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                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                            
                             ---------------------

                                   FORM 10-K
[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:
          Title of each class:        Name of each exchange on which registered:
Common Stock, par value $.01 per share         New York Stock Exchange
                                            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.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive proxy statement for its 1997 annual
meeting of stockholders are incorporated by reference into Parts III and IV of
this Annual Report on Form 10-K.

*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 is the world's largest publicly held infomercial company,
  making 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-
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  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-
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  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 (Pounds)254,905 ($404,662 as of March 31, 1997) for fiscal year
  1998 and (Pounds)269,436 ($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
  (Pounds)67,449 ($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 negotations 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 year 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 

                                      -14-
<PAGE>
 
  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.

  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                        Fiscal 
                                      1997                          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.

                                      -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-holiday period;
the inability of the Company to deliver effective new shows on a timely basis
and higher

                                      -19-
<PAGE>
 
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 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 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. 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. 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. 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 in the fourth quarter of fiscal
year 1997, including a substantial portion related to the write-off of two
specific customer accounts. Amortization of goodwill increased primarily due to
the current year acquisitions of PRTV, Prestige, Suzanne Paul and Nancy
Langston.

                                      -20-
<PAGE>
 
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 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 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 

                                      -21-
<PAGE>
 
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 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.

                                      -22-
<PAGE>
 
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. 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 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 a 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

                                      -23-
<PAGE>
 
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 utilizing 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 savings 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.

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

                                      -24-
<PAGE>
 
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
            ----------------                    -------     ------------  -----------     --------

<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>
 
 
<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


                                   PART III
                                        
The information called for by Items 10, 11, 12 and 13 is hereby incorporated by
reference from the Company's definitive proxy statement for its 1997 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission within 120 days of the end of the Company's fiscal year.


                                    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 VIII - 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.

                                      -27-
<PAGE>
 
(c)     Index to Exhibits

<TABLE> 
<CAPTION> 
Exhibit No.
-----------
<S>             <C> 
10.1            Agreement, dated April 24, 1997, between Mark P. Hershhorn and
                the Company.

11.1            Statement re: Computation of Per Share Earnings

21.1            Subsidiaries of the Company

23.1            Consent of Independent Auditors

27.1            Financial Data Schedule
</TABLE> 


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

                                      -28-
<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

                                      -29-
<PAGE>
 
                          National Media Corporation

                       Consolidated Financial Statements

                      Years ended March 31, 1997 and 1996



                                   Contents

<TABLE>
 
<S>                                                                         <C>
Report of Independent Auditors............................................  31
                                                
Audited Consolidated Financial Statements       
                                                
Consolidated Balance Sheets...............................................  32
Consolidated Statements of Operations.....................................  34
Consolidated Statements of Shareholders' Equity...........................  35
Consolidated Statements of Cash Flows.....................................  37
Notes to Consolidated Financial Statements................................  39
</TABLE>


                                      30
<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 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

                                                                               
                                      31
<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>

                                      32
<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.

                                      33
<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.

                                      34
<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>

                                      35
<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.

                                      36
<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>

                                      37
<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.

                                      38
<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

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 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
operating 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.

          -   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

National Media Corporation (the "Company") is principally engaged in the direct
marketing of consumer products through television media. The Company currently
brings infomercial programming to 70 countries.

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., Positive Response Television, 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, Inc. 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.
                                     
                                      39
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)



1. 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, independant appraisals. 

                                      40
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)



1. 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.

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

                                      41
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)



1. 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 options 
granted under 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).

                                      42
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)



1. Description of Business and Summary of Significant Accounting Policies
     (continued)

Reclassifications

Certain prior-year amounts have been reclassified to conform to current
presentation.

2. Acquisitions

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 have been deposited
into an escrow account for possible future delivery to PRTV shareholders) of the
Company's common stock valued at $25.9 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 $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. 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 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. 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.

                                      43
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)



2. Acquisitions (continued)

Fiscal 1997 Acquisitions (continued)

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 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.

                                      44
<PAGE>


                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)


 
2. Acquisitions (continued)

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, 1995, 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
                                            1997       1996
                                       -----------------------
<S>                                      <C>         <C>
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.

3. Accrued Expenses

Accrued expenses include the following (in thousands):
<TABLE>
<CAPTION>
 
                                                         March 31
                                                      1997     1996
                                                   ------------------
<S>                                                  <C>      <C>
Allowance for product refunds and returns            $ 4,771  $ 5,089
Accrual for legal settlements                          7,512      573
Accrual for management bonus                               -    4,212
</TABLE>

                                      45
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)



4. Property and Equipment

Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
 
                                                           March 31
                                                        1997       1996
                                                    -----------------------
<S>                                                   <C>        <C>
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.

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
                                                  1997       1996
                                              ---------------------
<S>                                             <C>         <C>
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

                                      46
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)



5. Long-Term Debt and Capital Lease Obligations (continued)

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. 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 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.

                                      47
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)



5. Long-Term Debt and Capital Lease Obligations (continued)

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>
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.

                                      48
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)



6. Capital Transactions (continued)

Stock Purchase Rights (continued)

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 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.

                                      49
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)


6. Capital Transactions (continued)

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.

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.

                                      50
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)


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>
                                         Year ended March 31, 
 (in thousands, except per share data)      1997       1996
                                       ----------------------
 
<S>                                      <C>         <C>
Pro forma net (loss) income               $(56,323)   $15,929
 
Pro forma (loss) income 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 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


                                      51
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)


7. Stock Options (continued)

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.

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 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 that $10.00, and 7.5 years for options with an exercise
price greater that $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.

                                      52
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)



7. Stock Options (continued)

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

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.

