 
    The operating results for certain of the Company's operating subsidiaries,
namely PRTV, Prestige Marketing Limited and Prestige Marketing International
Limited (collectively, "Prestige") and Suzanne Paul Holdings Pty Limited and its
subsidiaries (collectively, "Suzanne Paul") are included in the Company's
current period results from the date of each respective acquisition during
fiscal 1997.
 
    The following table sets forth operating data of the Company as a percentage
of net revenues for the periods indicated below.
 
<TABLE>
<CAPTION>
                                                                                                YEARS ENDED MARCH 31,
                                                                                           -------------------------------
                                                                                             1997       1996       1995
                                                                                           ---------  ---------  ---------
<S>                                                                                        <C>        <C>        <C>
 
Net Revenues.............................................................................      100.0%     100.0%     100.0%
 
Operating costs and expenses:
Media purchases..........................................................................       36.6       29.6       29.5
Direct costs.............................................................................       55.0       51.7       55.4
Selling, general and administrative......................................................       19.5       11.5       13.4
Severance expense for former executive officers..........................................        0.7     --            1.5
Interest expense.........................................................................        0.4        0.3        0.4
                                                                                           ---------  ---------  ---------
 
Total operating costs and expenses.......................................................      112.2       93.1      100.2
(Loss) income before income taxes........................................................      (12.2)       6.9       (0.2)
                                                                                           ---------  ---------  ---------
 
Net (loss) income........................................................................     (12.8)%       5.7%      (0.4)%
                                                                                           ---------  ---------  ---------
                                                                                           ---------  ---------  ---------
</TABLE>
 
                                       18
<PAGE>
 
COMPARISON OF FISCAL 1997 WITH FISCAL 1996
 
NET REVENUES
 
    Net revenues were $358.2 million in fiscal 1997 as compared to $292.6 
million in fiscal 1996, an increase of $65.6 million or 22.4%. This increase 
was primarily a result of an increase in net revenues generated from the 
acquisitions in July 1996 of Prestige and Suzanne Paul which operate in New 
Zealand and Australia (approximately $39.7 million) and an increase in core 
market net revenues.
 
    Core market revenues, which consist of net revenues in the United States,
Western Europe and Japan were $295.4 million in fiscal 1997 as compared to
$280.8 million in fiscal 1996, an increase of $14.6 million or 5.2%. The
increase was primarily a result of an increase in domestic net revenues which
more than offset a decline in Japanese net revenues. Sales of the Ab Roller Plus
product represented approximately 30.8% of core market revenues in fiscal 1997.
Domestic net revenues in fiscal 1997 were $188.5 million as compared to $141.6
million in fiscal 1996, an increase of $46.9 million or 33.1%. This increase was
primarily a result of 1) the acquisition in May 1996 of PRTV, which generated
$35.7 million in net revenues and 2) retail royalties which were $16.3 million
in fiscal 1997 versus $5.6 million in fiscal 1996. These royalties were
principally generated from sales of the Ab Roller Plus product into the retail
marketplace. The Ab Roller Plus product represented approximately 41.9% of
domestic net revenues in fiscal 1997. Domestically, the Company aired new
infomercials during the latter part of fiscal 1997 which did not perform as
anticipated, especially in the fourth quarter, which had a negative impact on
revenue generation. Additionally, domestic net revenues were unfavorably
impacted by an increase in the average infomercial return rate as a percentage
of gross revenues from 6.4% in fiscal 1996 to 9.9% in fiscal 1997 which resulted
primarily from sales of higher-priced products in the current year which
historically have higher return rates. The Company's Japanese revenues declined
due to increased competition from traditional programming and other infomercial
competitors; the fact that Japanese airtime was not obtained in the quantity or
speed anticipated; and the effect of currency fluctuations. Japanese revenues in
fiscal 1997 decreased approximately 30.3% as compared to fiscal 1996. This
included a 19.9% decline on a local currency basis. Japanese revenues were $11.6
million in the fourth quarter of fiscal 1997 as compared to $22.2 million in the
fourth quarter of fiscal 1996, a decrease of 47.9%. On a local currency basis,
Japanese fiscal 1997 fourth quarter revenues decreased by 40.4%. This trend
continued in the first quarter of fiscal 1998. European revenues remained
relatively constant from fiscal 1996 to fiscal 1997.
 
    Emerging market revenues, which consist of net revenues in non-Japanese
countries in the Pacific Rim (including New Zealand and Australia), Eastern
Europe, the Middle East, Canada, Africa and Latin America, were $62.7 million in
fiscal 1997 as compared to $11.8 million in fiscal 1996, an increase of $50.9
million or 430%. Approximately $39.7 million of the increase was generated from
the Prestige and Suzanne Paul acquisitions. The remaining increase was
principally a result of ongoing expansion of the Company's operations into new
marketplaces.
 
OPERATING COSTS
 
    Total operating costs and expenses were $402.0 million in fiscal 1997 as
compared to $272.5 million in fiscal 1996, an increase of $129.5 million or
47.5%.
 
    MEDIA PURCHASES.  Media purchases were $131.1 million (net of $22.0 million
in media sales) in fiscal 1997 as compared to $86.5 million (net of $13.8
million in media sales) in fiscal 1996, an increase of $44.6 million or 51.6%,
principally as a result of growth in revenues, higher U.S. media costs and the
acquisitions completed in fiscal 1997. The ratio of media purchases to net
revenues increased substantially from 29.6% in fiscal 1996 to 36.6% in fiscal
1997. This was primarily due to higher U.S. media costs; a higher percentage of
the current year's net revenues being earned in the domestic marketplace where
media costs are typically higher; the acquisitions of PRTV and Nancy Langston &
Associates, Inc. ("Nancy Langston") which added significant blocks of media time
which could not be sold or used profitably during the 1996 pre-

 
                                       19
<PAGE>

holiday period; the inability of the Company to deliver effective new shows 
on a timely basis and higher European media costs, primarily associated with 
the Eurosport satellite contract. In addition to the impact of the Eurosport 
contract, the Company's European operations were also negatively affected by 
a change in product mix to products with a lower average selling price, 
higher production costs and currency fluctuations. Fourth quarter domestic 
media management was negatively impacted by: a decline in the success rate of 
current year infomercials; loss of Fitness Flyer and Fitness Strider product 
airings due to litigation with Guthy Renker which was taking place during key 
fitness product sales months of January and February; increased domestic 
cancellation and return rates due to the aforementioned litigation and 
manufacturing/sourcing difficulties related to certain products; the lack of 
successful new shows; and the effect of the Company airing lead generation 
type shows, which typically have a higher advertising to sales ratio.
 
    DIRECT COSTS.  Direct costs consist of the cost of materials, freight, 
infomercial production, commissions and royalties, order fulfillment, 
in-bound telemarketing, credit card authorization, warehousing and profit 
participation payments. Direct costs were $197.0 million in fiscal 1997 as 
compared to $151.2 million in fiscal 1996, an increase of $45.8 million or 
30.3%. This increase was primarily a result of increased revenues and higher 
domestic direct costs in the second half of fiscal 1997. As a percentage of 
net revenues, direct costs were 55.0% in fiscal 1997 and 51.7% in fiscal 
1996. Domestically, direct costs as a percentage of net revenues increased by 
3.6 percentage points primarily due to an increased provision for obsolete 
stock of approximately $8.7 million in fiscal 1997 and a substantial increase 
in production expense during fiscal 1997. This was a result of a decline in 
the effectiveness of the Company's new shows which generated lower than 
expected revenues and profit margins, especially in the fourth quarter of 
fiscal 1997. Contributing factors to the reduced success rate on new shows 
were the failure of some new format type shows and the less than expected 
success of the introduction of new product categories. Of the 19 new or 
revised shows aired during the fourth quarter and late third quarter of 
fiscal 1997, 16 did not perform up to expectations. This resulted in 
approximately $3.3 million in write-offs of show production costs associated 
with PRTV. In addition, the lower domestic sales volume and higher backlog in 
the second half of fiscal 1997 resulted in an increase in domestic 
fulfillment costs. Telemarketing expenses also increased in the second half 
of fiscal 1997 as a result of new show formats being tested such as lead 
generation shows which require longer and more complicated telemarketing 
scripts and, therefore, higher telemarketing costs per inquiry. On an annual 
basis, these increases were partially offset by the favorable impact of 
retail royalties earned in fiscal 1997. These retail royalties carry very low 
cost of sales. Internationally, direct costs as a percentage of net revenues 
increased approximately 3.3 percentage points primarily due to higher 
product costs in Europe and Asia resulting from a change in product mix; 
increased provisions for obsolete stock, especially in the fourth quarter of 
fiscal 1997; and increased production expense resulting from an increase in 
the number of countries for which show customization was required. The 
increased provision for obsolete stock, especially in the Asian markets, was 
a result of the decline in revenues experienced in the latter portion of 
fiscal 1997. The lower than expected revenues resulted in the Company's 
existing inventory levels of multiple products being in excess of quantities 
needed to meet revised sales forecasts and thus required an addition to the 
obsolescence provision. Lower sales volume levels and higher inventory levels
in Japan, particularly in the fourth quarter had a negative impact on certain 
minimum fulfillment and warehousing costs.
 
    SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative 
expenses were $69.8 million in fiscal 1997 as compared to $33.8 million in 
fiscal 1996, an increase of $36.0 million or 106.7%, primarily due to 
increases in compensation expense, legal fees and legal settlements, bad debt 
expense and amortization of goodwill. Compensation expense increased 
primarily to support the Company's continued global expansion. Current year 
acquisitions accounted for approximately 52.0% of the current year 
compensation expense increase. Legal expenses were $4.0 million and legal 
settlements were $9.3 million in fiscal 1997 as compared to $1.8 million and 
$0.1 million in fiscal 1996, respectively. The fourth quarter of fiscal 1997 
included $2.6 million of legal fees and $9.3 million of legal settlements or 
reserves for legal settlements. This included significant amounts of PRTV 
legal fees and legal settlements related to matters prior to the Company's 
acquisition of PRTV. The fourth quarter also included legal fees incurred in 
connection with the Fitness Flyer litigation. Bad debt expense was $5.7 
million in fiscal 1997 as compared to $1.2 million in fiscal 1996 and 
included approximately $3.8 million 

 
                                       20
<PAGE>

in the fourth quarter of fiscal year 1997, including a substantial portion 
related to the write-off of two specific customer accounts. During the fourth 
quarter of fiscal 1997, it became clear that the collectability of these 
receivables was impaired. The increase in bad debt expense in fiscal 1997 was 
primarily due to a provision of approximately $2.1 million made for the 
aforementioned two specific customers, higher write-offs of media receivables 
due to a change in credit terms and increased average multi-pay receivable 
balances. Amortization of goodwill increased from approximately $1.0 million 
in fiscal 1996 to $6.9 million in fiscal 1997, primarily due to the current 
year acquisitions of PRTV, Prestige, Suzanne Paul and Nancy Langston. The 
fourth quarter of fiscal 1997 also included a write-down of goodwill related 
to PRTV in the approximate amount of $4.4 million. Selling, general and 
administrative expenses as a percentage of net revenues increased from 11.5% 
in fiscal 1996 to 19.5% in fiscal 1997. Selling, general and administrative 
expenses as a percentage of net revenues were 44.9% in the fourth quarter of 
fiscal 1997 as compared to 11.5% in the fourth quarter of fiscal 1996. This 
increase was primarily a result of the aforementioned fourth quarter items 
and the 22.9% decrease in fourth quarter net revenues from fiscal 1997 to 
fiscal 1996.
 
    SEVERANCE EXPENSE.  In fiscal year 1997, the Company recorded severance 
expense related to discontinuance of employment of five executive officers. 
Total severance charges related to these officers are $2,500,000 and include 
salary, insurance, and other benefits.

    INTEREST EXPENSE.  Interest expense was approximately $1.5 million in fiscal
1997 as compared to $1.0 million in fiscal 1996, an increase of $527,000. This
increase was primarily due to an increase in the Company's average outstanding
indebtedness from approximately $4.2 million in fiscal 1996 to approximately
$10.0 million in fiscal 1997.
 
    INCOME TAXES.  The Company recorded income tax expense of approximately 
$1.9 million for fiscal 1997 resulting from tax liabilities relating to its 
profitable Asian and South Pacific operations. Income tax benefits have not 
been recorded in fiscal 1997 on domestic losses and fully reserved until 
realized. These benefits will be recorded when realized, reducing the 
effective tax rate on future domestic earnings. Income tax benefits have been 
recorded on European losses without being reserved. This compares to 
approximately $3.5 million of income tax expense recorded for fiscal 1996, a 
17.5% effective tax rate.
 
   NET LOSS.  The Company had a net loss of $45.7 million in fiscal 1997 as 
compared to net income of $16.6 million in fiscal 1996. This variance was 
primarily a result of losses incurred by its PRTV subsidiary and charges 
related to the following: excess and/or obsolete inventory; write-downs of 
production costs; legal fees; legal settlements; severance; and increased 
media costs.
 
COMPARISON OF FISCAL 1996 WITH FISCAL 1995
 
NET REVENUES
 
    Net revenues were $292.6 million in fiscal 1996 as compared to $176.2
million in fiscal 1995, an increase of $116.4 million or 66.1%.
 
    DOMESTIC NET REVENUES.  Domestic net revenues were $141.6 million in fiscal
1996 as compared to $95.8 million in fiscal 1995, an increase of $45.8 million
or 47.8%. Domestic infomercial and non-infomercial net revenues increased by
$45.3 million and $500,000, respectively. The Company introduced 15 new
infomercials in fiscal 1996 as compared to 6 in fiscal 1995. The increase in net
revenues resulted from sales from certain of such new infomercials, principally
sales of the Company's Ab-Roller Plus product, and the continued sales from
infomercials originated in prior years. The increase in the absolute number of
new shows in fiscal 1996 was the result of the revitalization of the Company's
marketing department and the increase in working capital. Fiscal 1995 new
infomercial production was adversely affected by the aborted ValueVision tender
offer, as described in note 11 to the Company's consolidated financial
statements. Returns as a percentage of gross revenues decreased from 11.8% in
fiscal 1995 to 6.4% in fiscal 1996. The decrease in returns as a percentage of
gross revenue was primarily due to a change in the Company's sales 

 
                                       21
<PAGE>

mix toward lower priced products, which historically have experienced a lower 
return rate. Approximately 36.9%, 17.9% and 15.0% of the Company's fiscal 
1996 domestic net revenues were generated from sales of its Ab-Roller Plus, 
E-Force and Regal Ware Royal Diamond Cookware products, respectively. The 
Ab-Roller Plus generated approximately 76.1% of fourth quarter fiscal 1996 
domestic net revenues.
 
    FOREIGN NET REVENUES.  Foreign net revenues were $151.0 million in fiscal 
1996 as compared to $80.4 million in fiscal 1995, an increase of $70.6 
million or 87.8%. The increase in net revenues from foreign sales was due to 
the Company's continuing expansion in the Asian market and the continued 
expansion of the Company's foreign operations from over 40 countries at the 
end of fiscal 1995 to over 60 countries in Europe and Asia at the end of 
fiscal 1996. European net revenues increased 11.7% from $50.5 million in 
fiscal 1995 to $56.4 million in fiscal 1996. Asian net revenues were $94.6 
million in fiscal 1996 as compared to $29.9 million in fiscal 1995. On a 
local currency basis, Asian net revenues for the year increased 247.0% over 
the prior year. The increase was principally the result of a full year of 
operations in Japan, the acquisition of additional air time in Japan and the 
Company's entrance into new countries such as Malaysia, New Zealand, 
Australia and the Philippines in fiscal 1996. The Company is able to leverage 
its existing infomercial library so that foreign net revenues are not 
dependent on any one or a few products. In fiscal 1996, the Company generated 
no sales from the airing of its Ab Roller Plus infomercial in the 
international market.
 
OPERATING COSTS
 
    Total operating costs and expenses were $272.5 million in fiscal 1996 as
compared to $176.5 million in fiscal 1995, an increase of $96.0 million or
54.4%. This corresponded with the 66.1% increase in net revenues over the prior
year.
 
    MEDIA PURCHASES.  Media purchases were $86.5 million (net of $13.8 million
in media sales) in fiscal 1996 as compared to $52.0 million (net of $13.5
million in media sales) in fiscal 1995, an increase of $34.5 million or 66.3%,
principally as a result of the 66.1% increase in net revenue over the prior
year. The ratio of media purchases to net revenues remained relatively stable at
29.6% in fiscal 1996 as compared to 29.5% in fiscal 1995. A slight decrease in
the ratio of international media purchases to net revenues was offset by a
slight increase in the ratio domestically.
 
    DIRECT COSTS.  Direct costs were $151.2 million in fiscal 1996 as compared
to $97.6 million in fiscal 1995, an increase of $53.6 million or 54.9%. This
increase was primarily a result of the 66.1% increase in net revenues during the
year. As a percentage of net revenues, direct costs were 51.7% in fiscal 1996
and 55.4% in fiscal 1995. Domestically, direct costs as a percentage of net
revenues decreased by 3.8 percentage points primarily due to a reduction in
order fulfillment and commission costs. Internationally, direct costs as a
percentage of net revenues decreased approximately 3.7 percentage points,
primarily due to reduced product and freight costs. The Company experienced a
significant reduction of freight costs in the Asian markets in fiscal 1996.
These costs are typically higher upon initial entrance into a market. The
Company entered the Japanese market in July 1994.
 
SELLING, GENERAL AND ADMINISTRATIVE
 
    Selling, general and administrative expenses were $33.8 million in fiscal
1996 as compared to $20.8 million in fiscal 1995, an increase of $13.0 million
or 62.5%, primarily due to costs associated with domestic and international
expansion. Selling, general and administrative expenses as a percentage of net
revenues decreased slightly from 11.8% in fiscal 1995 to 11.5% in fiscal 1996.
 
INTEREST EXPENSE
 
    Interest expense was approximately $1.0 million in fiscal 1996 as compared
to $689,000 in fiscal 1995, an increase of $326,000. This increase was primarily
due to an increase in the Company's average outstanding 

 
                                       22
<PAGE>

debt balance and a full year of amortization of the loan discount ($399,000) 
associated with the Company's $5.0 million term loan obtained in October 1994.
 
INCOME TAXES
 
    The Company had an effective tax rate of 17.5% for fiscal 1996. The 
primary reason for this rate was the benefit obtained by the Company from the 
utilization of net operating loss carryforwards. As a result of the 
utilization of all of the Company's available net operating loss 
carryforwards for financial reporting purposes in fiscal 1996, the Company's 
effective tax rate is expected to increase in fiscal 1997.
 
NET INCOME (LOSS)
 
    The Company had net income of $16.6 million in fiscal 1996 as compared to a
net loss of $672,000 in fiscal 1995, an improvement of $17.3 million. This was
primarily a result of the 66.1% growth in the Company's net revenues combined
with a 3.7 percentage point reduction in direct costs as a percentage of net
revenues. In addition, the prior year included approximately $2.7 million in
severance expense to the Company's former Chairman and unusual charges of $2.9
million.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    The Company's working capital was $19.8 million at March 31, 1997 compared
to working capital of $38.7 million at March 31, 1996, a decrease of $18.9
million. The Company met its current year cash needs primarily through its cash
flow from financing activities and existing cash balances. Operating activities
for the fiscal year ended March 31, 1997 resulted in a use of cash of $45.6
million. The Company's cash flow from operations in fiscal 1997 was adversely
affected by the loss incurred by PRTV; the significant increase in production
expenditures during the year (approximately $21 million in fiscal 1997 as
compared to $9 million in fiscal 1996); higher cost of media (advertising to
sales ratio was 36.6% in fiscal 1997 as compared to 29.6% in fiscal 1996); and
increased selling, general and administrative expenses.
 
    Consolidated inventories increased $8.3 million, or 36.8%, primarily as a
result of the Prestige, Suzanne Paul and PRTV acquisitions which contributed
$5.1 million and $0.8 million, respectively. Excluding acquisitions,
international inventories increased by $4.2 million as a result of continued
expansion into new markets and distribution channels (retail) and as a result of
lower than anticipated revenue levels, especially in the Asian marketplace.
Domestic inventories decreased $1.8 million, primarily as a result of a decrease
in sales volume and increased inventory reserves in fiscal 1997 as compared to
fiscal 1996. Consolidated accounts receivable increased by $8.1 million, or
25.4%, primarily as a result of the Prestige, Suzanne Paul and PRTV
acquisitions, which contributed $11.5 million and $2.9 million, respectively.
Excluding acquisitions, international accounts receivable decreased by $3.2
million, or 21.7%, principally due to the 45.3% decrease in Asian revenues in
the month of March 1997 as compared to the month of March 1996. Domestic
accounts receivable, excluding acquisitions, declined $3.2 million, or 18.2%,
due principally to the 54.8% decrease in revenues in the month of March 1997 as
compared to the month of March 1996. This was partially offset by an increase in
the installment receivable balance due to a higher percentage of multi-pay
products being aired in the latter part of fiscal 1997 as compared to fiscal
1996.
 
    The Company's international revenues are subject to foreign exchange risk.
To the extent that the Company incurs local currency expenses that are based on
locally denominated sales volume (order fulfillment and media costs), this
exposure is reduced significantly. The Company monitors exchange rate movements
and will protect short term cash flows through the use of options and/or forward
contracts when appropriate. During fiscal 1997, the Company realized a $2.1
million gain on its use of forward contracts in connection with its management
of foreign exchange risk. The Company has a $50.0 million foreign exchange line
for such purposes. In the long term, the Company has the ability to change
prices in a timely manner in order to react to major currency fluctuations; thus
reducing the risk associated with local currency 

 
                                       23
<PAGE>

movements. Currently, the Company's two major foreign currencies are the 
German deutsch mark and the Japanese yen, each of which has been subject to 
significant recent fluctuations.
 
    During fiscal 1997, the Company completed its acquisition of PRTV in a 
stock for stock transaction, which resulted in the issuance of 1,836,773 
shares of the Company's common stock, 211,146 of which have been issued into 
escrow and may be delivered to the former shareholders of PRTV on or before 
November 1997 upon the realization of certain assets. In addition, the 
Company repaid approximately $1.0 million of outstanding debt of PRTV. Also, 
the Company acquired two direct response marketing companies, Prestige and 
Suzanne Paul. The aggregate consideration paid by the Company for Prestige 
and Suzanne Paul was approximately $4.2 million in cash, $2.8 million in note 
payable due (and subsequently paid on) December 5, 1996 and 787,879 shares of 
the Company's common stock. Upon consummation of these acquisitions, the 
Company also funded a dividend of approximately $4.6 million to the former 
shareholders of Suzanne Paul. These cash amounts were funded by borrowings 
under the Company's revolving credit facility. Included in the Prestige and 
Suzanne Paul acquisition agreements were provisions concerning the future 
payment of additional purchase price, up to an aggregate of an additional 
$5.0 million in the Company's common stock, valued at then present market 
prices, in 1997 and 1998, contingent upon the levels of net income achieved 
in those years by Prestige and Suzanne Paul. The Company is currently in 
negotiations with the principals of these entities regarding an amendment to 
the acquisition agreements which would accelerate the $5.0 million contingent 
purchase price amount and revise certain other provisions of the agreements.
 
    On August 6, 1996, the Company completed a public offering of an additional
2.0 million shares of its common stock with net proceeds to the Company of
approximately $28.9 million. The Company used the net proceeds to retire
approximately $13.5 million of indebtedness incurred with the acquisitions of
PRTV, Prestige and Suzanne Paul and Nancy Langston, as well as a $1.0 million
paydown of long-term debt. The Company used the remaining proceeds to provide
for the acquisition and retention of media access contracts and for general
corporate purposes, including working capital requirements and expenditures
related to the acquisitions.
 
    During the fourth quarter of fiscal 1997, the Company's cash flow was
negatively impacted by the buildup of a backlog created by
manufacturing/sourcing difficulties for certain products, its inability to air
one of its infomercials due to then pending litigation and the unavailability of
inventory, the increase of product offerings with multi-pay arrangements,
increasing domestic cancellation and return rates and the decline in Asian net
revenues.
 
    The Company is currently pursuing a business strategy which concentrates on
targeted expansion and cost reduction and has taken the following steps to
rebuild its business including: 

  - Restructuring PRTV to focus more on effectively exploiting Mike Levey's 
    on-air talents. Operations have now been reduced and refocused with a 
    potential annualized saving in excess of $3.0 million. 

  - Curtailing long-term or unprofitable media contracts which will result in 
    a saving of at least $4.0 million on an annualized basis. 

  - Pursuing internet and alternative delivery systems, as well as continuity 
    products, in order to further limit the cyclical nature of the business. 

  - Reengineering the corporate structure and reducing the workforce. 

  - Considering outsourcing management of the Company's information 
    technology systems. 

  - Pursuing a strategy to reduce the cost and increase the efficiency of 
    order fulfillment.

 
                                       24
<PAGE>

 
    On March 31, 1997, the Company had a total of $13.0 million in outstanding
bank debt and $1.1 million in outstanding letters of credit under its $20.0
million revolving line of credit (the "Line"). The Line has an expiration date
of September 30, 1997. At June 27, 1997, the Line was being fully utilized.
Interest accrues on the Line at the bank's national commercial rate and is
payable monthly. On a quarterly basis, the Company must be in compliance with
various financial covenants including tangible net worth and working capital
minimums, various financial ratios and capital expenditure limits. At March 31,
1997, the Company was, and at present is, in technical default of various
financial covenants for which the bank has not granted a waiver. The Company
also has an outstanding term loan with the bank in an approximate amount of $3.2
million, net of an $768,000 discount. The term loan is payable in annual
installments of $1.0 million due December 1, 1997 and 1998 with the remaining
balance due September 30, 1999. The term loan also includes the covenants listed
above. As a result of the covenant defaults, the long-term portion of the term
loan has been classified as current at March 31, 1997. The Line and term loan
are secured by a lien on substantially all the assets of the Company and its
subsidiaries. Such lien on certain non-domestic assets of the Company is
subordinate to a lien held by Barclays Bank PLC. At present, the Company has an
overdraft line of approximately $1.0 million with Barclays of which
approximately $550,000 is outstanding in early July 1997.

    The Company's cash position continues to tighten as a result of the losses
being incurred in early fiscal 1998, the continued downturn in both Japanese and
domestic revenues, the inability of the Company to obtain additional borrowings
and payment of recently negotiated legal settlements. The Company expects to
report losses for the first quarter of fiscal 1998 and expects to incur losses
in the second quarter of fiscal 1998. The Company's inability to refinance its
existing debt or obtain additional debt or equity financing may have a further
material adverse effect on the Company's operating results and financial
condition.
 
    The Company continues to negotiate with its principal lenders regarding an
extension of the Line, as well as exploring additional sources of financing with
other financial institutions; however, there can be no assurance that the Line
will be extended or a replacement lender located. In addition, the Company has
retained Lehman Brothers, as a financial advisor, to assist it in continuing
discussions regarding potential strategic partnerships and other matters with
several interested parties.
 
    The Company faced significant difficulty during the latter half of its 1997
fiscal year and while these difficulties are expected to continue throughout the
first half of fiscal 1998, management of the Company believes that cash flow
from operations in fiscal 1998 will benefit from the aforementioned strategy.
Management will continue to identify and implement additional cost reduction
measures. The Company's ability to continue as a going concern is dependent on
its ability to implement the plans and actions described above, to return the
Company to profitability, and to improve its liquidity and/or obtain additional
capital through new debt financings or equity investments. No assurance can
be given that any of these actions will be successful. In addition, issuance of
additional equity would have a dilutive effect upon existing shareholders.
 
                                       25


<PAGE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
                                                                          FISCAL 1997 QUARTERS ENDED
                                                            -----------------------------------------------------
1997 FISCAL YEAR                                              JUNE 30    SEPTEMBER 30  DECEMBER 31   MARCH 31(1)
-----------------------------------------------------------  ----------  ------------  ------------  ------------
<S>                                                          <C>         <C>           <C>           <C>
dollars in thousands, except per share data

Net revenues...............................................  $  109,300   $   99,656    $   70,842    $   78,381
Operating costs and expenses
  Media purchases..........................................      37,576       34,060        28,112        31,388
  Direct costs.............................................      53,241       45,557        38,934        59,240
  Selling, general and administrative......................      11,128       11,997        11,486        35,212
  Severance Expense........................................                                  1,100         1,400
Interest expense...........................................         305          408           414           415
  Total operating costs and expenses.......................     102,250       92,022        80,046       127,655
(Loss) income before income taxes..........................       7,050        7,634        (9,204)      (49,274)
Net (loss) income..........................................  $    4,550   $    4,994    $   (5,984)   $  (49,251)
Net (loss) income per share
  Primary..................................................  $      .18   $      .18    $     (.24)   $    (2.08)
  Fully-diluted............................................  $      .18   $      .18    $     (.24)   $    (2.08)
</TABLE>
 
------------------------
(1) The quarter ended March 31, 1997 included legal settlements and fees of
    $11.9 million, provisions for bad debts of $3.8 million and $6.4 million for
    inventory obsolescence.
<TABLE>
<CAPTION>
                                                                          FISCAL 1996 QUARTERS ENDED
                                                                -------------------------------------------------
1996 FISCAL YEAR                                                 JUNE 30   SEPTEMBER 30  DECEMBER 31    MARCH 31
--------------------------------------------------------------  ---------  ------------  ------------  ----------
<S>                                                             <C>        <C>           <C>           <C>
dollars in thousands, except per share data

Net revenues..................................................  $  65,045   $   57,608    $   68,353   $  101,601
Operating costs and expenses
  Media purchases.............................................     20,683       17,272        19,602       28,961
  Direct costs................................................     33,983       29,664        34,378       53,173
  Selling, general and administrative.........................      7,029        6,695         8,318       11,730
Interest expense..............................................        240          233           246          296
                                                                ---------   ----------    ----------   ----------
  Total operating costs and expenses..........................     61,935       53,864        62,544       94,160
                                                                ---------   ----------    ----------   ----------
Income before income taxes....................................      3,110        3,744         5,809        7,441
                                                                ---------   ----------    ----------   ----------
Net income....................................................  $   2,602   $    3,145    $    4,932   $    5,900
                                                                ---------   ----------    ----------   ----------
                                                                ---------   ----------    ----------   ----------
Net income per share
  Primary.....................................................  $     .13   $      .15    $      .21   $      .24
  Fully-diluted...............................................  $     .13   $      .14    $      .20   $      .24
</TABLE>

                                       26

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    The response to this Item is submitted in a separate section of this report.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
        FINANCIAL DISCLOSURE
 
    None
 


                                       27

<PAGE>

                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    As of the date hereof, the directors and executive officers of the Company
are:
 
<TABLE>
<CAPTION>
NAME                                                       AGE                            POSITION
-----------------------------------------------------      ---      -----------------------------------------------------
<S>                                                    <C>          <C>
Paul R. Brazina......................................      52        Vice President and Chief Financial Officer
Constantinos I. Costalas.............................      61        Vice Chairman of the Board of Directors, Director
Albert R. Dowden.....................................      56        Director
Michael J. Emmi......................................      55        Director
William M. Goldstein, Esq............................      61        Director
Frederick S. Hammer..................................      60        Chairman of the Board of Directors, Director
Robert E. Keith, Jr..................................      55        Director
John W. Kirby........................................      37        Executive Vice President of the Company and Chairman
                                                                     and Chief Executive Officer of DirectAmerica
Michael S. Levey.....................................      48        Executive Vice President of the Company and Chief
                                                                     Executive Officer of Positive Response Television
Ira M. Lubert........................................      47        Director
Brian McAdams........................................      55        Director
Paul Meier...........................................      41        Executive Vice President of the Company and Chief
                                                                     Executive Officer of Prestige Marketing Limited
                                                                     and Suzanne Paul Holdings Pty Limited
Warren V. Musser.....................................      70        Director
Brian J. Sisko.......................................      36        Senior Vice President, Chief Administrative Officer,
                                                                     Secretary and General Counsel                       
Robert N. Verratti...................................      54        President, Chief Executive Officer and Director
Jon W. Yoskin II.....................................      56        Director
</TABLE>
 
    Mr. Brazina has served as Vice President and Chief Financial Officer of the
Company since May 1997. From October 1995 (when the Company acquired Direct
America Corporation and California Production Group, Inc. ("CAPG" and,
collectively with DirectAmerica Corporation, "DirectAmerica")) to October 1996,
Mr. Brazina served as Vice President, Treasurer and Chief Financial Officer of
Direct America Corporation. Prior to this acquisition, Mr. Brazina also served
in such capacities for that company's predecessors. Prior to joining the
Company, Mr. Brazina was also a partner in the accounting firm of Rosenfelt,
Siegel and Goldberg and was Chief Financial Officer of CPC Associates, a company
that specializes in compilation and direct mail programs. Mr. Brazina has also
served as an assistant professor of accounting at LaSalle University from 1974
until the present.
 
    Mr. Costalas has been the Vice Chairman of the Company since September 
1994, the Chief Operating Officer since early 1997 and was the Senior 
Financial Officer from April 1995 until May 1996. He served as Chairman of 
the Board, President and Chief Executive Officer of Glendale Bancorporation 
and as Chairman of the Board, President and Chief Executive Officer of 
Glendale National Bank of New Jersey until February 1994. Such positions were 
held since 1985 and 1976, respectively. Mr. Costalas has served as a Director 
of the Company since May 1993.
 
    Mr. Dowden has served as a Director, President and Chief Executive Officer

                                       28

<PAGE>

of Volvo North America Corporation and Senior Vice President of AB Volvo since
January 1991. Prior to such time, he served as Executive Vice President and
Deputy to the President and Chief Executive Officer from June 1989 to January
1991. Mr. Dowden has been affiliated with Volvo North America Corporation since
1974. Mr. Dowden also serves on the Board of Directors of the National
Association of Manufacturers, the Association of International Automobile
Manufacturers, the Business Committee for the Arts, the Center for International
Leadership, the Madison Square Boys & Girls Club, the United Way of New York
City, the Cortland Trust, the American Scandinavian Foundation, the American
Intercultural Student Exchange, the American Institute for Public Service and
the Swedish American Chamber of Commerce. Mr. Dowden has served as a Director of
the Company since August 1995.
 
    Mr. Emmi has served as Chairman of the Board, Chief Executive Officer and
President of Systems & Computer Technology Corporation, a provider of computer
software and services, since May 1985. Mr. Emmi is also a Director of CompuCom
Systems, Inc., Premier Solutions, Inc. and The Franklin Institute and is the
Chairman of the Pennsylvania Chapter of the American Electronics Association.
Mr. Emmi has served as a Director of the Company since April 1995.
 
    Mr. Goldstein is a Managing Partner and Chairman of the Tax Department of
the law firm of Drinker Biddle & Reath LLP in Philadelphia, Pennsylvania, where
he has practiced since 1982. Mr. Goldstein specializes in federal taxation,
securities law and general corporate law. He previously held the position of
Deputy Assistant Secretary for Tax Policy with the United States Department of
Treasury. Mr. Goldstein is also a Director of Integra LifeSciences Corporation.
Mr. Goldstein has served as a Director of the Company since April 1996.
 
    Mr. Hammer was appointed Chairman of the Board of Directors of the Company
in February 1997. He has been a partner of Inter-Atlantic Securities
Corporation, an investment banking firm focused primarily on the financial
services industry, since December 1994. From February 1993 to June 1994, Mr.
Hammer was Chairman of Mutual of America Capital Management Corporation. From
1989 until 1993, Mr. Hammer was President of the SEI Asset Management Group in
Wayne, Pennsylvania. From 1989 until 1991, Mr. Hammer was Mazur Fellow at the
Wharton School of the University of Pennsylvania. Mr. Hammer presently serves on
the Board of Directors of IKON Office Solutions, Tri-Arc Financial Services,
Inc., Search Financial Services Corp., Inc. and Provident American Corporation.
Mr. Hammer has served as a Director of the Company since October 1994.
 
    Mr. Keith serves as Chief Executive Officer of Technology Leaders I
Management, Technology Leaders II Management and Radnor Venture Partners,
venture capital funds affiliated with Safeguard. Prior to his affiliation with
Safeguard in 1989, Mr. Keith held executive positions with Fidelity Bank for
over twenty years, most recently as vice chairman. Mr. Keith is also a Director
of Cambridge Technology Partners, Gandalf Technologies, Inc. and Wave
Technologies International, Inc. Mr. Keith has served as a Director of the
Company since November 1996.
 
    Mr. Kirby is an Executive Vice President of the Company and Chairman and
Chief Executive Officer of DirectAmerica. He has served as Chairman of the
Board, Chief Executive Officer and President of DirectAmerica since August 1994
and as Executive Vice President of the Company since its acquisition of
DirectAmerica in October 1995. Mr. Kirby previously served as Chairman of the
Board, Chief Executive Officer and President of CAPG from January 1991 until the
Company's acquisition of CAPG in October 1995.
 
    Mr. Levey serves as an Executive Vice President of the Company and Chief 
Executive Officer of Positive Response Television, Inc. ("PRTV"), a 
wholly-owned subsidiary of the Company which was acquired in May 1996. Mr. 
Levey founded PRTV in 1988. From 1985 to 1989, Mr. Levey was employed by Twin 
Star Productions, where he produced infomercials and developed fulfillment, 
outbound telemarketing and product selection activities.

                                       29
<PAGE>
 
    Mr. Lubert has served as Managing Director of Radnor Venture Management
Company and of Technology Leaders Management, Inc., both of which are venture
capital management companies, since 1988. Mr. Lubert is a Director of CompuCom
Systems, Inc. Mr. Lubert has served as Director of the Company since December
1994.
 
    Mr. McAdams has served as Chief Executive Officer of Stratvis Corp. since
January 1997. Prior to such time, Mr. McAdams served as Chairman of the Board
and Chairman of the Executive Committee of the Company from September 1994 until
December 1996. He was also Chief Executive Officer of the Company from September
1994 to April 1995. From 1976 through November 1994, Mr. McAdams served as
President and Chief Executive Officer and continues to serve as a Director of
McAdams, Richman & Ong, Inc., a national advertising and design firm. In 1994,
he was named Chairman of such firm and continues in that role today. Mr. McAdams
has served as a Director of the Company since 1990.
 
    Mr. Meier serves as an Executive Vice President of the Company and Chief
Executive Officer of Prestige Marketing Limited ("Prestige") and Suzanne Paul
Holdings Pty Limited ("Suzanne Paul"), the Company's New Zealand and Australian
operating subsidiaries acquired in July 1996. Mr. Meier founded Prestige and
Suzanne Paul in 1991.
 
    Mr. Musser has served as Chairman of the Board of Directors and Chief
Executive Officer of Safeguard, since 1992. Mr. Musser is also a Director of
Sanchez Computer Associates and CompuCom Systems, Inc. Mr. Musser has served as
a Director of the Company since January 1997.
 
    Mr. Sisko presently serves as a Senior Vice President, Chief Administrative
Officer, Secretary and General Counsel of the Company. From January 1996 to
January 1997, Mr. Sisko was Vice President/ Global Corporate Development of the
Company. Prior to joining the Company, Mr. Sisko was a partner with Klehr,
Harrison, Harvey, Branzburg & Ellers, Philadelphia, Pennsylvania, outside legal
counsel to the Company.
 
    Mr. Verratti has served as President and Chief Executive Officer of the
Company since May 1997. From January 1997 to May 1997, he served as Special
Adviser for Acquisitions to the Chairman and Chief Executive Officer of
Safeguard. Prior to joining Safeguard, from December 1988 to June 1990, Mr.
Verratti served as Chief Executive Officer of Total Care Systems, a congregate
care management company. Mr. Verratti is also President of Charlestown
Investments, Ltd., an investment company. Mr. Verratti also serves on the Boards
of Directors of CRW Financial and Multigen Inc. and is Chairman-elect of MRJ
Enterprise Solutions. Mr. Verratti has served as a Director of the Company since
May 1997.
 
    Mr. Yoskin has served as Chairman, Chief Executive Officer and a Director of
Tri-Arc Financial Services, Inc., a provider of specialized insurance products
to the financial services industry, since 1986. Prior to that time, he worked in
the insurance and banking industries with companies such as Meritor Savings
Bank, TransAtlantic Life Insurance Assurance Company and Royal Oak Insurance
Company. Mr. Yoskin has served as a Director of the Company since June 1994.
 
                         SECTION 16(a) COMPLIANCE
 
    Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and Directors and persons who own more than ten percent of the
Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and the New York and Philadelphia
Stock Exchanges. Officers, Directors and greater than ten-percent owners are
required by the Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file.

    Based solely on the Company's review of the copies of such forms received by
it, the Company believes that, during the fiscal year ended March 31, 1997, all
filing requirements applicable to its officers, Directors and greater than
ten-percent owners were complied with.
 
                                       30

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION
 
    The following Summary Compensation Table sets forth the cash compensation
and certain other components of the compensation received by (i) Mark P.
Hershhorn, the former President and Chief Executive Officer of the Company, and
(ii) the other four most highly compensated executive officers of the Company
during the fiscal year ended March 31, 1997 for each of the fiscal years ended
March 31, 1995, 1996 and 1997.
 