                                      53
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)


8. Income Taxes

The components of income tax expense are as follows (in thousands):

<TABLE>
<CAPTION>
                                         Federal    State    Foreign     Total
                                       ----------------------------------------
 
1997
----
<S>                                      <C>       <C>        <C>       <C>
Current                                  $   -     $   -      $1,897    $ 1,897
Deferred                                  1,201        -      (1,201)         0 
                                       ----------------------------------------
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.

Pretax income (loss) 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>

                                      54
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)

8. Income Taxes (continued)

Significant components of the Company's deferred tax assets and liabilities are
as follows (in thousands):
<TABLE>
<CAPTION>
 
                                               March 31
                                            1997       1996
                                        --------------------
 
 
Deferred tax assets:
<S>                                       <C>        <C>
 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>
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.

                                      55
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)

8. Income Taxes (continued)

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
                                             1997        1996        1995
                                        ------------------------------------
 
<S>                                        <C>         <C>          <C>
Tax (benefit) expense at statutory rate    $(15,328)   $ 7,036      $(126)
Tax effect of:
 U.S. net 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 carryforward because utilization 
of net operating loss carryforwards cannot be reasonably assumed.

                                      56
<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 
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.


                                      57
<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.

                                      58
<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 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


                                      59
<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 described in Note 13.

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.


                                      60
<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 negotations will result in a mutually agreeable 
settlement.  The Company believes that it has made adequate provision for this 
matter.

                                      61
<PAGE>
 
                           National Media Corporation

            Notes to Consolidated Financial Statements (continued)


11. Litigation and Regulatory Matters (continued)

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.

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.

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 year
1997 in connection with this matter. Such settlement is contingent upon court
approval.


                                      62
<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.

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.


                                      63
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)

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 leased 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.


                                      64
<PAGE>
 
                          National Media Corporation

            Notes to Consolidated Financial Statements (continued)


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>
 
                                             1997        1996        1995
                                        -----------------------------------
 
 
Revenues from unaffiliated customers:
<S>                                       <C>         <C>         <C>
  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.


                                      65
<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 report to be signed
  on its behalf by the undersigned, thereunto duly authorized.

                                  NATIONAL MEDIA CORPORATION                 
                                                                             
Date:  July 14, 1997                                                         
                                  /s/ Robert N. Verratti                     
                                  ------------------------                   
                                  Robert N. Verratti                         
                                  President, Chief Executive Officer         
                                  (Principal Executive Officer) and Director 


Date:  July 14, 1997              /s/ Paul R. Brazina                         
                                  ---------------------                       
                                  Paul R. Brazina                             
                                  Vice President and Chief Financial Officer  
                                  (Principal Financial and Accounting Officer) 
                                             
                                             

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
  report has been signed below by the following persons on behalf of the
  Registrant and in the capacities and on the dates indicated.



  Date:  July 14, 1997            /s/ Robert N. Verratti
                                  -----------------------
                                  Robert N. Verratti
                                  President, Chief Executive Officer
                                  (Principal Executive Officer) and Director

  Date:  July 14, 1997            /s/ Constantinos I. Costalas
                                  ------------------------------
                                  Constantinos I. Costalas
                                  Vice Chairman of the Board, Director

  Date:  July 14, 1997            /s/ Albert R. Dowden
                                  ----------------------
                                  Albert R. Dowden
                                  Director

  Date:                                                 
                                  ---------------------
                                  Michael J. Emmi
                                  Director

  Date:  July 14, 1997            /s/ William M. Goldstein
                                  --------------------------
                                  William M. Goldstein
                                  Director

  Date:  July 14, 1997            /s/ Frederick S. Hammer
                                  -------------------------
                                  Frederick S. Hammer
                                  Chairman of the Board, Director

  Date:                                                          
                                  -------------------------
                                  Robert E. Keith, Jr.
                                  Director

  Date:  July 14, 1997            /s/ Ira M. Lubert
                                  -------------------
                                  Ira M. Lubert
                                  Director

  Date:  July 14, 1997            /s/ Brian McAdams
                                  -------------------
                                  Brian McAdams
                                  Director

  Date:  July 14, 1997            /s/ Warren V. Musser
                                  ----------------------
                                  Warren V. Musser
                                  Director

  Date:  July 14, 1997            /s/ Jon W. Yoskin II
                                  ----------------------
                                  Jon W. Yoskin II
                                  Director
<PAGE>
 
                                                                   SCHEDULE VIII



                          NATIONAL MEDIA CORPORATION
                               AND SUBSIDIARIES
               SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
                            (Dollars in thousands)

<TABLE>
<CAPTION>
 
 
                                                         Additions
                                                 --------------------------
                                    Balance at   Charged to
                                   beginning of  costs and     Charged to                  Balance at end
           Description                period      expenses   other accounts   Deductions     of period
           -----------             ------------  ----------  --------------  ------------  --------------
<S>                                <C>           <C>         <C>             <C>           <C>
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     $2,295/(3)/  $43,922/(2)/          $4,771
                                         ======     =======     ======       =======               ======
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               $5,089
                                         ======     =======     ======       =======               ======
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               $3,371
                                         ======     =======     ======       =======               ======
</TABLE>

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

  (1) Uncollectible accounts written off, net of recoveries.

  (2) Refunds on products sold.

  (3) Acquired through acquisitions.
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------

<TABLE> 
<CAPTION> 

  Exhibit No.
  -----------
  <C>            <S> 

  10.1           Agreement, dated April 24, 1997, between Mark P. Hershhorn and
                 the Company.

  11.1           Statement Re: Computation of Per Share Earnings

  21.1           Subsidiaries of the Company

  23.1           Consent of Independent Auditors

  27.1           Financial Data Schedule
</TABLE>