<TABLE>
<CAPTION>
                                   SUMMARY COMPENSATION TABLE

                                                                                                       LONG-TERM
                                                  ANNUAL COMPENSATION                                COMPENSATION
                                   --------------------------------------------------  -----------------------------------------
                                                                            OTHER      RESTRICTED  SECURITIES         ALL
            NAME AND                 FISCAL                                ANNUAL        STOCK     UNDERLYING        OTHER
       PRINCIPAL POSITION             YEAR        SALARY     BONUS(1)   COMPENSATION   AWARDS(2)     OPTIONS    COMPENSATION(3)
---------------------------------  -----------  ----------  ----------  -------------  ----------  -----------  ----------------
<S>                                <C>          <C>         <C>         <C>            <C>         <C>          <C>
Mark P. Hershhorn(4)                     1997   $  542,022           0             0              0      250,000(5)  $    1,224,453
Former President and Chief               1996   $  439,964  $  195,464             0     $  195,476            0     $       11,642
Executive Officer                        1995   $  254,451           0             0              0      450,000     $        4,626

David Carman (6)                         1997   $  210,850           0     $  73,355(7)           0      250,000     $      310,679
Former Executive Vice President          1996   $  374,018  $  165,973     $  87,386(7)  $  165,957            0     $       53,058 
of the Company, President and            1995   $  350,000           0     $ 132,495(7)           0            0     $       30,873 
Chief Executive Officer of
Quantum and Director

Constantinos I. Costalas(8)              1997   $  318,078           0             0              0      250,000(9)  $        8,730
Vice Chairman of the Board               1996   $  212,500  $  159,198             0     $  159,209      140,000(9)  $        8,730
and Chief Operating Officer              1995   $   60,000           0             0              0            0     $        8,730

John W. Kirby(10)                        1997   $  300,000           0             0              0       30,000     $       32,255
Executive Vice President of              1996   $  133,957  $   42,972             0     $   42,966            0     $          996 
the Company and Chairman
and Chief Executive Officer
of Direct America

Brian McAdams(11)                        1997   $  292,248           0             0              0      250,000     $      655,384
Director; Former Chairman                1996   $  287,496  $  213,911             0     $  213,906      210,000     $       11,376
of the Board and Chairman                1995   $   74,748           0             0              0       90,000     $        4,925
of the Executive Committee
</TABLE>

------------------------
(1) Bonuses (which include cash payments and awards of Common Stock as set forth
    under Restricted Stock Awards) have been included in the year earned,
    portions of which were actually paid in the following fiscal year.
 
(2) Consists of awards made pursuant to the Company's Management Incentive Plan
    (the "Incentive Plan") for the 1996 fiscal year. All such shares of Common
    Stock were issued during the 1997 fiscal year and were vested at the time of
    issuance. Such officers received the following number of shares of Common
    Stock which has been valued based upon a closing price of $16.50 per share
    on March 29, 1996, the date of grant. Mr. Hershhorn, 11,847 shares; 
    Mr. Carman, 10,058 shares; Mr. Costalas, 9,649 shares; Mr. Kirby, 2,604 
    shares; and Mr. McAdams, 12,964 shares.
 
(3) Amounts for fiscal 1997 consist of (i) severance payments made or accrued
    for: Mr. Hershhorn, $1,219,067; Mr. Carman, $250,662; and Mr. McAdams,
    $650,000; (ii) the Company's contributions under a defined contribution
    retirement arrangement for Mr. Carman, $60,017; (iii) the Company's
    contribution under a 401(k) plan for: Mr. Hershhorn, $502; and Mr. McAdams,
    $459; (iv) the Company's insurance premiums for supplemental life insurance
    for: Mr. Hershhorn, $4,884; Mr. Costalas, $8,730; Mr. Kirby, $5,530; and Mr.
    McAdams, $4,925; (v) the Company's payment of moving expenses for Mr. Kirby,
    $25,000; and (vi) payments by the Company for use of Mr. Kirby's automobile,
    $1,725. Amounts for fiscal 1996 consist of (i) the Company's contributions
    under a defined contribution retirement arrangement for Mr. Carman: $51,458;

                                       31

<PAGE>

    (ii) the Company's contribution under a 401(k) plan for: Mr. Hershhorn,
    $6,672 and Mr. McAdams, $6,451; (iii) the Company's insurance premiums for
    supplemental life insurance for: Mr. Hershhorn, $4,970; Mr. Carman, $1,600;
    Mr. Costalas, $8,730; and Mr. McAdams, $4,925 and (iv) payments by the
    Company for use of Mr. Kirby's automobile. Amounts for fiscal 1995 consist
    of (i) the Company's contributions under a defined contribution retirement
    arrangement for Mr. Carman: $29,350, (ii) the Company's contribution under a
    401(k) plan for: Mr. Hershhorn, $96; and (iii) the Company's insurance
    premiums for supplemental life insurance for: Mr. Hershhorn, $4,530; Mr.
    Carman, $1,523; Mr. Costalas, $8,730; and Mr. McAdams, $4,925.
 
(4) Mr. Hershhorn served as Chief Executive Officer of the Company from April
    1995 until April 1997.
 
(5) Such options lapsed in connection with Mr. Hershhorn's separation from the
    Company.
 
(6) Mr. Carman resigned from the Company in October 1996. Payments to Mr. Carman
    include compensation received from Quantum.
 
(7) Represents an allowance for overseas housing.
 
(8) Mr. Costalas became an executive officer of the Company in November 1994.
 
(9) In connection with the execution of an amendment to Mr. Costalas' employment
    agreement with the Company in April 1997, such options were subsequently
    cancelled and replaced by options to purchase 195,000 shares of Common
    Stock.
 
(10) Mr. Kirby joined the Company during the Company's 1996 fiscal year.
 
(11) Mr. McAdams became an executive officer of the Company in November 1994.
 
STOCK OPTIONS
 
    The following table sets forth certain information concerning options to
purchase Common Stock of the Company granted to the executive officers named in
the Summary Compensation Table in the fiscal year ended March 31, 1997.


<TABLE>
<CAPTION>                                          OPTION GRANTS IN LAST FISCAL YEAR
                                                                                                       POTENTIAL REALIZABLE
                                                                                                             VALUE AT
                                                                                                     ASSUMED ANNUAL RATES OF
                                                                                                     STOCK PRICE APPRECIATION
                                                           INDIVIDUAL GRANTS                           FOR OPTION TERM (1)
                                     --------------------------------------------------------------  ------------------------
<S>                                  <C>          <C>            <C>           <C>                   <C>           <C>
                                                   % OF TOTAL
                                      NUMBER OF      OPTIONS
                                     SECURITIES    GRANTED TO
                                     UNDERLYING     EMPLOYEES
                                       OPTIONS      IN FISCAL      EXERCISE         EXPIRATION
               NAME                    GRANTED        YEAR          PRICE              DATE               5%          10%
-----------------------------------  -----------  -------------  ------------  --------------------  ------------  ----------
Mark P. Hershhorn..................    250,000(2)        6.38%   $16.375/sh                7/25/06             0           0
David Carman.......................    250,000(2)        6.38%   $16.375/sh                7/25/06             0           0
Constantinos I. Costalas...........    250,000(3)        6.38%   $16.375/sh                7/25/06    $2,574,536  $6,524,382
John W. Kirby......................     30,000(4)           *     $8.325/sh                7/25/06    $  157,066  $  398,037
Brian McAdams......................    250,000           6.38%   $16.375/sh               12/31/98    $  419,609  $  859,687
</TABLE>

------------------------
*   Less than 1%.
 
(1) The actual value, if any, an option holder may realize will be a function 
    of the extent to which the stock price exceeds the exercise price on the 
    date the option is exercised and also will depend on the option

                                       32

<PAGE>

    holder's continued employment through the vesting period. The actual value
    to be reached by the option holder may be greater or less than the values
    estimated in this table.
 
(2) Such options lapsed in connection with such officer's separation from the
    Company.
 
(3) In connection with the execution of an amendment to Mr. Costalas' employment
    agreement with the Company in April 1997, such options (along with options
    to purchase 140,000 shares of Common Stock previously granted to Mr.
    Costalas) were subsequently cancelled and replaced by options to purchase
    195,000 shares of Common Stock at an exercise price of $7.00 per share.
 
(4) Such options were granted in replacement of options to purchase 60,000
    shares of Common Stock originally granted in July 1996.
 
    The following table sets forth certain information concerning the exercise
in the fiscal year ended March 31, 1997 of options to purchase Common Stock of
the Company by the executive officers named in the Summary Compensation Table
and the unexercised options to purchase Common Stock of the Company held by such
individuals at March 31, 1997. Year-end values are based upon the closing market
price per share of the Company's Common Stock on March 31, 1997 of $8.50.

    AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>

                                                                             NUMBER OF SECURITIES
                                                                            UNDERLYING UNEXERCISED
                                                                                  OPTIONS AT
                                                                                  FY-END(#)
                                                                          --------------------------
                                       SHARES
                                     ACQUIRED ON             VALUE
NAME                                  EXERCISE           REALIZED (1)     EXERCISABLE  UNEXERCISABLE
------------------------------  ---------------------  -----------------  -----------  -------------
<S>                             <C>                    <C>                <C>          <C>
Mark P. Hershhorn.............                      0              0                0       250,000
David Carman..................                200,000  $   1,125,000                0             0
Constantinos I. Costalas......                      0              0           26,667       303,333
John W. Kirby.................                      0              0                0        30,000
Brian McAdams.................                      0              0        465,000 0             0
 
<CAPTION>

                                   VALUE OF
                                  UNEXERCISED
                                 IN-THE-MONEY
                                    OPTIONS
                               AT FY-END ($)(1)
                               -----------------
NAME                              EXERCISABLE        UNEXERCISABLE
------------------------------ -----------------     -------------
<S>                            <C>                   <C>
Mark P. Hershhorn.............             0                   0
David Carman..................             0                   0
Constantinos I. Costalas......             0                   0
John W. Kirby.................             0           $   5,250
Brian McAdams.................             0                   0
</TABLE>
 
------------------------
 
(1) Values are calculated by subtracting the exercise price from the fair market
    value as of the exercise date or fiscal year end, as appropriate. Values are
    reported before any taxes associated with exercise or subsequent sale of the
    underlying stock.
 
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
 
    Mark P. Hershhorn
 
    On April 24, 1997, the Company entered into a separation agreement with Mark
P. Hershhorn, the Company's former President and Chief Executive Officer, and a
former Director of the Company. Pursuant to the separation agreement, Mr.
Hershhorn was provided sixty (60) days' prior written notice of termination
pursuant to the terms of his employment agreement with the Company. The
separation agreement served as formal notice of Mr. Hershhorn's resignation as
an officer and/or director of the Company and of each subsidiary and affiliate
of the Company. The separation agreement provides, in accordance with the
termination provisions of his prior employment agreement, that Mr. Hershhorn
will be paid $550,000 per annum until June 22, 1999. Additionally, the
separation agreement requires the Company to maintain through August 30, 1998
all employee benefit plans and programs provided to Mr. Hershhorn during his

                                       33

<PAGE>

employment with the Company, with the exception of the Company's stock option
plans and bonus plans, including the Company's Incentive Plan. Mr. Hershhorn
also has agreed to consult and cooperate with the Company in connection with any
litigation or business which arose during Mr. Hershhorn's tenure with the
Company.
 
    CONSTANTINOS I. COSTALAS
 
    On April 28, 1997, the Company entered into an amended and restated
employment agreement with Mr. Costalas. Pursuant to the agreement, as
subsequently amended, Mr. Costalas is employed as Vice Chairman of the Company
for term ending on September 27, 1998, at an annual minimum base salary of
$325,000. The term of the agreement will be automatically extended for
successive one-year periods after the expiration of the initial term unless
terminated by either party upon six months' written notice prior to the end of
the then current period. Mr. Costalas is entitled to participate in the
Company's Incentive Plan and its other executive compensation programs. The
Company maintains $1,000,000 of insurance on the life of Mr. Costalas, which is
payable to beneficiaries designated by Mr. Costalas, pays certain of Mr.
Costalas's club dues and pays Mr. Costalas an automobile allowance. Pursuant to
this employment agreement, Mr. Costalas was granted options to purchase up to
195,000 shares of Common Stock in replacement of options to purchase 390,000
shares of Common Stock held by Mr. Costalas at the time the employment agreement
was executed. The replacement options are exercisable at a price of $7.00 per
share and vest in annual one-third increments, beginning on April 28, 1997. All
of such options expire on April 28, 2007.

    The agreement provides that either party may terminate the agreement upon
sixty (60) days' prior written notice. If the Company terminates the agreement
without Cause (as defined in the agreement) or if Mr. Costalas terminates the
agreement for Good Reason (as defined in the agreement), the Company will be
required to (i) pay Mr. Costalas, in installments, an amount equal to the base
salary payable during the remainder of the term plus six months after the end of
such term, and (ii) maintain his employee benefits for the remainder of the term
plus a period of six months. The agreement also provides that, in the event of
the termination of Mr. Costalas' employment upon the occurrence of a Change of
Control (as defined in the agreement), Mr. Costalas will be entitled to receive,
within thirty (30) days of the Change of Control, a lump-sum payment in an
amount equal to three years' base salary at the then current amount and a lump-
sum payment representing the annual bonuses to which Mr. Costalas would
otherwise have been entitled through the remainder of the term based on the last
annual bonus received by Mr. Costalas in the prior fiscal year. In addition, Mr.
Costalas will be entitled to the continuation of certain allowances and benefits
for the remainder of the term and the immediate vesting of all unvested stock
options. If Mr. Costalas' employment is not terminated within thirty (30) days
after a Change of Control, his employment agreement shall automatically be
extended for an additional three years from the date of the Change of Control.
Pursuant to the agreement, the Company has also agreed to indemnify Mr. Costalas
in his capacity as an officer and Director of the Company to the maximum extent
permitted by law and to make advances to Mr. Costalas for his expenses
(including attorneys' fees) incurred in defending any civil, criminal,
administrative or investigative action, suit or proceeding upon receipt by the
Company of an undertaking by or on behalf of Mr. Costalas to repay such amounts
if it is ultimately determined that Mr. Costalas is not entitled to such
indemnification.
 
    JOHN W. KIRBY
 
    On October 24, 1995, in connection with the Company's acquisition of
DirectAmerica Corporation ("DirectAmerica"), the Company's DirectAmerica
subsidiary entered into an employment with Mr. Kirby pursuant to which Mr. Kirby
serves as Chairman and Chief Executive Officer of DirectAmerica and as Executive
Vice President of the Company for a five year term at an annual minimum base
salary of $300,000. The term of the agreement is subject to automatic one-year
extensions after the expiration of the initial term unless terminated by either
party upon six months' written notice prior to the end of the then current
period. Mr. Kirby is entitled to participate in the Company's Incentive Plan,
the DirectAmerica Bonus Plan and the Company's other executive compensation
plans. The Company maintains $1,000,000 

                                       34

<PAGE>

of insurance on the life of Mr. Kirby, which is payable to beneficiaries 
designated by Mr. Kirby, pays certain of Mr. Kirby's club dues and pays Mr. 
Kirby an automobile allowance.
 
    The agreement provides that Mr. Kirby may terminate the agreement upon
ninety (90) days' prior written notice effective as of the third anniversary of
the agreement. In the event Mr. Kirby terminates this agreement on account of a
material breach of the Agreement by the Company, or if Mr. Kirby is terminated
by the Company without Cause (as defined in the agreement), the Company will be
required to pay Mr. Kirby, in installments, an amount equal his full base salary
payable during the remainder of the term, and to maintain his employee benefits
for the remainder of the term. The agreement also provides that in the event of
a Change of Control (as defined in the agreement) of the Company, Mr. Kirby may
terminate this Agreement by giving the Company thirty (30) days' written notice.
Pursuant to the agreement, DirectAmerica has agreed to indemnify Mr. Kirby in
his capacity as an officer of the Company to the maximum extent permitted by law
and to pay Mr. Kirby's expenses (including attorneys' fees) incurred in
defending any civil, criminal, administrative or investigative action, suit or
proceeding upon receipt by the Company of an undertaking by or on behalf of Mr.
Kirby to repay such amounts if it is ultimately determined that Mr. Kirby is not
entitled to such indemnification.
 
    BRIAN MCADAMS
 
    On December 19, 1996, in connection with his resignation from the 
Company, the Company entered into a consulting agreement with Mr. McAdams, 
the former Chairman of the Board of Directors and Chairman of the Executive 
Committee of the Board of Directors of the Company, pursuant to which Mr. 
McAdams agreed to provide consulting services to the Company from December 
1996 through December 1998.
 
    Mr. McAdams agreed to devote up to twenty (20) hours per month of his time
and skill to the Company during the term of the consulting agreement. In
consideration for such services, Mr. McAdams receives annual compensation of
$100,000. The Company also agreed to make annual payments of $300,000 to Mr.
McAdams during the term of the consulting agreement in consideration of the
termination of Mr. McAdams' employment agreement with the Company, to maintain
certain employee benefits, including Mr. McAdams' life insurance, during the
term of the consulting agreement, and to provide up to $50,000 in outplacement
fees to Mr. McAdams.
 
    In connection with Mr. McAdams' agreement to provide consulting services to
the Company, the Company agreed to accelerate all stock options held by Mr.
McAdams, provided Mr. McAdams exercises such options, if at all, prior to
December 31, 1998.
 
    DAVID CARMAN
 
    Mr. Carman is no longer compensated pursuant to any agreement with the
Company.
 
COMPENSATION OF DIRECTORS
 
    Each Director who is not an employee of the Company is paid an annual cash
fee of $25,000 a year for his or her service as a Director, and an additional
$1,000 in cash per calendar quarter for each committee on which he or she
serves, subject to an adjustment based on attendance at committee meetings
during each quarter. A Director may also receive an additional $2,000 in cash
per year for service as a committee chairman, over and above the payment for
committee service. Directors who are employees of the Company do not receive
additional compensation for their service on the Board or on any committee
thereof.
 
    During the fiscal year ended March 31, 1997, the Company granted shares of
Common stock to non-employee Directors pursuant to the Director's Stock Grant
Plan valued at approximately $491,000, based on

                                       35

<PAGE>

the fair market value of such shares of Common Stock on the date of grant,
and incurred other expenses of approximately $250,000 for Directors' fees 
during the fiscal year.

OPTIONS
 
    The Company also granted an aggregate of 300,000 options to purchase Common
Stock to six non-employee Directors following the election of such Directors to
the Company's Board of Directors in July 1996. Each non-employee Director
received 50,000 options at an exercise price of $16.375 per share. Subject to
such Director's continued membership on the Company's Board of Directors, such
options vest on April 25, 2001, subject to certain provisions for accelerated
vesting, including a change of control of the Company, attainment of certain
trading prices for the Company's Common Stock or achievement of certain earnings
per share ratios. In June 1997, each non-employee Directors exchanged such
options for 25,000 options, exercisable at a price of $7.25 per share, with the
same vesting schedule.


                                       36
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    On June 24, 1997, there were outstanding and entitled to vote 
approximately 24,965,534 shares of Common Stock and 92,500 shares of Series B 
Preferred Shares (each of which is convertible into ten (10) shares of Common 
Stock). The following table sets forth certain information at June 24, 1997 
with respect to the beneficial ownership of shares of Common Stock by (i) 
each Director, (ii) each executive officer of the Company and (iii) all 
Directors and executive officers of the Company as a group. Except for John 
W. Kirby, Michael S. Levey and Paul Meier, the address for each such person 
is Eleven Penn Center, Suite 1100, 1835 Market Street, Philadelphia, 
Pennsylvania. The address for Mr. Kirby is 15821 Ventura Boulevard, Los 
Angeles, California. The address for Mr. Levey is 17280 Oakview Drive, 
Encino, California. The address for Paul Meier is 531 Great South Road, 
Penrose, Auckland, New Zealand.
 
                        Number of Issued and Outstanding 
                             Shares of Stock Owned
 
<TABLE>
<CAPTION>
                                                  SERIES B    TOTAL NUMBER OF SHARES   PERCENT OF COMMON     PERCENT OF
                                      COMMON      PREFERRED      OF COMMON STOCK      STOCK BENEFICIALLY    TOTAL VOTING
NAME(1)                             STOCK(2)(3)     STOCK     BENEFICIALLY OWNED(4)       OWNED(5)(6)        POWER(5)(7)
----------------------------------  -----------  -----------  ----------------------  -------------------  ---------------
<S>                                 <C>          <C>          <C>                     <C>                  <C>
Paul R. Brazina...................       25,000           0              25,000                    *                  *
Constantinos I. Costalas..........       84,616           0              84,616                    *                  *
Albert R. Dowden..................        8,000           0               8,000                    *                  *
Michael J. Emmi...................       12,000           0              12,000                    *                  *
William M. Goldstein..............       20,000           0              20,000                    *                  *
Frederick S. Hammer...............       90,000       2,500             115,000                    *                  *
Robert E. Keith, Jr. (8)..........       25,000           0              25,000                    *                  *
John W. Kirby.....................      339,784           0             339,784                  1.4%               1.3%
Michael S. Levey..................      700,026           0             700,026                  2.8%               2.7%
Ira M. Lubert (8).................      137,500           0             137,500                    *                  *
Brian McAdams.....................      518,114           0             518,114                  2.0%               2.0%
Paul Meier (9)....................      787,879           0             787,879                  3.2%               3.0%
Warren V. Musser..................       60,000       5,000             110,000                    *                  *
Brian J. Sisko....................       10,884           0              10,884                    *                  *
Robert N. Verratti (10)...........            0           0                   0                    *                  *
Jon W. Yoskin II..................      117,952           0             117,952                    *                  *
All executive officers and
  Directors as a group 
  (16 persons)....................    2,936,755       7,500           3,011,755                 12.0%              11.6%
</TABLE>
 
------------------------
 
*   Less than 1%.
 
(1) To the Company's knowledge, each Director and executive officer listed above
    has sole voting and investment power (with his spouse, in certain
    circumstances) with respect to all shares indicated as beneficially owned by
    such Director or executive officer.
 
(2) Includes shares which may be acquired upon the exercise of immediately
    exercisable outstanding stock options in accordance with Rule 13d-3 under
    the Securities Exchange Act of 1934 as follows: Mr. Brazina, 25,000; Mr.
    Costalas, 51,667; Mr. Hammer, 50,000; Mr. Levey, 100,000; Mr. McAdams,
    460,000; Mr. Sisko, 5,000; Mr. Verratti, 150,000, and Mr. Yoskin, 25,000;
    and all executive officers and Directors as a group, 866,667.
 
(3) Includes shares which may be acquired upon the exercise of immediately
    exercisable warrants in accordance with Rule 13d-3 under the Securities
    Exchange Act of 1934 as follows: Mr. Hammer, 30,000; Mr. Lubert, 65,000; and
    Mr. Musser, 60,000 and all executive officers and Directors as a group,
    155,000.
 
(4) In accordance with Rule 13d-3, includes shares of Common Stock issuable upon
    the conversion of Series B Preferred Stock.
 
(5) All percentages are rounded to the nearest tenth of a percent.
 
(6) Based on 24,965,534 shares issued and outstanding as of June 24, 1997, as
    determined in accordance with Rule 13d-3.
 
                                      37
<PAGE>

(7) Based on 25,890,534 shares issued and outstanding as of June 24, 1997,
    including all shares of Common Stock owned and all shares of Common Stock
    issuable upon exercise of Series B Preferred Stock owned, but not including
    options to purchase Common Stock or warrants exercisable into Common Stock.
 
(8) Messrs. Keith and Lubert are general partners of Technology Leaders II
    Management, L.P., the general partner of Technology Leaders II L.P. and
    Technology Leaders II Offshore C.V. ("TLM"). The holdings of TLM are set
    forth under "Security Ownership of Certain Beneficial Owners." Messrs. Keith
    and Lubert disclaim beneficial ownership of all but such person's derived
    proportionate pecuniary interest in such securities.
 
(9) Includes shares of Common Stock held by entities which are controlled by Mr.
    Meier.
 
(10) Does not include 750,000 options to purchase Common Stock which, it is
    anticipated, will be issued to Mr. Verratti upon the final negotiation and
    execution of a written employment agreement.









                                      38

<PAGE>
                SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
 
    The following table sets forth certain information at June 24, 1997 with 
respect to each person, known by the Company to beneficially own more than 5% 
of the Common Stock as determined in accordance with Rule 13d-3. The 
information set forth below is derived, without independent investigation on 
the part of the Company, from the most recent filings made by such persons on 
Schedule 13D and Schedule 13G pursuant to Rule 13d-3.

                        Number of Issued and Outstanding 
                             Shares of Stock Owned

<TABLE>
<CAPTION>
                                                        TOTAL NUMBER
                                                        OF SHARES OF      PERCENT OF
                                            SERIES B    COMMON STOCK     COMMON STOCK       PERCENT OF
                                 COMMON     PREFERRED   BENEFICIALLY     BENEFICIALLY      TOTAL VOTING
NAME(1)                         STOCK(2)      STOCK       OWNED(3)        OWNED(4)(5)       POWER(4)(6)
----------------               ----------  -----------  -------------  -----------------  ---------------
<S>                            <C>         <C>          <C>            <C>                <C>              
                                                                                              
John J. Turchi, 
  Jr........................... 1,543,265           0      1,543,265             6.2%              6.0%    
1700 Walnut Street
Philadelphia, PA 19103

McCullough,                                                                           
  Andrews...................... 2,241,932           0      2,241,932             9.0%              8.7%   
& Cappiello, Inc.(7)
101 California Street
Suite 4250
San Francisco, CA 94111


Safeguard
  Group(8)(9).................. 3,227,500      85,000      4,077,500            15.8%             15.7%  
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087


(a) Safeguard
  Scientifics,................. 2,250,000      50,000      2,750,000            10.8%             10.6% 
  Inc.(9)(10)

(b) Technology                                                                        
  Leaders...................... 1,100,000           0      1,100,000             4.4%              4.2% 
  II Management
  L.P.(9)(11)

(c) Warren V.
  Musser.......................    60,000       5,000        110,000               *                 *

(d) Robert E.
  Keith, Jr....................    25,000           0         25,000               *                 *

(e) Ira M.
  Lubert(9)....................   137,500           0        137,500               *                 *

(f) Gary
  Anderson.....................         0       1,250         12,500               *                 *

(g) Charles
  Andes(9).....................    32,500           0         32,500               *                 *

</TABLE>
 
------------------------
 
*   Less than 1%
 
(1) To the Company's knowledge, except as otherwise indicated in the footnotes
    to this table, each of the persons named in this table has sole voting and
    investment power with respect to all shares of Common Stock reported as
    beneficially owned by such person.


                                      39
<PAGE>

(2) In accordance with Rule 13d-3, includes shares which may be acquired upon
    the exercise of immediately exercisable outstanding stock options and
    warrants.
 
(3) In accordance with Rule 13d-3, includes shares of Common Stock issuable upon
    the conversion of Series B Preferred Stock.
 
(4) All percentages are rounded to the nearest tenth of a percent.
 
(5) Based on 24,965,534 shares issued and outstanding as of June 24, 1997, as
    determined in accordance with Rule 13d-3.
 
(6) Based on 25,890,534 shares issued and outstanding as of June 24, 1997,
    including all shares of Common Stock owned and all shares of Common Stock
    issuable upon exercise of Series B Preferred Stock owned, but not including
    options to purchase Common Stock and warrants exercisable into Common Stock.
 
(7) Based on information contained in a Schedule 13G dated February 18, 1997.
 
(8) Based on information provided by the Safeguard Group.
 
(9) Includes shares which may be acquired upon the exercise of immediately
    exercisable warrants in accordance with Rule 13d-3 under the Securities
    Exchange Act of 1934.
 
(10) All shares listed as beneficially owned by Safeguard are held in the name
    of Safeguard Scientifics (Delaware), Inc. ("SSD"). SSD is a wholly owned
    subsidiary of Safeguard. Safeguard and SSD each have shared voting and
    investment power with respect to such shares.
 
(11) All shares listed as beneficially owned by TLM are held in the name of
    Technology Leaders II L.P. and Technology Leaders II Offshore C.V. TLM is
    the general partner of each of such entities has sole voting and investment
    power with respect to such shares.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    Set forth below is a description concerning transactions which may not 
otherwise be described herein by and between the Company and/or its 
affiliates and other persons or entities affiliated with the Company or its 
affiliates. The Company is of the view that each of such transactions was on 
terms no less favorable to the Company than would otherwise have been 
available to the Company in transactions with unaffiliated third parties, if 
available at all.
 
LEASE OF OFFICE SPACE
 
    During a portion of the Company's most recently completed fiscal year, 
the Company leased office space for its principal executive offices in 
Philadelphia, Pennsylvania from Mergren Associates ("Mergren"), a company 
owned by John J. Turchi, Jr., a former director and executive officer of the 
Company, and at present, according to the latest public filings made by Mr. 
Turchi, one of the Company's largest shareholders. The lease, which commenced 
in November 1992 and was to terminate in October 1997, provided for the 
Company to rent approximately 29,795 square feet. The rent paid for such 
office space was $14.75 per square foot ($36,623 per month). An independent 
real estate firm engaged by the Company determined that the lease was based 
on fair market conditions at the time of inception. At the time the Company 
moved out of such building into its current offices in January 1997, the 
Company entered into an agreement relating to the departure of the Company 
from the leased space prior to the specified remaining term of the lease. 
Pursuant to such agreement, the Company paid to Mergren approximately 
$376,000 in satisfaction of all rent and other amounts due under the lease.
 
    Paul Meier, an executive officer of the Company, is the owner of the 
facilities leased by the Company's Prestige subsidiary for its operations in 
Auckland, New Zealand. Such facilities consist of approximately 1245 square 
meters of office space and 2447 square meters of warehouse space which 
Prestige presently leases at the annual rate of NZ$296,000 (approximately 
US$205,000 as of March 31, 1997) plus GST. Such payments are guaranteed by 
the Company. The lease expires on March 31, 2016. An independent firm engaged 
by the Company determined that such lease is fair, based on market conditions.


                                      40
<PAGE>

PROMISSORY NOTES
 
    Under the Company's 1988 Stock Option Plan and 1991 Stock Option Plan, 
participants may be entitled, in the discretion of the Company's Compensation 
Committee at the time of grant, to purchase shares of Common Stock issued 
upon the exercise of options through a nominal cash payment and the delivery 
of a promissory note (a "Note") to the Company for the balance of the 
exercise price. Interest on the Notes is payable quarterly. The interest rate 
and term of the Notes vary depending upon the option plan specifications at 
the time the Notes were issued. Notes must be paid down proportionately as 
Common Stock purchased in connection with their issuance is sold. If a Note 
maker's employment is terminated before the Note has been paid in full, the 
Note is due at such time. During the fiscal year ended March 31, 1997, David 
Carman, one of the Company's former executive officers had an outstanding 
balance on a Note issued to the Company pursuant to the terms of the Plan. On 
January 24, 1996, in connection with the exercise of certain Common Stock 
purchase options by Mr. Carman. Mr. Carman executed a Note in favor of the 
Company in the principal amount of $472,642 bearing interest at a rate of 
5.50% per annum. The Note was fully repaid by Mr. Carman on June 7, 1996 
through the delivery to the Company of an aggregate of 25,220 shares of 
Common Stock, valued at $19.125 per share, the closing price of the Common 
Stock as reported on the New York Stock Exchange on such date.

    In addition to the foregoing, and unrelated to the Company's stock option 
plan, during the fiscal year ended March 31, 1997 the Company advanced funds 
to certain executive officers of the Company and accepted notes in return, 
bearing interest at a rate of 8.0% per annum, as follows: Constantinos I. 
Costalas: $155,000; and John W. Kirby: $175,000. Such amounts were 
outstanding at March 31, 1997 and as of the date hereof. The notes were 
issued in connection with the exercise of stock options and other stock 
transactions. Also, at March 31, 1997, the Company had advanced approximately 
$8,600 to Mr. Costalas, which has been subsequently repaid. At all times 
during the fiscal year ended March 31, 1997, Mr. Kirby also held an advance 
from the Company in the amount of $18,000, bearing no interest, which was 
advanced to him for personal financial reasons in November 1995. Mr. Kirby 
also acts as surety for debt owing to the Company in the principal amount of 
approximately $32,000, plus accrued interest, which remains outstanding as of 
the date hereof.
 
    At the time of the Company's acquisition PRTV in May 1996, Michael Levey, 
an executive officer of the Company, had a note outstanding to PRTV in the 
principal amount of approximately $72,771.21. Such amount, together with 
additional accrued interest, was due to be repaid December 31, 1996, but was 
still outstanding at March 31, 1997 and as of the date hereof. The total 
amount due under such note as of June 30, 1997 was $42,992.26.
 
OTHER MATTERS
 
    McAdams, Richman & Ong, an advertising firm of which Mr. McAdams, the 
Company's former Chairman of the Board and Chairman of the Executive 
Committee, and a present Director of the Company, was the President and CEO, 
and is currently Chairman of the Board and a director, performed certain 
services for the Company in connection with the preparation of various 
reports and other matters. McAdams, Richman & Ong has been paid approximately 
$310,291 for such services since April 1, 1996.
 
    The Outsourcing Partnership, in which Mr. Lubert holds an interest, 
performed internal audit services for the Company. Such services consisted of 
analysis of the Company's management information systems and certain other 
financial analysis. The Company paid The Outsourcing Partnership 
approximately $111,091 since April 1, 1996.
 
    Align, Inc., an information systems consulting firm which is affiliated 
with Safeguard, has provided consulting services during the past five months 
to the Company in connection with which it has been paid an aggregate of 
$52,627 and has incurred an additional $75,000 in unpaid fees.
 
    In connection with the development and production of three infomercials 
relating to products/services developed by or with companies affiliated with 
three of the Company's current or former directors, the Company expended 
approximately: $122,195 (Charles Andes, former Director); $268,633 (Mr. 

                                       41

<PAGE>

Hammer); and $322,149 (Messrs. Hammer and Yoskin), respectively. None of such 
amounts were paid to such Directors or their affiliates.

    Mr. Levey wife's is employed as a Vice President of PRTV at an annual 
salary of $200,000; his brother is employed by PRTV at an annual salary of 
$89,500; and, during the 1997 fiscal year and thereafter until July 3, 1997, 
his mother-in-law was employed by PRTV at an annual salary of $32,550. Mr. 
Levey's son also does business with the Company. As of the date hereof, the 
Company had an overdue account receivable from Mr. Levey and his company in 
the aggregate amount of $26,200.
 
INDEMNIFICATION PAYMENTS
 
    During the period April 1, 1996 to the present, the Company has assumed 
and paid defense costs and/ or made required indemnification payments on 
behalf of present and former officers and Directors in connection with 
securities class and derivative actions against the Company and such 
individuals which were pending during the period between April 1, 1996 and 
the present. The Company may be required to pay additional amounts in 
connection with these actions.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
    (a) Financial Statements and Schedules
 
    The following is a list of the consolidated financial statements of the 
Company and its subsidiaries and supplementary data submitted in a separate 
section of this report.
 

    -- Report of Independent Auditors.
    -- Consolidated Balance Sheets--March 31, 1997 and 1996.
    -- Consolidated Statements of Operations--Years ended March 31, 1997, 
       1996, and 1995.
    -- Consolidated Statements of Shareholders' Equity--Years ended March 31, 
       1997, 1996, and 1995.
    -- Consolidated Statements of Cash Flows--Years ended March 31, 1997, 
       1996, and 1995.
    -- Notes to Consolidated Financial Statements
 
    The following is a list of the schedules filed as part of this Form 10-K.
 
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
 
    All other schedules for which provision is made in the applicable 
accounting regulation of the Securities and Exchange Commission are not 
required under the related instructions or are inapplicable, and therefore 
have been omitted.
 
    (b) Reports on Form 8-K filed in the fourth quarter of 1997:
 
    Form 8-K dated February 19, 1997
 
    Item 5. Other Events--Announcement by the Company of the commencement of 
legal action against Guthy-Renker Corporation ("Guthy-Renker") alleging that 
Guthy-Renker had failed to supply "Fitness Flyer" exercise units to the 
Company in accordance with the terms of an agreement entered into by the 
companies.
 
                                       42

<PAGE>

    (c) Index to Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C>          <S>
    2.1(12)   Agreement and Plan of Merger and Reorganization, dated as of October 24, 1995, by and among the
              Registrant, DA Acquisition Corp., DirectAmerica Corporation, California Production Group, Inc. and
              other parties thereto
    2.2(13)   Agreement and Plan of Merger and Reorganization, dated as of January 17, 1996 and amended as of April
              4, 1996, by and among the Registrant, PRT Acquisition Corp. and Positive Response Television, Inc.
    2.3(13)   Escrow Agreement, dated as of May 17, 1996, by and among the Registrant, Positive Response
              Television, Inc., the Shareholders' Representative and the Escrow Agent
    2.4(18)   Acquisition Agreement, dated as of May 29, 1996, by and among Registrant, Paul Meier, Susan Barnes
              and Prestige Marketing Holdings Limited
    2.5(18)   Acquisition Agreement, dated as of May 30, 1996, by and among Registrant, Paul Meier, Susan Barnes,
              Alan Meier and Tancot Pty Limited
    3.1(1)    Certificate of Incorporation
    3.2(2)    By-laws
    3.3(3)    Amendment to By-laws dated February 1992
    3.4(6)    Amendment to By-laws dated April 1995
    4.1(1)    Specimen copy of stock certificate for shares of Common Stock of the Registrant
    4.2(6)    Specimen copy of stock certificate for shares of Series B Convertible Preferred Stock of the
              Registrant
    4.3(5)    Rights Agreement dated as of January 3, 1994
    4.4(5)    Amendment No. 1 to Rights Agreement, dated as of March 6, 1994
    4.5(6)    Amendment No. 2 to Rights Agreement, dated as of September 26, 1994
    4.6(6)    Amendment No. 3 to Rights Agreement, dated as of September 30, 1994
    4.7(6)    Amendment No. 4 to Rights Agreement, dated as of November 30, 1994
    4.8(24)   Amendment No. 5 to Rights Agreement, dated as of August 14, 1997
    4.9(6)    Certificate of Designation of Series B Convertible Preferred Stock
    4.10(16)  Director's Stock Grant Plan
</TABLE>

                                       43
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C>          <S>
   4.11(9)   Form of Warrant to Purchase Common Stock of the Registrant, dated November 24, 1995, issued to Value
             Vision International, Inc. concerning an aggregate of 500,000 shares at an exercise price of $8.865
             per share
   4.12(9)   Form of Warrant to Purchase Common Stock of the Registrant, dated November 24, 1995, issued to
             various persons concerning an aggregate of 500,000 shares at an exercise price of $10.00 per share
   4.13(23)  Certificate of Designations, Preferences and Rights of the Series C Convertible Preferred Stock
   4.14(23)  Form of Warrant issued in connection with the Series C Convertible Preferred Stock
  10.1(15)   Amended and Restated 1991 Stock Option Plan
  10.2(4)    401(k) Plan Document
  10.3(15)   1995 Management Incentive Plan
  10.4(7)    Lease for 7822 S. 46th Street, Phoenix, Arizona
  10.5(10)   Securities Purchase Agreement between the Registrant and certain purchasers dated September 30, 1994
  10.6(6)    Amendment to Securities Purchase Agreement dated as of December 19, 1994
  10.7(10)   Note and Warrant Purchase Agreement between the Registrant, Media Arts International, Ltd., Quantum
             International Limited and Safeguard Scientifics (Delaware), Inc. dated October 19, 1994
  10.8(11)   Securities Purchase Agreement between the Registrant and certain purchasers dated as of November 30,
             1994
  10.9(14)   Telemarketing, Production and Post-Production Agreement between the Registrant and Value Vision
             International, Inc., dated April 13, 1995
  10.10(14)  Joint Venture Agreement between the Registrant and ValueVision International, Inc., dated April 13,
             1995
  10.11(6)   Registration Rights Agreement dated as of December 19, 1994 by and among Registrant and certain other
             parties
  10.12(8)   Modification Agreement between the Registrant, Media Arts International, Ltd., Quantum International
             Limited, Safeguard Scientifics (Delaware), Inc. and Meridian Bank dated as of April 20, 1995
  10.13(12)  Employment Agreement, dated as of October 24, 1995, by and between DirectAmerica Corporation and John
             W. Kirby
  10.14(12)  DirectAmerica Corporation Employee Bonus Plan
  10.15(9)   Loan and Security Agreement, dated November 28, 1995, by and between the Registrant, certain of its
             subsidiaries and Meridian Bank
  10.16(9)   Allonge, dated November 28, 1995, by the Registrant and certain of its subsidiaries for the benefit
             of Meridian Bank
</TABLE>

                                       44
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C>          <S>
  10.17(13)  Employment Agreement, dated as of May 17, 1996, by and between Positive Response Television, Inc.,
             the Registrant and Michael Levey
  10.18(17)  Lease, dated March 6, 1996, by and between Stoll Moss Theaters Limited and Quantum International
             Limited
  10.19(19)  Lease Agreement, dated       , 1996, between Registrant and Eleven Colonial Penn Plaza Associates
  10.20(20)  Consulting Agreement, dated as of December 19, 1996, by and between Brian McAdams and Registrant
  10.21(22)  Amended and Restated Employment Agreement, dated April 28, 1997, between Registrant and Constantinos
             I. Costalas
  10.22(22)  Amendment No. 1 to Employment Agreement, dated July 23, 1997, between Registrant and Constantinos I.
             Costalas
  10.23(22)  Employment Agreement, dated February 28, 1997, between Registrant and Frederick S. Hammer
  10.24(21)  Agreement, dated April 24, 1997, between Mark P. Hershhorn and the Registrant
  10.25(23)  Registration Rights Agreement, dated September 4, 1997, among the Registrant and the Series C
             Investors
  10.26(23)  Securities Purchase Agreement, dated September 4, 1997, among the Registrant and the Series C
             Investors
  10.27(18)  Employment Agreement, dated as of July 2, 1996, by and between Prestige Marketing Limited and Paul
             Meier
  10.28(18)  Employment Agreement, dated as of July 2, 1996, by and between Prestige Marketing Limited and Susan
             Barnes
  10.29(18)  Employment Agreement, dated as of July 3, 1996, by and between Suzanne Paul (Australia) Pty Limited
             and Alan Meier
  10.30(24)  Employment Agreement, dated May 12, 1997, by and between Registrant and Paul R. Brazina
  10.31(24)  Facility Agreement, dated July 23, 1997, between ASB Bank Limited and Prestige Marketing Limited
  10.32(24)  Short Term Facility, dated May 19, 1997, between Quantum International Limited and Barclays Bank PLC
  10.33(24)  Amended and Restated Loan and Security Agreement, dated June 26, 1996, by and between Registrant,
             Quantum North America, Inc., Quantum International Limited, Positive Response Television, Inc. and
             Direct America Corporation and Meridian Bank
  10.34(24)  Loan Modification Agreement, dated September 18, 1997, by and between Registrant, Quantum North
             America, Inc., Quantum International Limited, Positive Response Television, Inc. and DirectAmerica
             Corporation and Corestates Bank, N.A.
</TABLE>

                                       45
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C>          <S>
  10.35(24)  Agreement, dated as of July 16, 1997, by and among Registrant, Paul Meier, Suzanne Kilworth, Alan
             Meier and Tancot Pty Limited
  10.36(24)  Agreement, dated as of July 16, 1997, by and among Registrant, Paul Meier, Suzanne Kilworth, Alan
             Meier, P&S Holdings Limited (formerly known as Prestige Marketing Holdings Limited)
   11.1(21)  Statement Re: Computation of Per Share Earnings
   21.1(21)  Subsidiaries of the Company
   23.1(21)  Consent of Independent Auditors
   27.1(21)  Financial Data Schedule
</TABLE>
 
------------------------
 
(1)  Incorporated by reference to Registrant's Registration Statement on Form 
     S-1 (Reg. No. 33-26778) filed January 31, 1989.

(2)  Incorporated by reference to Registrant's Registration Statement on Form 
     S-3 (Reg. No. 33-35301) filed June 8, 1990.

(3)  Incorporated by reference to Registrant's Annual Report on Form 10-K for 
     fiscal year ended March 31, 1992 filed June 26, 1992.

(4)  Incorporated by reference to Registrant's Annual Report on Form 10-K for 
     fiscal year ended March 31, 1991 filed June 20, 1991.

(5)  Incorporated by reference to Registrant's Annual Report on Form 10-K for 
     fiscal year ended March 31, 1994 filed July 14, 1994.

(6)  Incorporated by reference to Registrant's Annual Report on Form 10-K for 
     fiscal year ended March 31, 1995 filed June 29, 1995.

(7)  Incorporated by reference to Registrant's Quarterly Report on Form 10-Q 
     for the period ended September 30, 1993 filed November 12, 1993.

(8)  Incorporated by reference to Registrant's Quarterly Report on Form 10-Q 
     for the period ended June 30, 1995 filed August 14, 1995.

(9)  Incorporated by reference to Registrant's Quarterly Report on Form 10-Q 
     for the period ended December 31, 1995 filed February 15, 1996.

(10) Incorporated by reference to Registrant's Current Report on Form 8-K 
     dated October 5, 1994.

(11) Incorporated by reference to Registrant's Current Report on Form 8-K 
     dated December 8, 1994.

(12) Incorporated by reference to Registrant's Current Report on Form 8-K 
     dated October 19, 1995.

(13) Incorporated by reference to Registrant's Current Report on Form 8-K 
     dated May 17, 1996.

                                       46

<PAGE>

(14) Incorporated by reference to Registrant's Current Report on Form 8-K 
     dated April 13, 1995.

(15) Incorporated by reference to Registrant's Proxy Statement in connection 
     with annual meeting of Stockholders held on February 22, 1995.

(16) Incorporated by reference to Registrant's Registration Statement on Form 
     S-8 filed October 19, 1995.

(17) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q 
     for the period ended June 30, 1996.

(18) Incorporated by reference to Registrant's Current Report on Form 8-K 
     dated July 1, 1996.

(19) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q 
     for the period ended September 30, 1996.

(20) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q 
     for the period ended December 31, 1996.

(21) Incorporated by reference to Registrant's Annual Report on form 10-K for 
     fiscal year ended March 31, 1997.

(22) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q 
     for the period ended June 30, 1997.

(23) Incorporated by reference to Registrant's Report on Form 8-K dated 
     September 18, 1997.

(24) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q 
     for the period ended September 30, 1997.

                                       47

<PAGE>

                           ANNUAL REPORT ON FORM 10-K
 
                  ITEM 8, ITEM 14(a)(1) AND (2), (c) AND (d)
 
            CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
                     LIST OF CONSOLIDATED FINANCIAL STATEMENTS 
                          AND FINANCIAL STATEMENT SCHEDULES 
                                 CERTAIN EXHIBITS 
                         FINANCIAL STATEMENT SCHEDULES 
                           YEAR ENDED MARCH 31, 1997 
                           NATIONAL MEDIA CORPORATION 
                                PHILADELPHIA, PA
 
                                       48

<PAGE>

                          NATIONAL MEDIA CORPORATION
 
                       CONSOLIDATED FINANCIAL STATEMENTS
 
                      Years ended March 31, 1997 and 1996
 
                                    CONTENTS
Report of Independent Auditors............................................  50
 
Audited Consolidated Financial Statements.................................
 
Consolidated Balance Sheets...............................................  52
 
Consolidated Statements of Operations.....................................  54
 
Consolidated Statements of Shareholders' Equity...........................  55
 
Consolidated Statements of Cash Flows.....................................  57
 
Notes to Consolidated Financial Statements................................  59

                                       49

<PAGE>
 
                    REPORT OF INDEPENDENT AUDITORS
 
Board of Directors 
National Media Corporation
 
We have audited the accompanying consolidated balance sheets of National 
Media Corporation as of March 31, 1997 and 1996, and the related consolidated 
statements of operations, shareholders' equity, and cash flows for each of 
the three years in the period ended March 31, 1997. Our audits also included 
the financial statement schedule included in the Index at Item 14(a). These 
financial statements and schedule are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these financial 
statements and schedule based on our audits.
 
We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position 
of National Media Corporation at March 31, 1997 and 1996, and the 
consolidated results of its operations and its cash flows for each of the 
three years in the period ended March 31, 1997, in conformity with generally 
accepted accounting principles. Also, in our opinion, the related financial 
statement schedule, when considered in relation to the basic financial 
statements taken as a whole, presents fairly in all material respects the 
information set forth therein.
 
The accompanying financial statements have been prepared assuming that the 
Company will continue as a going concern. The Company incurred a net loss of 
$45,691,000 and experienced negative cash flows from operations for the year 
ended March 31, 1997 and is party to significant pending litigation. In 
addition, the Company has not complied with certain covenants of its loan 
agreements. These conditions have impaired the Company's liquidity and may 
cause it to be unable to meet its obligations as they become due. These 
conditions raise substantial doubt as to the Company's ability to continue as 
a going concern. Management's plans regarding these conditions are 

                                    50
<PAGE>

discussed in Note 1. The financial statements do not include any adjustments 
to reflect the possible future effects on the recoverability and 
classification of assets or the amounts and classifications of liabilities 
that may result from the possible outcome of these uncertainties.


                                                 Ernst & Young LLP


Philadelphia, Pennsylvania 
July 14, 1997

                                    51
<PAGE>

                       NATIONAL MEDIA CORPORATION
  
                      CONSOLIDATED BALANCE SHEETS
 
                  (In thousands, except number of shares 
                          and per share amounts)
 
<TABLE>
<CAPTION>
                                                                                                   MARCH 31
                                                                                            ----------------------
                                                                                               1997        1996
                                                                                            ----------  ----------
<S>                                                                                         <C>         <C>
Assets
Current assets:
  Cash and cash equivalents...............................................................  $    4,058  $   18,405
  Accounts receivable, net................................................................      40,179      32,051
  Inventories, net........................................................................      30,919      22,605
  Prepaid media...........................................................................       3,563       4,271
  Prepaid show production.................................................................       6,765       5,469
  Deferred costs..........................................................................       3,318       4,102
  Prepaid expenses and other current assets...............................................       2,505       2,339
  Deferred income taxes...................................................................       2,591       3,142
                                                                                            ----------  ----------

Total current assets......................................................................      93,898      92,384

Property and equipment, net...............................................................      14,182       6,954

Excess of cost over net assets of acquired businesses and other intangible assets, less
  accumulated amortization of $9,472 and $2,548...........................................      50,732      15,078

Other assets..............................................................................       6,820       2,132
                                                                                            ----------  ----------
Total assets..............................................................................  $  165,632  $  116,548
                                                                                            ----------  ----------
                                                                                            ----------  ----------
</TABLE>

                                      52
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                                   MARCH 31
                                                                                            ----------------------
                                                                                               1997        1996
                                                                                            ----------  ----------
<S>                                                                                         <C>         <C>
Liabilities and shareholders' equity
Current liabilities:
  Accounts payable........................................................................  $   21,810  $   20,412
  Accrued expenses........................................................................      30,830      26,510
  Deferred revenue........................................................................         686       1,771
  Income taxes payable....................................................................         552       1,344
  Deferred income taxes...................................................................       2,351       2,749
  Current portion of long-term debt and capital lease obligations.........................      17,901         876
                                                                                            ----------  ----------
Total current liabilities.................................................................      74,130      53,662

Long-term debt and capital lease obligations..............................................         959       4,054

Deferred income taxes.....................................................................         240         393

Other liabilities.........................................................................       1,743       1,977

Shareholders' equity:
  Preferred stock, $.01 par value; authorized 10,000,000 shares; issued and
    outstanding 95,000 and 136,375 shares Series B convertible preferred stock
    (liquidation preference of $3,800)....................................................           1           1
  Common stock, $.01 par value; authorized 75,000,000 shares; issued and outstanding
    24,752,792 and 18,177,292 shares......................................................         248         182
  Additional paid-in capital..............................................................     127,764      48,135
  Retained earnings.......................................................................     (29,122)     16,569
                                                                                            ----------  ----------
                                                                                                98,891      64,887
  Treasury stock, 707,311 and 686,710 common shares, at cost..............................      (4,244)     (3,791)
  Notes receivable, directors, officers, employees, consultants, and others...............          --        (473)
  Foreign currency translation adjustment.................................................      (6,087)     (4,161)
                                                                                            ----------  ----------
Total shareholders' equity................................................................      88,560      56,462
                                                                                            ----------  ----------
Total liabilities and shareholders' equity................................................  $  165,632  $  116,548
                                                                                            ----------  ----------
                                                                                            ----------  ----------
</TABLE>
 
    See accompanying notes.

                                     53

<PAGE>
 
                             NATIONAL MEDIA CORPORATION
 
                       CONSOLIDATED STATEMENTS OF OPERATIONS
 
                      (In thousands, except number of shares 
                                and per share amounts)
 


<TABLE>
<CAPTION>
                                                                                      YEAR ENDED MARCH 31
                                                                                   1997        1996        1995
                                                                                ----------  ----------  ----------
<S>                                                                             <C>         <C>         <C>
Revenues:
    Product sales.............................................................  $  337,508  $  285,676  $  168,689
    Retail royalties..........................................................      16,337       5,597       5,303
    Sales commissions and other revenues......................................       4,334       1,334       2,175
                                                                                ----------  ----------  ----------
Net revenues..................................................................     358,179     292,607     176,167
Operating costs and expenses:
    Media purchases...........................................................     131,136      86,518      51,961
    Direct costs..............................................................     196,972     151,198      97,605
    Selling, general, and administrative......................................      69,823      33,772      23,634
    Severance expense for former Executive Officers...........................       2,500          --       2,650
    Interest expense..........................................................       1,542       1,015         689
                                                                                ----------  ----------  ----------
Total operating costs and expenses............................................     401,973     272,503     176,539
                                                                                ----------  ----------  ----------
(Loss) income before income taxes.............................................     (43,794)     20,104        (372)
Income taxes..................................................................       1,897       3,525         300
                                                                                ----------  ----------  ----------
Net (loss) income.............................................................  $  (45,691) $   16,579  $     (672)
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------
Net (loss) income per common and common equivalent share:
      Primary.................................................................  $    (2.07) $      .74  $     (.05)
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------
      Fully-diluted...........................................................  $    (2.07) $      .71  $     (.05)
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------
Weighted average number of common and common equivalent shares outstanding:
                                                                                
      Primary.................................................................  22,071,700  23,175,900  14,023,800
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------
      Fully-diluted...........................................................  22,071,700  23,287,600  14,023,800
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------
</TABLE>
 
    See accompanying notes.
 
                                       54
<PAGE>
                           NATIONAL MEDIA CORPORATION

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                    (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
 
<TABLE>
<CAPTION>
                                                                                                YEAR ENDED MARCH 31
                                                                                            1997       1996       1995
                                                                                          ---------  ---------  ---------
<S>                                                                                       <C>        <C>        <C>
Preferred stock:
    Beginning balance...................................................................  $       1  $       3  $      --
    Conversion to common stock (41,375 and 119,421 shares)..............................         --         (2)        --
    Issuance of investment units........................................................         --         --          3
                                                                                          ---------  ---------  ---------
Ending balance..........................................................................          1          1          3
Common stock:
    Beginning balance...................................................................        182        149        144
    Conversion of preferred stock (413,750 and 1,194,210 shares)........................          4         12         --
    Exercise of stock options (1,215,099; 1,219,099; and 41,500 shares).................         12         12         --
    Exercise of warrants (162,552 and 198,985 shares)...................................          2          2         --
    Issuance of shares for acquisitions (2,651,239 and 554,456 shares)..................         27          6         --
    Issuance of shares in secondary offering (2,000,000 shares).........................         20         --         --
    Issuance of shares for 1996 management bonus (102,860 shares).......................          1         --         --
    Issuance of shares to settle litigation
      (0; 106,000; and 500,000 shares)..................................................         --          1          5
    Stock grant (30,000; 25,000; and 0 shares)..........................................         --         --         --
                                                                                          ---------  ---------  ---------
Ending balance..........................................................................        248        182        149
Additional paid-in capital:
    Beginning balance...................................................................     48,135     31,877     19,026
    Conversion of preferred stock.......................................................         (4)       (11)        --
    Exercise of stock options...........................................................      7,016      5,123        242
    Exercise of warrants................................................................        790      1,033         --
    Issuance of shares for acquisitions.................................................     41,191      6,994         --
    Issuance of shares in secondary offering, net of costs..............................     28,734         --         --
    Issuance of shares for 1996 management bonus........................................      1,707         --         --
    Issuance of shares to settle litigation.............................................         --        724      1,726
    Stock grant.........................................................................        542        344         --
    Tax (cost) benefit from exercise of stock options...................................       (347)     2,051         --
    Issuance of warrants in connection with term loan...................................         --         --      1,800
    Issuance of investment units........................................................         --         --      9,083
                                                                                          ---------  ---------  ---------
Ending balance..........................................................................    127,764     48,135     31,877
</TABLE>
 
                                       55
<PAGE>
                           NATIONAL MEDIA CORPORATION

          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)

                    (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
 
<TABLE>
<CAPTION>
                                                                                            YEAR ENDED MARCH 31
                                                                                        1997       1996       1995
                                                                                      ---------  ---------  ---------
<S>                                                                                   <C>        <C>        <C>
Retained earnings:
    Beginning balance...............................................................  $  16,569  $     (10) $     662
    Net (loss) income...............................................................    (45,691)    16,579       (672)
                                                                                      ---------  ---------  ---------
Ending balance......................................................................    (29,122)    16,569        (10)

Treasury stock:
    Beginning balance...............................................................     (3,791)    (3,791)    (3,791)
    Issuance of shares for 401(k) match (4,619 shares)..............................         29         --         --
    Repurchase of treasury shares (25,220 shares)...................................       (482)        --         --
                                                                                      ---------  ---------  ---------
Ending balance......................................................................     (4,244)    (3,791)    (3,791)

Notes receivable:
    Beginning balance...............................................................       (473)    (1,868)    (4,504)
    Collection of notes receivable..................................................        473      2,483      2,636
    Exercise of stock options.......................................................         --     (1,088)        --
                                                                                      ---------  ---------  ---------
Ending balance......................................................................         --       (473)    (1,868)

Foreign currency translation adjustment:
    Beginning balance...............................................................     (4,161)       265       (966)
    Translation adjustment for the year.............................................     (1,926)    (4,426)     1,231
                                                                                      ---------  ---------  ---------
Ending balance......................................................................     (6,087)    (4,161)       265
                                                                                      ---------  ---------  ---------
Total shareholders' equity..........................................................  $  88,560  $  56,462  $  26,625
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
</TABLE>
 
    See accompanying notes.
 
                                       56
<PAGE>
                           NATIONAL MEDIA CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                            YEAR ENDED MARCH 31
                                                                                        1997       1996       1995
                                                                                      ---------  ---------  ---------
<S>                                                                                   <C>        <C>        <C>
Cash flows from operating activities
Net (loss) income...................................................................  $ (45,691) $  16,579  $    (672)
Adjustments to reconcile net (loss) income to net cash (used in) provided by
  operating activities:
    Depreciation and amortization...................................................      9,966      2,099      1,650
    Amortization of loan discount...................................................        484        399        150
    Provision for deferred rent expense.............................................        328        384        402
    Tax benefit from exercise of stock options......................................       (347)     2,051         --
    Decrease (increase) in:
      Accounts receivable, net......................................................      1,721    (18,242)     1,139
      Inventories...................................................................     (3,057)    (8,591)    (3,987)
      Prepaid cable and advertising costs...........................................      1,374     (3,936)      (370)
      Deferred costs................................................................      4,233     (2,282)       402
      Other current assets..........................................................        855     (1,060)      (395)
    Increase (decrease) in:
      Accounts payable..............................................................     (2,358)     8,569       (415)
      Accrued expenses..............................................................     (6,007)     9,505      4,713
      Deferred revenue..............................................................     (1,583)     1,236     (1,456)
      Income taxes payable..........................................................     (3,405)     1,044        300
      Notes payable.................................................................      1,400         --         --
      Other.........................................................................     (3,480)    (2,225)       440
                                                                                      ---------  ---------  ---------
Net cash (used in) provided by operating activities.................................    (45,567)     5,530      1,901

Cash flows from investing activities
Additions to property and equipment.................................................     (8,439)    (3,923)      (832)
Investment in common stock..........................................................     (1,250)        --         --
Cost of companies acquired, net of cash acquired....................................     (1,236)      (897)        --
                                                                                      ---------  ---------  ---------
Net cash used in investing activities...............................................    (10,925)    (4,820)      (832)

Cash flows from financing activities
Proceeds from revolving line of credit..............................................     22,400         --      5,000
Principal payments on revolving line of credit, long-term debt, and capital lease
  obligations.......................................................................    (15,493)      (166)    (4,771)
Net proceeds from issuance of common stock..........................................     28,754         --         --
Exercise of stock options and warrants..............................................      7,820      5,085        242
Payments received on notes receivable...............................................        473      2,483        492
Net proceeds from issuance of investment units......................................         --         --      9,415
                                                                                      ---------  ---------  ---------
Net cash provided by financing activities...........................................     43,954      7,402     10,378
</TABLE>
 
                                       57
<PAGE>
                      NATIONAL MEDIA CORPORATION
 
               Consolidated Statements of Cash Flows (continued)
 
<TABLE>
<CAPTION>
                                                                                            YEAR ENDED MARCH 31
                                                                                        1997       1996       1995
                                                                                      ---------  ---------  ---------
<S>                                                                                   <C>        <C>        <C>
Effect of exchange rate changes on cash and cash equivalents........................  $  (1,809) $  (3,174) $     425
                                                                                      ---------  ---------  ---------
Net (decrease) increase in cash and cash equivalents................................    (14,347)     4,938     11,872
Cash and cash equivalents at beginning of year......................................     18,405     13,467      1,595
                                                                                      ---------  ---------  ---------
Cash and cash equivalents at end of year............................................  $   4,058  $  18,405  $  13,467
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
Supplemental disclosures of cash flow information
Cash paid during the year for:
 Interest...........................................................................  $     774  $     528  $     546
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
 Taxes on income....................................................................  $   5,105  $     430  $      --
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
Supplemental schedule of noncash investing and financing activities
Common stock issued for acquisitions................................................  $  41,218  $   7,000  $      --
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
Note payable and other liabilities used to finance acquisitions.....................  $   3,190  $   1,496  $      --
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
Common stock issued upon exercise of stock options for notes receivable.............  $      --  $   1,088  $      --
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
Common stock issued for 1996 management bonus, 401(k) match, and directors' stock
  grant.............................................................................  $   2,279  $      --  $      --
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
Issuance of stock to settle litigation..............................................  $      --  $     725  $   1,700
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
Settlement of severance expense with note receivable................................  $      --  $      --  $   1,700
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
</TABLE>
 
    See accompanying notes.
 
                                       58

<PAGE>

                          NATIONAL MEDIA CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                                 MARCH 31, 1997
 
1. Basis of Presentation, Description of Business and Summary of Significant
Accounting Policies
 
A. BASIS OF PRESENTATION
 
National Media Corporation (the "Company") incurred a net loss of $45,691,000 
and experienced negative cash flows during the year ended March 31, 1997 
primarily as a result of reduced sales volume in its key market areas and due 
to losses generated by its Positive Response Television, Inc. (PRTV) 
operations. In addition, the Company's revolving credit facility will expire 
on September 30, 1997 and negotiations with the principal lender are ongoing. 
The Company is technically in default of several loan covenants. Waivers for 
these violations have not been granted. There can be no assurance that the 
credit facility will be extended, however, management believes that another 
lender would provide financing if the current lender does not extend the 
facility, although no such lender has committed to do so.
 
As described in Note 2, the Company purchased PRTV on May 17, 1996. 
Significant losses were contributed by PRTV, primarily due to several legal 
matters including the Edmark matter described in Note 11, and writedowns of 
show production costs, inventory and receivables.
 
The Company is currently evaluating its strategic options, including 
implementation of plans to reduce operating expenses, identifying a strategic 
partner or sale of the business. Additionally, the negotiations with the 
Company's primary lender are ongoing and management believes short-term 
financing will be obtained. The Company is currently pursuing a business 
strategy which concentrates on targeted expansion and cost reduction and has 
taken the following steps to rebuild its business including:
 
    - Restructuring PRTV to focus more on effectively utilizing the creative
      resources of PRTV and its president. PRTV has been restructured and its
      operations and work force reduced.
 
    - Curtailing long-term or unprofitable media contracts.
 
    - Pursuing internet and alternative delivery systems, as well as continuity
      products, in order to further limit the cyclical nature of the business.
 
    - Reengineering the corporate structure and reducing the workforce.

                                      59
<PAGE>

                          NATIONAL MEDIA CORPORATION
 
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
1. Basis of Presentation, Description of Business and Summary of Significant
Accounting Policies (continued)
 
    - Considering outsourcing management of the Company's information technology
      systems.
 
    - Pursuing a strategy to reduce the cost and increase the efficiency of
      order fulfillment.
 
The consolidated financial statements have been prepared on a going-concern 
basis, which contemplates the realization of assets and satisfaction of 
liabilities in the normal course of business. The Company's ability to 
continue as a going concern is dependent upon its ability to successfully 
implement the plans and actions described above and return to profitability 
and improve its liquidity. Due to the uncertainties described above, there 
can be no assurance that the Company will achieve its goals nor is there any 
assurance that the Company will be able to extend or replace its existing 
credit facility, or return its PRTV and non-PRTV operations to profitability. 
These factors, among others, raise substantial doubt about the ability of the 
Company to continue as a going concern for a reasonable period of time. 
Management of the Company believes that its plans to deal with the issues 
described above will be successful and that sufficient cash flow will be 
generated to meet its obligations as they become due, however, no such 
assurance can be given. Accordingly, the financial statements do not include 
any adjustments relating to the recoverability of recorded assets, or the 
amounts and classification of liabilities that might be necessary should the 
Company be unable to continue as a going concern. 

b. Description of Business
 
    The Company is principally engaged in the direct marketing of consumer 
products principally through television media. The Company currently brings 
infomercial programming to 70 countries.

                                       60
<PAGE>

                          NATIONAL MEDIA CORPORATION
 
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
1. Basis of Presentation, Description of Business and Summary of Significant
Accounting Policies (continued)
 
c. Summary of Significant Accounting Policies
 
PRINCIPLES OF CONSOLIDATION
 
The consolidated financial statements include the accounts of National Media 
Corporation and its wholly-owned subsidiaries which include Quantum North 
America, Inc., PRTV, DirectAmerica Corporation, Quantum International 
Limited, Quantum Far East Ltd., Quantum International Japan Company Ltd., 
Prestige Marketing Limited, Suzanne Paul Pty Limited and Nancy Langston & 
Associates. All significant intercompany accounts and transactions have been 
eliminated.
 
USE OF ESTIMATES
 
The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the amounts reported in the consolidated financial statements and 
notes to consolidated financial statements. Estimates are routinely made for 
inventory obsolescence, goodwill, sales returns and allowances, allowances 
for bad debt, show production amortization and contingencies. Actual results 
could differ from those estimates.
 
REVENUE RECOGNITION AND RESERVE FOR RETURNED MERCHANDISE
 
Product sales and retail royalty revenue are recognized when the product is 
shipped. Generally, it is the Company's policy to refund unconditionally the 
total price of merchandise returned within 30 days of the customer's receipt 
of the merchandise. The Company provides an allowance, based upon experience, 
for returned merchandise.
 
CASH AND CASH EQUIVALENTS
 
For the purposes of the statements of cash flows, the Company considers all 
highly liquid investments with a maturity of three months or less when 
purchased to be cash equivalents.

                                       61
<PAGE>

                          NATIONAL MEDIA CORPORATION
 
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
1. Basis of Presentation, Description of Business and Summary of Significant
Accounting Policies (continued)
 
ACCOUNTS RECEIVABLE
 
The allowance for doubtful accounts was $6,907,000 and $2,127,000 at March 
31, 1997 and 1996, respectively.
 
INVENTORIES
 
Inventories consist principally of products purchased for resale, and are 
stated at the lower of cost (determined by the first-in, first-out method) or 
market. The reserve for obsolete inventory was $11,739,000 and $1,558,000 at 
March 31, 1997 and 1996, respectively.
 
PROPERTY AND EQUIPMENT AND DEPRECIATION AND AMORTIZATION
 
Property and equipment are stated at cost. Depreciation and amortization are 
provided using the straight-line method based on the estimated useful lives 
of the assets or lease terms, generally 3 to 7 years.
 
EXCESS OF COST OVER NET ASSETS ACQUIRED AND OTHER INTANGIBLE ASSETS
 
Excess of cost over net assets of acquired businesses ("goodwill") is being 
amortized by the straight-line method over 10 to 40 years. Other intangible 
assets are being amortized by the straight-line method over 2 to 5 years. 
Amortization expense for excess of cost over net assets acquired and other 
intangible assets was $6,924,000, $629,000, and $336,000 for the years ended 
March 31, 1997, 1996, and 1995, respectively, and is included in selling, 
general, and administrative expenses. The recoverability of goodwill is 
evaluated annually by an analysis of operating results for each operating 
unit, significant events or changes in the business environment, synergies 
with other operating units, and, if necessary, independent appraisals. In 
1997, because indicators of impairment (losses, asset write-offs, etc.) did 
exist, the Company engaged an independent appraiser to evaluate the carrying 
value of the assets of PRTV. The appraiser used a combination of the income 
and market approaches and determined that the goodwill balance did not 
unreasonably state the goodwill related to PRTV. The Company will continue to 
monitor the carrying value of PRTV goodwill and will reduce the goodwill 
amount and/or modify the amortization period if required by the analysis.
 
                                       62
<PAGE>

                          NATIONAL MEDIA CORPORATION
 
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
1. Basis of Presentation, Description of Business and Summary of Significant
Accounting Policies (continued)

SHOW PRODUCTION COSTS

Costs related to the production of the Company's direct response televised 
advertising programs are capitalized and amortized over the estimated useful 
life of the production, generally from 12 to 24 months. The estimated useful 
life of each production is regularly evaluated and adjusted as sales response 
becomes available. Show production expense was $21,406,000, $8,630,000, and 
$6,077,000 for the years ended March 31, 1997, 1996, and 1995, respectively. 
Production expense for 1997, 1996, and 1995 included $10,811,000, $1,900,000, 
and $1,100,000, respectively, for amounts written down related to 
unsuccessful shows for which sales response did not meet initial 
expectations. Contributing factors to the reduced success rate on new shows 
were the failure of some new format type shows and the less than expected 
success of the introduction of new product categories.
 
DEFERRED REVENUE AND COSTS
 
Deferred revenue consists of funds received by the Company for items ordered, 
but not shipped and product sales subject to a free trial period. The related 
costs are deferred and expensed as orders are shipped. The Company also 
defers direct costs on product orders for which the funds are not yet 
received and expenses these costs as orders are shipped.
 
INCOME TAXES
 
The Company uses the liability method of accounting for income taxes. Under 
the liability method, deferred tax assets and liabilities are determined 
based on differences between financial reporting and tax bases of assets and 
liabilities and are measured using the enacted tax rates and laws that will 
be in effect when the differences are expected to reverse.
 
PER SHARE AMOUNTS
 
Income (loss) per share amounts have been computed based upon the weighted 
average number of common shares and dilutive common equivalent shares (stock 
options, warrants, and preferred stock) outstanding using the "if converted 
method." For 1996, net income used to compute primary earnings per share 
equals net income, plus after-tax interest expense incurred on outstanding 
long-term debt and after-tax interest income earned on the assumed investment 
of excess proceeds from the conversion of all outstanding warrants and stock 
options after repurchase using the treasury stock method 

                                      63
<PAGE>

                          NATIONAL MEDIA CORPORATION
 
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
1. Basis of Presentation, Description of Business and Summary of Significant 
Accounting Policies (continued)
 
Per Share Amounts (continued) 

of 20% of the Company's outstanding common stock. For 1997 and 1995, the 
effect of the exercise of stock options and warrants and the conversion of 
convertible preferred stock was not assumed in the calculation of loss per 
share because the effect was anti-dilutive.
 
In February 1997, the Financial Accounting Standards Board issued Statement 
No. 128 (FAS 128), Earnings per Share, which is required to be adopted on 
December 31, 1997. At that time, the Company will be required to change the 
method currently used to compute earnings per share and to restate all prior 
periods. Under the new requirements for calculating primary earnings per 
share, the dilutive effect of stock options, warrants, and convertible 
securities will be excluded. The impact of FAS 128 will initially be computed 
for the first quarter of fiscal year 1998.
 
FOREIGN CURRENCY TRANSLATION
 
Results of operations for the Company's foreign subsidiaries are translated 
using the average exchange rates during the period, while assets and 
liabilities are translated into U.S. dollars using the rate at the balance 
sheet date. Resulting translation adjustments are recorded as a component of 
shareholders' equity.
 
STOCK OPTION PLANS
 
The Company accounts for stock options in accordance with Accounting 
Principles Board ("APB") Opinion 25, Accounting for Stock Issued to 
Employees, and its related interpretations. No compensation expense is 
recognized for the Company's option plans which have an exercise price equal 
to the market price on the date of the grant. The Company has adopted the 
disclosure requirements of Statement of Financial Accounting Standards No. 
123, Accounting for Stock-Based Compensation (FAS 123), as of the fiscal year 
ended March 31, 1997 (see Note 7).
 
RECLASSIFICATIONS
 
Certain prior-year amounts have been reclassified to conform to current 
presentation.
 
                                       64


<PAGE>
                           NATIONAL MEDIA CORPORATION
 
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2. ACQUISITIONS
 
The value of the common stock issued in all acquisitions was based on the 
market price of the Company's common stock during the periods in which 
agreement was reached (i.e., signing of the letter of intent or definitive 
agreement) to undertake the relevant transaction which the Company believes 
is indicative of the fair value of the acquired business.
 
FISCAL 1997 ACQUISITIONS
 
On May 17, 1996, the Company acquired all of the issued and outstanding 
capital stock of PRTV, a publicly traded direct marketing company and 
producer of infomercials, for 1,836,773 shares (of which 211,146 shares 
valued at $2,982,000 have been deposited into an escrow account for possible 
future delivery to PRTV shareholders primarily based on the realization of 
certain assets by September 30, 1997) of the Company's common stock valued at 
$25.9 million. The Company included the escrow shares on the purchase price. 
Any unissued escrow shares will be returned to the Company and recorded as 
treasury shares with a corresponding reduction of goodwill. The acquisition 
was accounted for as a purchase and is included in the Company's financial 
statements from the date of acquisition. A total of $39.1 million in assets 
were acquired and included excess of cost over acquired assets of 
approximately $18.6 million, and is being amortized over 20 years.
 
On July 2, 1996, the Company also acquired two direct response marketing 
companies, Prestige Marketing Limited and Prestige Marketing International 
Limited (collectively, "Prestige") and Suzanne Paul Holdings Pty Limited and 
its operating subsidiaries (collectively, "Suzanne Paul"). The aggregate 
consideration paid by the Company for Prestige and Suzanne Paul was 
approximately $4.2 million in cash, $2.8 million in a note payable due and 
paid on December 5, 1996, and 787,879 shares of the Company's common stock 
valued at $14.7 million. Upon consummation of these acquisitions, the Company 
also funded a dividend of approximately $4.6 million to the former 
shareholders of Suzanne Paul. This amount represents an intercompany loan 
repayable on demand. In addition, the Company may be required to issue up to 
an aggregate of an additional $5.0 million in the Company's common stock, 
valued at the then present market price in 1997 and 1998, contingent upon the 
levels of net income achieved in those years by Prestige and Suzanne Paul. 
For Prestige, if its consolidated after-tax net income equaled or exceeded 
$3,925,000 for the twelve month period ending March 31, 1997, then its former 
shareholders earned additional purchase price equal to 2.5 multiplied by the 
amount by which such consolidated after-tax net income exceeded $3,271,000. 
The additional purchase price pertaining to this first fiscal year was 
limited to $1,635,000. If Prestige 

                                      65
<PAGE>
                           NATIONAL MEDIA CORPORATION
 
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2. ACQUISITIONS (CONTINUED)

FISCAL 1997 ACQUISITIONS (CONTINUED)

achieved a similar consolidated after-tax net income ($3,925,000) for the 
twelve month period ending March 31, 1998, its former shareholders would earn 
additional purchase price of $3,271,000, less any amount earned in fiscal 
year 1997. For Suzanne Paul the terms were identical, except its consolidated 
after-tax net income target was $2,074,800 for each year, and its former 
shareholders could earn additional purchase price equal to $1,729,000 over 
the two year period. The Company is currently in negotiations with the 
principals of those entities regarding an amendment to the acquisition 
agreements which would accelerate the $5 million contingent purchase amount 
and revise certain other provisions of the agreements. The acquisition is 
being accounted for as a purchase and is included in the Company's financial 
statements from the date of acquisition. A total of $33.8 million in assets 
were acquired and included excess cost over acquired assets of approximately 
$18.7 million, which is being amortized over 20 years.
 
On August 7, 1996, the Company acquired all of the issued and outstanding 
capital stock of Nancy Langston & Associates, Inc. ("Langston"), a media agency.
The aggregate consideration paid by the Company was 26,587 shares of the 
Company's common stock valued at $500,000, and a $390,000 promissory note 
payable in equal installments over 2 years which began on September 1, 1996. 
A total of $904,600 in assets were acquired and included excess costs over 
acquired assets of approximately $880,000, which is being amortized over 
10 years.


FISCAL 1996 ACQUISITIONS

On October 25, 1995, the Company acquired all of the issued and outstanding
capital stock of DirectAmerica Corporation and California Production Group, Inc.
(collectively, "DirectAmerica") for 554,456 shares of the Company's common stock
valued at $7 million. The acquisition was accounted for as a purchase and is
included in the Company's financial statements from the date of acquisition. A
total of $8.5 million in assets were acquired and included excess cost over
acquired assets of $7.8 million, which is being amortized over 20 years.
 
On October 16, 1995, the Company acquired the assets related to the "Flying
Lure" product from United Brands International Corp. and Langer Technologies,
Inc. The purchase price of $1.9 million included $1 million cash payment and a
two-year promissory note bearing interest at 9.0% in the principal amount of
$900,000. In addition, the Company agreed to pay $596,000 over three years for a
covenant not to compete. The 

                                       66
<PAGE>

                           NATIONAL MEDIA CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2. ACQUISITIONS (CONTINUED)

Company may be required to make additional payments of up to $6 million if 
worldwide sales of "Flying Lure" products exceed certain targeted levels. Any 
such additional amounts will be recognized as additional cost of the "Flying 
Lure" assets. Total assets acquired, principally the brand name and product 
rights, noncompete and product development talent, were approximately $2.5 
million. These amounts are included in excess cost over net assets of 
acquired businesses and other intangible assets and are being amortized over 
20 years.
 
PRO FORMA INFORMATION
 
The purchase price allocations for PRTV, Prestige, Suzanne Paul, and
Langston are based on management's estimates of the fair value of assets
acquired and liabilities assumed. The final allocations may differ from these
estimates. Had the DirectAmerica, PRTV, Prestige, Suzanne Paul, and Langston
acquisitions been made at April 1, 1996 and April 1, 1995, respectively pro
forma unaudited condensed results from operations for the year ended March 31,
1997 and 1996 would have been as follows (in thousands, except per share data):
 
<TABLE>
<CAPTION>
                                                         YEAR ENDED MARCH 31
                                                        ----------------------
<S>                                                     <C>         <C>
                                                           1997        1996
                                                        ----------  ----------
Net revenues..........................................  $  372,694  $  374,889
Net (loss) income.....................................  $  (45,468) $   16,024
Primary (loss) income per share.......................  $    (2.14) $      .64
Fully diluted (loss) income per share.................  $    (2.14) $      .61
</TABLE>
 
    The pro forma information does not purport to be indicative of the combined
results of operations that would have been reported had the transactions taken
place on April 1, 1995 or of future results of operations.
 
                                         67
<PAGE>

                           NATIONAL MEDIA CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. ACCRUED EXPENSES

Accrued expenses include the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                MARCH 31
                                                          --------------------
<S>                                                       <C>        <C>
                                                            1997       1996
                                                          ---------  ---------
Allowance for product refunds and returns...............  $   4,771  $   5,089
Accrual for legal settlements...........................      7,512        573
Accrual for management bonus............................         --      4,212
</TABLE>
 
4. PROPERTY AND EQUIPMENT
 
Property and equipment consists of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                MARCH 31
                                                          --------------------
<S>                                                       <C>        <C>
                                                            1997       1996
                                                          ---------  ---------
Furniture, fixtures, and office equipment...............  $  20,745  $  11,877
Leasehold improvements..................................      1,931      1,074
Equipment under capital leases..........................        923        442
                                                          ---------  ---------
                                                             23,599     13,393
Less accumulated depreciation and amortization..........     (9,417)    (6,439)
                                                          ---------  ---------
Total...................................................  $  14,182  $   6,954
                                                          ---------  ---------
                                                          ---------  ---------
</TABLE>
 
Depreciation and amortization expense for property and equipment, including
equipment under capital lease, was $3,042,000, $1,470,000, and $1,314,000 for
the years ended March 31, 1997, 1996, and 1995, respectively.

                                           68
<PAGE>

                           NATIONAL MEDIA CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
 
Long-term debt and capital lease obligations consist of the following 
(in thousands):
 
<TABLE>
<CAPTION>
                                                                MARCH 31
                                                          --------------------
<S>                                                       <C>        <C>
                                                            1997       1996
                                                          ---------  ---------
Credit facility.........................................  $  13,000  $      --
Term loan, net of discount..............................      3,232      3,749
Notes payable...........................................      2,326        900
Obligations under capital leases........................        302        281
                                                          ---------  ---------
                                                             18,860      4,930
Less current portion....................................     17,901        876
                                                          ---------  ---------
Long-term portion.......................................  $     959  $   4,054
                                                          ---------  ---------
                                                          ---------  ---------
</TABLE>
 
The Company believes the carrying value of long-term debt and capital lease 
obligations approximates fair value.

In October 1994, the Company obtained a $5,000,000 five-year secured term 
loan from an independent investor pursuant to a Note and Warrant Purchase 
Agreement. The Company issued to the investor a warrant (the "Loan Warrants") 
to purchase 2,250,000 shares (subject to adjustment) of common stock. The
Loan Warrants are exercisable at a price of $4.80 per share of common stock at
any time from and after September 30, 1995 until September 30, 2004. Based on an
independent analysis, the Company valued the Loan Warrants at $1,800,000. The
corresponding loan discount is being amortized over the life of the loan (60
months) and the amortization is included in interest expense. On April 20, 1995,
the term loan was purchased by a bank. All material terms of the loan remained
unchanged. The term loan bears interest on the unpaid principal amount at prime
plus .5%, and is payable monthly. The term loan is payable in annual
installments of $1,000,000 which commenced December 1, 1996 with the remaining
balance due September 30, 1999.
 
In November 1995, the Company obtained a $5,000,000 revolving line of credit
(the "Line") from a bank pursuant to a Loan and Security Agreement. The Line,
which was increased to $20,000,000 in June 1996, is available until September
30, 1997 at which time its continuation will be considered. Under the term loan
and the line, on a quarterly basis, the Company must be in compliance with 
various financial covenants including tangible 

                                          69
<PAGE>
                           NATIONAL MEDIA CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)

net worth and working capital minimums, various financial ratios, and capital 
expenditure limits. At March 31, 1997, the Company was in default of certain 
of these financial covenants for which the bank has not granted a waiver. As 
a result, the long-term portion of the term loan has been classified as 
current at March 31, 1997. At June 27, 1997, the Line was fully utilized. 
Interest on cash advances under the Line was accrued at varying rates 
throughout the year based, at the Company's option, on the bank's national 
commercial rate or the London Interbank Offering Rate (LIBOR) plus 1.25%. 
Currently, interest on cash advances under the line is only available at the 
bank's national commercial rate. The agreement requires the Company to pay an 
annual fee of .25% on the unused portion of the Line and maintain an average 
quarterly compensating balance of $2,500,000 subject to a .25% deficiency 
fee. There were borrowings of $13,000,000 outstanding under this facility, 
and $1,092,000 of the Line was used for the issuance of letters of credit as 
of March 31, 1997.

The term loan and the Line are secured by a lien on all of the inventory,
receivables, trademarks, tradenames, service marks, copyrights and all other
assets of the Company and its subsidiaries. Such lien on certain nondomestic
assets of the Company is subordinate to a lien held by Barclays Bank PLC. At
present, the Company has an overdraft line with Barclays in the amount of
approximately $1,000,000. Under its agreements with Barclays, the Company is
subject to certain restrictions, in respect to the repayment of intercompany
loans.
 
Long-term debt maturities and payments due under capital lease obligations
are as follows (in thousands):
 
<TABLE>
<CAPTION>
YEAR ENDING                                         LONG-TERM    CAPITAL LEASE
 MARCH 31                                             DEBT        OBLIGATIONS
------------------------------------------------  -----------  ---------------
<S>                                               <C>          <C>
1998..........................................     $  18,496      $     171
1999..........................................           680            139
2000..........................................           150             --
                                                  -----------     ------------
                                                      19,326            310
Less: Interest portion........................            --              8
      Loan discount...........................           768             --
                                                  -----------     ------------
      Total...................................     $  18,558      $     302
                                                  -----------     ------------
                                                  -----------     ------------
</TABLE>


                                         70
<PAGE>
                           NATIONAL MEDIA CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
6. CAPITAL TRANSACTIONS
 
STOCK PURCHASE RIGHTS
 
On January 13, 1994, the Company distributed one preferred share purchase 
right on each outstanding share of its common stock. The rights will become 
exercisable only if, without the Company's consent or waiver, a person or 
group acquires 15% or more of the Company's outstanding common stock or 
announces a tender offer, the consummation of which would result in ownership 
by a person or group of 15% or more of the Company's outstanding common 
stock. Each right will entitle shareholders to buy one one-hundredth of a 
share of a new series of junior participating preferred stock at an exercise 
price of $40. In addition, upon the occurrence of certain events, the holders 
of rights will thereafter have the right to receive, upon exercise at the 
then-current exercise price, common stock (or, in certain circumstances, 
cash, property, or other securities of the Company) having a value equal to 
two times the exercise price of the right. In the event that the Company is 
acquired in a merger or other business combination, or 50% or more of the 
Company's assets or earning power is sold, proper provision will be made so 
that each holder of a right will thereafter have the right to receive, upon 
exercise at the then-current exercise price of the right, common stock of the 
acquiring or surviving company having a value equal to two times the exercise 
price of the right. Any rights that are, or were, under certain 
circumstances, beneficially owned by such a 15% owner will immediately become 
null and void.
 
The holders of rights, as such, have no rights as stockholders of the Company. 
The Company has the ability to redeem the rights at $.001 per right until the 
occurrence of certain specified events.
 
SERIES B CONVERTIBLE PREFERRED STOCK
 
In October 1994, the Company authorized the issuance of a series of preferred 
stock designated "Series B Convertible Preferred Stock," par value $.01 per 
share, consisting of 400,000 shares, of which a total of 255,796 shares were 
issued in connection with the private placements, as described below. At March 
31, 1997, there were 95,000 shares outstanding.
 
Each share of preferred stock is valued at $40.00 per share for conversion
purposes and is presently convertible at the option of the holder into shares of
common stock at a price of $4.00 per share of common stock (subject to
adjustment). The holders of shares of 

                                          71
<PAGE>

                           NATIONAL MEDIA CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
6. CAPITAL TRANSACTIONS (CONTINUED)

SERIES B CONVERTIBLE PREFERRED STOCK (CONTINUED)

preferred stock shall be entitled to receive dividends declared on the common 
stock as if the shares of preferred stock had been converted into shares of 
common stock. Except as to the election of directors, each share of preferred 
stock has voting rights equivalent to the total number of shares of common 
stock into which the share of the preferred stock is convertible. The holders 
of the preferred stock, voting as a class, originally had the right to elect 
two directors; the holders of the common stock, voting as a class, had the 
right to elect the remaining directors. The preferred stockholders' right to 
elect two directors has since terminated.
 
At March 31, 1997, there were 9,542,500 shares of common stock reserved for
conversion of preferred stock, for exercise of stock options and warrants, for
issuance under the 1995 Management Incentive Plan, and for matching
contributions under the Company's 401(k) plan. The Company would receive
proceeds of approximately $68,923,000 upon exercise of all options and warrants
currently outstanding. In addition, based on the stock price of $6.50 per share
at June 30, 1997, the Company would receive proceeds of approximately
$25,634,000 upon exercise of all currently outstanding options and warrants with
an exercise price below the market price of the stock.
 
EQUITY INVESTMENT
 
During the year ended March 31, 1995, the Company raised a total of $9,415,000 
(net of $872,000 of offering costs) through the sale, in privately negotiated 
transactions, of a total of 255,796 investment units ("Units"). Each Unit 
consisted of one share of preferred stock, par value $.01 per share, of the 
Company and a warrant (the "Warrants") to purchase twelve (12) shares (subject 
to adjustment) of common stock, par value $.01 per share, of the Company. Each 
share of preferred stock is valued at $40 per share for conversion purposes, is 
convertible into common stock at a price of $4.00 per common share (subject to 
adjustment) and carries no preferred dividend right. The Warrants are 
exercisable at a price of $4.80 per share of common stock, except for those 
applicable to 3,546 Units which are exercisable at a price of $5.74 per share 
of common stock. At March 31, 1997, 229,750 warrants to acquire 2,757,000 shares
of the Company's common stock were outstanding and exercisable, and expire 
between October 5, 2004 and December 19, 2004.
 
Certain executive officers and directors of the Company participated in the
aforementioned private placement acquiring 17,921 Units. The purchase price of
these Units was at the same prices as offered to other investors.


                                       72
<PAGE>

                           NATIONAL MEDIA CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
6. CAPITAL TRANSACTIONS (CONTINUED)

PUBLIC OFFERING
 
On August 6, 1996, the Company completed a public offering of an additional
2,000,000 shares of its common stock with net proceeds to the Company of
approximately $28.9 million. If these shares had been outstanding for the entire
years ended March 31, 1997 and 1996 and the DirectAmerica, PRTV, Prestige,
Suzanne Paul, and Langston acquisitions had been made at the beginning of these
periods, primary loss and fully-diluted loss per share would have been $(1.96)
for the year ended March 31, 1997. For the year ended March 31, 1996, primary
income per share would have been $.62, and fully-diluted income per share would
have been $.60.
 
7. STOCK OPTIONS
 
The Company has various stock option plans, which are described below. The
Company applies the provisions of APB Opinion 25, and related interpretations in
accounting for its plans. Accordingly, no compensation has been recognized in
the financial statements for the options issued under such plans as all options
are granted at an exercise price equal to or related to the market price of the
Company's Common Stock at the date of grant. Had compensation cost for the
Company's stock-option plans been determined using fair values at the grant
dates for awards under those plans as defined by SFAS No. 123, the Company's net
(loss) income and net (loss) income per share would have changed to the pro
forma amounts shown below:
 
<TABLE>
<CAPTION>
     (IN THOUSANDS, EXCEPT PER SHARE DATA)                Year ended March 31
                                                         ---------------------
                                                            1997       1996
                                                         ----------  ---------
<S>                                                      <C>         <C>
     Pro forma net (loss) income.......................  $  (56,323) $  15,929
     Pro forma (loss) earnings per share:
     Primary...........................................  $    (2.55) $     .71
     Fully-diluted.....................................  $    (2.55) $     .68
</TABLE>
 
    Option valuation models use highly subjective assumptions to determine fair
value of traded options with no vesting or trading restrictions. Because options
granted under the 
 
                                         73
<PAGE>

                           NATIONAL MEDIA CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
7. STOCK OPTIONS (CONTINUED)

Company's Stock Option Plans have vesting requirements and cannot be traded, 
and because changes in the assumptions can materially affect the fair value 
estimate, in management's opinion, the existing valuation models do not 
necessarily provide a reliable measure of the fair value of its employee 
stock options.
 
For purposes of determining the pro forma disclosures, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model, with the following weighted-average assumptions used for
both fiscal 1997 and fiscal 1996: dividend yield of 0%; expected volatility of
51.8%; risk-free interest rates of 6.10%; and expected lives of 5 years. In
accordance with the transition provisions of SFAS No. 123, the pro forma
disclosures presented above reflect the statement's application only to option
grants and stock awards dated on or after April 1, 1995. Therefore, because
option grants and awards generally vest over several years and additional awards
are expected to be made in the future, the pro forma results should not be
considered to be representative of the effects on reported results for future
years.
 
Under the above-mentioned stock option plans, as amended, a maximum of 
8,065,000 shares of common stock may be issued upon exercise of incentive or 
nonincentive stock options, special options, or stock appreciation rights 
granted pursuant to such plans. All employees of the Company, as well as 
directors, officers, and third parties providing services to the Company are 
eligible to participate in the Plans. During fiscal 1997, 1996 and 1995, the 
Company recognized $491,000, $344,000, and $0 respectively in compensation 
expense related to the issuance of 30,000, 25,000 and 0 shares of the 
Company's common stock to non-employee directors under its Director Stock 
Grant Plan in each year. The shares were valued at the closing price of the 
Company's stock on the New York Stock Exchange at the date of grant. The 
weighted average fair value of shares granted was $16.375 in fiscal 1997 and 
$12.395 in fiscal 1996. This plan has been terminated as of March 31, 1997.
 
In addition, in fiscal 1996 the Company recognized approximately $1.5 million 
in compensation expense related to the issuance of 93,007 shares of its 
common stock to officers, directors and other employees in connection with 
its Management Incentive Plan at a weighted average fair value of $16.50.
 
Pursuant to employment agreements with various officers of the Company who 
entered into employment agreements after August 31, 1991, as well as certain 
other agreements, the Board of Directors has authorized the grant of options 
to purchase up to 1,532,000 

                                       74
<PAGE>

                           NATIONAL MEDIA CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
7. STOCK OPTIONS (CONTINUED)

shares of common stock at exercise prices equal to the market price at the 
time of grant. In each case, the grant of option was an inducement to the 
execution of an employment or other agreement.
 
Options granted vest over a period ranging from the date of grant up to a 
maximum of five years. Options may be exercised up to a maximum of 10 years 
from date of grant. The weighted-average remaining contractual life of all 
outstanding options at March 31, 1997 is 8 years (8.5 years for options with 
an exercise price less than $10.00, and 7.5 years for options with an 
exercise price greater than $10.00).
 
In fiscal 1997, 1,129,000 stock options originally issued to Company 
employees at an exercise price of $16.375 were canceled and 564,500 stock 
options with an exercise price of $8.325 were issued.
 
Subsequent to year end the Company employed certain executive officers whose 
contracts, which are currently under negotiation, contain provisions for the 
issuance of up to 850,000 non-Plan options.
 
<TABLE>
<CAPTION>
                                                                                          SHARES UNDER    WEIGHTED
                                                                                             OPTION        AVERAGE
                                                                                          -------------  -----------
<S>                                                                                       <C>            <C>
Outstanding at April 1, 1994............................................................     2,079,840    $    5.28
Granted.................................................................................     1,165,590         5.58
Exercised...............................................................................       (41,500)        5.84
Expired and canceled....................................................................      (295,834)        5.47
                                                                                          -------------  -----------
Outstanding at March 31, 1995...........................................................     2,908,096         5.06
Granted.................................................................................       350,000        12.99
Exercised...............................................................................    (1,219,099)        4.22
Expired and canceled....................................................................      (116,665)        5.82
                                                                                          -------------  -----------
Outstanding at March 31, 1996...........................................................     1,922,332         6.90
Granted.................................................................................     3,921,250        15.18
Exercised...............................................................................    (1,215,099)        5.78
Expired and canceled....................................................................    (1,543,979)       16.40
                                                                                          -------------  -----------
Outstanding at March 31, 1997...........................................................     3,084,504    $   13.11
                                                                                          -------------  -----------
                                                                                          -------------  -----------
Exercisable at March 31, 1997...........................................................     1,213,591    $   12.19
                                                                                          -------------  -----------
                                                                                          -------------  -----------
Non-exercisable at March 31, 1997.......................................................     1,870,913    $   13.70
                                                                                          -------------  -----------
                                                                                          -------------  -----------
Shares available for future grant at March 31, 1997.....................................       620,530
                                                                                          -------------
                                                                                          -------------
                                        75
<PAGE>

                           NATIONAL MEDIA CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
7. STOCK OPTIONS (CONTINUED)


Shares available for future grant at March 31, 1996.....................................        26,681
                                                                                          -------------
                                                                                          -------------
</TABLE>

                                       76
<PAGE>

                           NATIONAL MEDIA CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
7. STOCK OPTIONS (CONTINUED)

 
    Of the outstanding options, 1,037,833 have exercise prices ranging from
$4.25 to $10.00 with a weighted average price of $7.26, and 2,046,671 have
exercise prices ranging from $10.01 to $20.00 with a weighted average price of
$16.07. The weighted average fair value of options granted during fiscal year
1997 and 1996 was $7.59 and $7.68, respectively.
 
8. INCOME TAXES
 
The components of income tax expense are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                             FEDERAL     STATE     FOREIGN     TOTAL
                                                                            ---------  ---------  ---------  ---------
<S>                                                                         <C>        <C>        <C>        <C>
1997
----
Current...................................................................  $      --  $      --  $   1,897  $   1,897
Deferred..................................................................      1,201         --     (1,201)        --
                                                                            ---------  ---------  ---------  ---------
Provision for income taxes................................................  $   1,201  $      --  $     696  $   1,897
                                                                            ---------  ---------  ---------  ---------
                                                                            ---------  ---------  ---------  ---------
1996
----
Current (1)...............................................................  $   9,722  $   1,174  $   1,258  $  12,154
Deferred..................................................................     (4,825)      (761)     1,324     (4,262)
Benefit of net operating loss carryforward................................     (4,367)        --         --     (4,367)
                                                                            ---------  ---------  ---------  ---------
Provision for income taxes................................................  $     530  $     413  $   2,582  $   3,525
                                                                            ---------  ---------  ---------  ---------
                                                                            ---------  ---------  ---------  ---------
1995
----
Current...................................................................  $      --  $     100  $     200  $     300
Deferred..................................................................       (495)        --        495         --
                                                                            ---------  ---------  ---------  ---------
Provision for income taxes................................................  $    (495) $     100  $     695  $     300
                                                                            ---------  ---------  ---------  ---------
                                                                            ---------  ---------  ---------  ---------
</TABLE>
 
------------------------
 
(1) In 1996, current income taxes payable were reduced by approximately
    $2,100,000 due to the exercise of employee stock options that are deductible
    for income tax purposes but do not affect net income. 

                                     77
<PAGE>
                           NATIONAL MEDIA CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 

8. INCOME TAXES (CONTINUED)

Pretax (loss) income was taxed under the following jurisdictions (in 
thousands):

<TABLE>
<CAPTION>
                                                 1997       1996       1995
                                              ----------  ---------  ---------
<S>                                           <C>         <C>        <C>
     United States..........................  $  (44,794) $  15,525  $  (1,530)
     Foreign................................       1,000      4,579      1,158
                                               ----------  ---------  ---------
     Total..................................  $  (43,794) $  20,104  $    (372)
                                               ----------  ---------  ---------
                                               ----------  ---------  ---------
</TABLE>
 

Significant components of the Company's deferred tax assets and liabilities 
are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                MARCH 31
                                                          --------------------
<S>                                                       <C>        <C>
                                                            1997       1996
                                                          ---------  ---------
Deferred tax assets:
  Net operating loss carryforwards......................  $  14,371  $   4,883
  Alternative minimum tax credit carryforward...........        835        724
  Investment tax credit carryforward....................         66         66
  Accrued vacation and severance pay....................        901        207
  Inventory and accounts receivable reserves............      7,162      2,416
  Reserve for legal settlements.........................      2,811        572
  Other.................................................        730        559
                                                          ---------  ---------
Total deferred tax assets...............................     26,876      9,427


Valuation allowance.....................................    (23,171)    (5,321)
                                                          ---------  ---------
Deferred tax assets.....................................      3,705      4,106


Deferred tax liabilities:
  Prepaid media and other costs.........................        769      1,282
  Tax over book depreciation............................        240        393
  Deferred production costs.............................        703        731
  Deferred sales........................................      1,898      1,700
  Other.................................................         95         --
                                                          ---------  ---------
Total deferred tax liabilities..........................      3,705      4,106
                                                          ---------  ---------
Net deferred tax asset..................................  $      --  $      --
                                                          ---------  ---------
                                                          ---------  ---------
</TABLE>

                                     78


<PAGE>
                           NATIONAL MEDIA CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
8. INCOME TAXES (CONTINUED)
 
The increase in the valuation allowance relates to the increase in U.S. net 
operating loss carryforwards and other deferred tax assets from March 31, 
1996 to March 31, 1997.
 
A reconciliation of the Company's provision for income taxes to the provision 
for income taxes at the U.S. federal statutory rate of 35% is as follows (in 
thousands):
 
<TABLE>
<CAPTION>
                                                                        YEAR ENDED MARCH 31
                                                                  --------------------------------
<S>                                                               <C>         <C>        <C>
                                                                     1997       1996       1995
                                                                  ----------  ---------  ---------
Tax (benefit) expense at statutory rate.........................  $  (15,328) $   7,036  $    (126)
Tax effect of:
  U.S. operating loss not benefited.............................      14,449         --        126
  Utilization of net operating loss carryforward................          --     (4,367)        --
  Foreign income taxes in excess of
    U.S. Federal statutory rate.................................          97        980        200
  State and local income taxes..................................          --        268        100
  Nondeductible items...........................................       2,679        301         --
  Other.........................................................          --       (693)        --
                                                                  ----------  ---------  ---------
Income tax expense..............................................  $    1,897  $   3,525  $     300
                                                                  ----------  ---------  ---------
                                                                  ----------  ---------  ---------
</TABLE>

At March 31, 1997, the Company has the following loss and credit 
carryforwards for tax purposes (in thousands):
 
<TABLE>
<CAPTION>
                                                             AMOUNT      EXPIRATION
                                                            ---------  --------------
<S>                                                         <C>        <C>
U.S. net operating loss...................................  $  32,123  2009 to 2012
Foreign net operating loss................................      3,182    unlimited
Alternative minimum tax credit............................        835    unlimited
Investment tax credit.....................................         66  1998 to 2001
</TABLE>
 
A portion of the U.S. net operating loss carryforward is related to the 
exercise of employee stock options. If that portion of the loss carryforward 
related to the exercise of stock options is realized, the resulting tax 
benefit will be recorded directly to shareholders' equity. For financial 
reporting purposes, a valuation allowance has been recognized to offset the 
deferred tax assets related to the entire U.S. net operating loss 


                                     79

<PAGE>
                           NATIONAL MEDIA CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
carryforward because utilization of net operating loss carryforwards cannot 
be reasonably assumed.



























                                     80

<PAGE>

                           NATIONAL MEDIA CORPORATION
 
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8. INCOME TAXES (continued)

Due to certain collateral requirements in the Company's credit facilities 
(as discussed in Note 5), the majority of earnings from its foreign 
subsidiaries have been deemed distributed for tax purposes. All appropriate 
U.S. federal and state income taxes have been provided thereon. Foreign 
withholding taxes on actual distributions of these earnings would be 
immaterial.
 
9. SEVERANCE TO FORMER EXECUTIVE OFFICERS
 
In September 1994, the then-Chairman of the Board and Chief Executive 
Officer of the Company resigned. In connection with his resignation, he and 
the Company executed a letter agreement. The Company recorded severance 
expense of $2,650,000 in fiscal year 1995, pursuant to the terms of the 
letter agreement and the terms of his employment agreement. In connection 
with the former Chairman's resignation as a member of the Company's Board of 
Directors and the Company's settlement of the ValueVision litigation as 
discussed in Note 11, the Company and the former Chairman entered into 
further agreements in part amending the earlier agreements. Pursuant to such 
agreements, the Company (i) paid the former Chairman $50,000 per month 
through March 31, 1995, (ii) forgave two notes made by the former Chairman, 
in the principal amount of $1,646,189, (iii) accelerated the vesting of 
750,000 options to acquire shares of the Company's common stock in accordance 
with the terms of his employment agreement, and (iv) retained the former 
Chairman as a consultant for a term of 36 months at a cost of $300,000. He 
was eligible to participate in the 1991 Option Plan until 90 days after the 
termination of his services as a consultant. Subsequently, as part of the 
ValueVision settlement described in Note 11, substantially all amounts due 
under the consulting agreement were paid.
 
In fiscal year 1997, the Company recorded severance expense related to 
the discontinuance of employment of five executive officers. Total severance 
charges related to these officers are $2,500,000 and include salary, 
insurance, and other benefits.

                                     81

<PAGE>
 
                           NATIONAL MEDIA CORPORATION
 
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. COMMITMENTS AND CONTINGENCIES
 
The Company rents warehouses, retail stores, and office space under 
various operating leases which expire through December 2013 including leases 
with related parties as described in Note 13. Future minimum lease payments 
(exclusive of real estate taxes and other operating expenditures) as of March 
31, 1997 under noncancelable operating leases with initial or remaining terms 
of one year or more are as follows for the years ended March 31 (in 
thousands):
 
<TABLE>

<S>                                                   <C>
        1998                                          $   3,033
        1999                                              3,566
        2000                                              3,345
        2001                                              2,831
        2002                                              2,148
        Thereafter                                       19,034
                                                      ----------
                                                      $  33,957
                                                      ----------
                                                      ----------
</TABLE>
 
Rent expense under various operating leases aggregated $4,233,000, 
$2,335,000, and $2,119,100 in 1997, 1996, and 1995, respectively. Subleased 
building space rental income aggregated $106,300, $85,300, and $140,500 for 
1997, 1996, and 1995, respectively.
 
During fiscal year 1997, the Company expended $131,136,000 on media 
purchases, a portion of which were made under long-term agreements. The 
largest domestic agreement runs through December 1998 and requires a fixed 
monthly payment of approximately $1.8 million per month. In addition, the 
Company has long-term agreements with certain Pan-European satellite channels 
to purchase a specific number of television hours per week at a minimum 
guaranteed amount. These contracts expire at various dates over the next 3 
years. In addition, the Company has a contract to lease a transponder which 
continues through the year 2010. Total commitments under these media 
contracts are: $33,662,000 in 1998; $27,153,000 in 1999; $3,407,000 in 2000; 
$2,987,000 in 2001 and 2002; and $23,895,000 thereafter.

                                     82

<PAGE>
 
                           NATIONAL MEDIA CORPORATION
 
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. LITIGATION AND REGULATORY MATTERS
 
NATIONAL MEDIA LITIGATION
 
SHAREHOLDERS' FEDERAL CLASS ACTIONS
 
In fiscal year 1996, the Company settled a class action complaint involving 
allegations concerning disclosure by the Company of its ongoing relationship 
with PRTV, an independent infomercial producer at the time, and Ronic, S.A., a 
supplier of the Company. The settlement resulted in cash payments by the 
Company's insurer of $2,175,000 and the issuance of 106,000 shares of the 
Company's common stock valued at the closing price on the New York Stock 
Exchange on the date of settlement to the class. The Company recorded a 
charge in fiscal year 1995 of $725,000 in connection with this matter.
 
Terminated Tender Offer and Merger Agreement with ValueVision 
  International, Inc.
 
In April 1994, the Company filed suit in federal court against ValueVision 
International, Inc. ("ValueVision") alleging that ValueVision had wrongfully 
terminated its amended tender offer. In May 1994, ValueVision answered the 
Company's complaint and set forth various counterclaims. In April 1995, 
parties to this litigation entered into a settlement agreement. In connection 
with the settlement agreement, the Company and ValueVision executed a 
Telemarketing, Production and Post-Production Agreement (the "Telemarketing 
Agreement") and a Joint Venture Agreement. The Telemarketing Agreement 
obligated ValueVision to provide to the Company over a three-year period 
in-bound telephone call-taking services at rates more favorable than those 
currently being paid by the Company. The Telemarketing Agreement also 
obligated ValueVision to provide to the Company certain production and 
post-production services.
 
As additional consideration for the services to be provided by ValueVision
under the Telemarketing Agreement, the Company granted to ValueVision ten (10)
year warrants (the "Warrants") to purchase up to 500,000 shares of the Company's
common stock at a price of $8.865 per share (subject to adjustment pursuant to
the antidilution provision of the Warrants). This price was based on a premium
over the average 20-day market value prior to the date of settlement. The
Warrants were scheduled to vest with respect to an equal number of shares on
each of the thirteen-month, 2-year and 3-year anniversaries of the effective
date (November 24, 1995), provided that ValueVision satisfied certain

                                     83

<PAGE>

                           NATIONAL MEDIA CORPORATION
 
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. LITIGATION AND REGULATORY MATTERS (continued)

Terminated Tender Offer and Merger Agreement with ValueVision 
  International, Inc. (continued)

conditions. The Warrants will expire on the tenth anniversary of the 
effective date. During fiscal year 1997, the parties entered into an 
amendment to the Telemarketing Agreement pursuant to which ValueVision was no 
longer obligated to provide in-bound Telemarketing Services and is required 
to pay $1.3 million for the Warrants.
 
As part of the settlement, the Company and ValueVision also entered into 
a Joint Venture Agreement. Pursuant to the Joint Venture Agreement, the 
Company is required, subject to certain exceptions, to negotiate in good 
faith with ValueVision to form a joint venture to pursue home shopping 
opportunities outside the United States and Canada before pursuing such 
opportunities by itself or with certain third parties. ValueVision granted 
the Company similar rights with respect to infomercial opportunities 
ValueVision may have outside of the United States and Canada.
 
In connection with the matters discussed above, the Company (1) 
reimbursed its former Chairman $50,000 for certain legal costs, (2) paid 
substantially all amounts due to the former Chairman under the Consulting 
Agreement described in Note 9, and (3) paid $220,000 in connection with the 
exercise of the Company's early termination option for its then principal 
offices which were located in a building owned by a company controlled by the 
former chairman.
 
The issuance of the Warrants to ValueVision required the prior consent of 
the holders of the promissory notes issued pursuant to the Note Agreement as 
discussed in Note 5. As an inducement to the noteholders to permit the 
issuance of the Warrants, the Company issued to the noteholders warrants (the 
"Waiver Warrants") to purchase 500,000 shares of the Company's common stock 
at a price of $10.00 per share. These warrants expired unexercised on 
November 28, 1996.

                                     84

<PAGE>
 
                           NATIONAL MEDIA CORPORATION
 
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. LITIGATION AND REGULATORY MATTERS (continued)

AB ROLLER PLUS PATENT LITIGATION
 
On March 1, 1996, Precise Exercise Equipment ("Precise") filed suit in the 
United States District Court for the Central District of California against 
certain parties, including the Company, alleging patent infringement, unfair 
competition, and other intellectual property claims. Such claims relate to an 
alleged infringement of Precise's initial US patent for an exercise device. 
The suit claims that a product marketed by the Company, the Ab Roller Plus, 
pursuant to a license granted by a third party violates Precise's initial US 
patent. Pursuant to the terms of such license, the third party is 
contractually obligated to indemnify the Company in this suit. The suit seeks 
an injunction and treble damages. The Company's independent legal counsel has 
issued an opinion to the Company that the product marketed by the Company 
does not infringe upon Precise's initial US patent. A second US patent was 
issued to Precise on November 26, 1996 for its exercise device. Precise 
amended its pleading to include additional claims based on such new patent. 
Upon the issuance of the new patent, the Company terminated active marketing 
of the Ab Roller Plus product in the US.
 
The Company has recently been involved in active negotiations with the other 
parties to the action to settle this matter prior to trial. It is not yet 
certain whether such negotiations will result in a mutually agreeable 
settlement. The Company believes that it has made adequate provision for this 
matter.
 
FITNESS FLYER LITIGATION
 
In February 1997, the Company filed suit in a Los Angeles, California state 
court against Guthy Renker Corporation in connection with a joint venture 
between Guthy Renker and the Company concerning the marketing of a fitness 
product. Guthy Renker also filed actions against the Company in California 
federal and state court concerning the same circumstances. In early March 
1997, the parties reached a settlement of these actions pursuant to which the 
Company retained its rights to market a competing product that it had 
developed, and gave up the right to sell the original fitness product.


                                     85

<PAGE>
                           NATIONAL MEDIA CORPORATION
 
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. LITIGATION AND REGULATORY MATTERS (CONTINUED)
 
SHAREHOLDERS' CLASS ACTIONS
 
In 1994, class action lawsuits were filed in federal court and Delaware 
Chancery Court against the Company and certain of its present and former 
officers and directors in connection with an aborted merger transaction with 
ValueVision. The Company and other parties to the litigation entered into 
agreements to settle these actions. These agreements provided for cash 
payments of approximately $1,500,000 to the class, 75% of which were paid by 
the Company's insurer. The Company recorded a charge of $375,000 during 
fiscal year 1995 for its portion of the settlement. The consummation of the 
settlements received Federal court approval during fiscal year 1996.
 
WWOR LITIGATION
 
In March 1997, WWOR-TV filed a breach of contract action in the United States 
District Court for New Jersey against one of the Company's operating 
subsidiaries alleging that the subsidiary wrongfully terminated a contract 
for the purchase of media time, seeking in excess of $1,000,000 in 
compensatory damages. The Company is contesting the action and believes it 
has meritorious defenses to the plaintiff's claims for damages. While at this 
stage it is not possible to predict the outcome of this matter the Company 
believes that any resolution of this matter will not have a material adverse 
effect on the Company's results of operations or financial condition.
 
PRTV LITIGATION
 
PRTV SHAREHOLDERS' CALIFORNIA CLASS ACTION
 
On May 1, 1995, prior to the acquisition of PRTV by the Company, a purported 
class action suit was filed in the United States District Court for the 
Central District of California against PRTV and its principal executive 
officers alleging that PRTV made false and misleading statements in its 
public filings, press releases and other public statements with respect to 
its business and financial prospects. The suit was filed on behalf of all 
persons who purchased PRTV common stock during the period from January 4, 
1995 to April 28, 1995. The suit sought unspecified compensatory damages and 
other equitable relief. On or about September 25, 1995, the plaintiffs filed 
a second amended complaint which added additional officers as defendants and 
attempted to set forth new facts to support plaintiff's entitlement to legal 
relief. The Company has reached an agreement in principle to settle this 
action in fiscal 1997 which provides for the payment of $550,000 to the 
class, 66% of which is to be paid by PRTV's insurance carrier. The Company 
recorded a charge of $187,000 during fiscal year 1997 in connection with this 
matter. Such settlement is contingent upon court approval.

                                     86

<PAGE>
                           NATIONAL MEDIA CORPORATION
 
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. LITIGATION AND REGULATORY MATTERS (CONTINUED)
 
EDMARK INDUSTRIES LITIGATION
 
In February 1996, prior to the acquisition of PRTV by the Company, Edmark 
Industries ("Edmark"), a supplier of the Super Slicer kitchen product, filed 
suit in the U.S. District Court for the Southern District of Texas against 
PRTV and the retail distributor of the product, alleging certain breach of 
contract, false advertising, and copyright infringement claims in connection 
with the marketing of such product. Pursuant to PRTV's agreement with the 
retail distributor, PRTV defended such distributor and such distributor's 
retail customers in connection with this suit. In November 1996, the Court 
provided injunctive relief to the plaintiff on the issues of copyright 
infringement and false advertising. The action was settled in April 1997 upon 
the payment by the Company, on behalf of PRTV, of $200,000, a $200,000 note 
payable on June 30, 1997, the issuance of a note requiring the payment of 
$50,000 per month for 24 months beginning July 31, 1997, with interest at 8%, 
and certain other nonmaterial matters. The Company recorded a charge of 
$2,656,000 during the fourth quarter of fiscal year 1997 in connection with 
this matter.
 
BLUBLOCKER LITIGATION
 
In September 1995, prior to the acquisition of PRTV by the Company, suit was 
filed by Blublocker Corp., a distributor of sunglasses, against PRTV alleging 
unfair competition and false advertising relating to a PRTV product campaign. 
In April 1997, the suit was settled by the parties with PRTV agreeing to pay 
$400,000 to Blublocker Corp. The Company recorded this charge in the fourth 
quarter of fiscal year 1997 in connection with this matter.
 
SUNTIGER
 
In late March 1997, Suntiger, Inc. ("Suntiger"), a distributor of sunglasses, 
filed suit against PRTV and certain other parties alleging patent 
infringement. PRTV is indemnified by third parties in connection with this 
action.

                                     87

<PAGE>

                           NATIONAL MEDIA CORPORATION
 
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. LITIGATION AND REGULATORY MATTERS (CONTINUED)
 
OTHER MATTERS
 
The Company, in the normal course of business, is a party to litigation 
relating to trademark and copyright infringement, product liability, 
contract-related disputes, and other actions. It is the Company's policy to 
vigorously defend all such claims and enforce its rights in these areas. The 
Company does not believe any of these actions either individually or in the 
aggregate, will have a material adverse effect on the Company's results of 
operations or financial condition.
 
12. RETIREMENT PLAN
 
All of the Company's U.S. full-time employees may participate in a 401(k) 
defined contribution plan. The Company matches employee contributions at 
levels that depend on the return on equity of the Company each year. Expense 
recognized for the plan was $22,000, $110,000, and $40,000 for the years 
ended March 31, 1997, 1996, and 1995, respectively.

13. RELATED PARTY TRANSACTIONS 

The Company leases office space in a building owned by a real estate company 
owned by the Company's former Chairman of the Board and CEO. The Company has 
exercised its option to terminate the lease, effective October 31, 1997 and 
paid a lump sum of $376,000 in fiscal 1997.
 
The Company also leases an office building and retail store owned by an 
officer of the Company which expire on March 31, 2006. Rental expense is 
$18,000 per month.
 
Included in accounts receivable is approximately $427,000 in notes receivable 
from certain officers of the Company. These notes are due from three officers 
of the Company and range in amount from $225,000 to $43,000. The majority of 
these notes bear interest at a rate of 8% with payment terms ranging from due 
on demand to April 1999.
 
The Company also entered into transactions with companies affiliated with 
various board members and current and former executives for services 
including printing, consulting, show production and professional services. 
During the years ended March 31, 1997, 1996, and 1995, the total amount paid 
to these companies for such services was approximately $1,187,000, $336,000 
and $50,000, respectively.

                                     88

<PAGE>

                           NATIONAL MEDIA CORPORATION
 
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. RELATED PARTY TRANSACTIONS (CONTINUED)

In accordance with provisions of the Company's stock option plan, in fiscal 
1997, an officer of the Company delivered 25,220 shares of the Company's 
common stock with a fair market value of $473,000 to the Company in 
satisfaction of an outstanding note receivable in said amount.
 
14. SEGMENT AND GEOGRAPHIC INFORMATION
 
The Company operates in one industry segment and is engaged in the direct 
marketing of products principally through television. Information as to the 
Company's operations by geographic area, is set forth below (in thousands):
 
<TABLE>
<CAPTION>
                                                                                       Year ended March 31
                                                                               ----------------------------------
                                                                                  1997        1996        1995
                                                                               ----------  ----------  ----------
<S>                                                                            <C>         <C>         <C>
Revenues from unaffiliated customers:
  U.S. and Canada............................................................  $  188,524  $  141,642  $   95,714
  Europe.....................................................................      58,977      56,406      50,513
  Asia.......................................................................      71,017      94,559      29,940
  South Pacific..............................................................      39,661          --          --
                                                                               ----------  ----------  ----------
Total........................................................................  $  358,179  $  292,607  $  176,167
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
Operating (loss) income:
  U.S. and Canada............................................................  $  (33,446) $    4,080  $    1,800
  Europe.....................................................................      (7,661)      5,384       2,008
  Asia.......................................................................       5,668      15,728       3,062
  South Pacific..............................................................       5,995          --          --
  Unallocated corporate expenses.............................................     (12,808)     (4,073)     (6,553)
                                                                               ----------  ----------  ----------
Total........................................................................  $  (42,252) $   21,119  $      317
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
Identifiable assets:
  U.S. and Canada............................................................  $   83,185  $   73,051  $   28,191
  Europe.....................................................................      25,925      19,106      27,779
  Asia.......................................................................      16,956      24,391       8,173
  South Pacific..............................................................      39,566          --          --
                                                                               ----------  ----------  ----------
Total........................................................................  $  165,632  $  116,548  $   64,143
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
</TABLE>
 
    Operating income is net income before interest and income taxes.
 
                                     89


<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 2 to 
Form 10-K to be signed on its behalf by the undersigned, thereunto duly 
authorized. 


                                     NATIONAL MEDIA CORPORATION



Date: January 9, 1998               /s/ Robert N. Verratti 
                                     ----------------------------
                                     Robert N. Verratti 
                                     President, Chief Executive Officer
                                     (Principal Executive Officer) and Director
 

<PAGE>

                                                                   SCHEDULE II
 
                             NATIONAL MEDIA CORPORATION 
                                 AND SUBSIDIARIES
                  SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS 
                              (Dollars in thousands)
 
<TABLE>
<CAPTION>
                                                                  ADDITIONS
                                                          --------------------------
<S>                                          <C>          <C>          <C>            <C>          <C>
                                             BALANCE AT
                                              BEGINNING   CHARGED TO    CHARGED TO
                                                 OF        COSTS AND       OTHER                   BALANCE AT END
            DESCRIPTION                        PERIOD      EXPENSES      ACCOUNTS     DEDUCTIONS     OF PERIOD
          ---------------                    -----------  -----------  -------------  -----------  --------------

Year ended March 31, 1997

Allowance for doubtful accounts............   $   2,127    $   5,698    $   1,877(3)  $   2,795(1)   $    6,907
                                                --------    --------     -----------    ----------      ---------
                                                --------    --------     -----------    ----------      ---------
Reserve for refunds........................   $   5,089    $  41,309    $   --        $  41,627(2)   $    4,771
                                                --------    --------     -----------    ----------      ---------
                                                --------    --------     -----------    ----------      ---------
Inventory Reserve..........................   $   1,558    $   8,743    $     1,828   $     390(3)   $   11,739
                                                --------    --------     -----------    ----------      ---------
                                                --------    --------     -----------    ----------      ---------
Year ended March 31, 1996:

Allowance for doubtful accounts............   $   1,954    $   1,194    $   --        $   1,021(1)   $    2,127
                                                --------    --------     -----------    ----------      ---------
                                                --------    --------     -----------    ----------      ---------
Reserve for refunds........................   $   3,371    $  29,705    $   --        $  27,987(2)   $    5,089
                                                --------    --------     -----------    ----------      --------- 
                                                --------    --------     -----------    ----------      --------- 
Inventory Reserve..........................   $   1,126    $     674    $   --        $     242(3)   $    1,558
                                                --------    --------     -----------    ----------      --------- 
                                                --------    --------     -----------    ----------      --------- 
Year ended March 31, 1995:

Allowance for doubtful accounts............   $     906    $   1,300    $   --        $     252(1)   $    1,954
                                                --------    --------     -----------    ----------      --------- 
                                                --------    --------     -----------    ----------      --------- 
Reserve for refunds........................   $   3,193    $  29,423    $   --        $  29,245(2)   $    3,371
                                                --------    --------     -----------    ----------      --------- 
                                                --------    --------     -----------    ----------      --------- 
Inventory Reserve..........................   $     952    $     460    $   --        $     286(3)   $    1,126
                                                --------    --------     -----------    ----------      --------- 
                                                --------    --------     -----------    ----------      --------- 
</TABLE>
 
------------------------
 
(1) Uncollectible accounts written off, net of recoveries.
 
(2) Refunds on products sold.
 
(3) Obsolete inventory written off.