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________________________________________________________________________________


UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-K

|           |  |                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                 
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d
    OF THE SECURITIES EXCHANGE ACT OF 1934     
|          
|           |  | For the fiscal ended March 31,
    2003                                                         
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from              to                                              

Commission File Number: 000-49826



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Thane International, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                                           |  |                                         
|------------------------------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                                                   |  | 52-2000275                              
|(State or other jurisdiction of
    incorporation or organization)                         |  | (I.R.S. Employer
    Identification No.)
|                                                                                          
|78-140 Calle Tampico
    La Quinta, California(Address of principal executive
    offices) |  | 92253(Zip Code)                         

Registrants telephone number, including
area code:

(760) 777-0217


Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $.001 Par Value


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ     No o

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 the 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.     o

The aggregate market value of common stock held
by non-affiliates of the registrant as of July 11, 2003 was
approximately $1,022,670 (based on the price of $0.38 per share,
which is the closing price for the common stock of the
registrant on such date).

The number of shares outstanding of the
registrants $.001 par value common stock as of
July 11, 2003 was 35,462,781.



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TABLE OF CONTENTS



|                                                                                                     |  |  |  |  |  |  |  | 
|---------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY STATEMENT                   
|PART I                                                                                              
|PART II                                                                                             
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                          
|REPORT OF INDEPENDENT AUDITORS                                                                      
|THANE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS                              
|THANE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS                    
|THANE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
|THANE INTERNATIONAL, INC. AND SUBSIDIARIES                                                          
|THANE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS       
|PART III                                                                                            
|AUDIT COMMITTEE FINANCIAL EXPERTS                                                                   
|SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE                                             
|PART IV                                                                                             
|SIGNATURES                                                                                          
|CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002        
|CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002        
|CERTIFICATION OF CHIEF ACCOUNTING OFFICER UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002       
|EX-10.13 Employment Agreement w/Kevin Harrington                                                    
|EX-10.14 Employment Agreement w/Tim Harrington                                                      
|EX-10.15 Employment Agreement w/Mel Arthur                                                          
|EX-21.1 Subsidiaries of the Registrant                                                              
|EX-99.1 Certification                                                                               



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PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

SAFE HARBOR CAUTIONARY STATEMENT


Forward-Looking Statements

This document includes forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements relate to our
future prospects, developments and business strategies. The
statements contained in this document that are not statements of
historical fact may include forward-looking statements that
involve a number of risks and uncertainties. We have used the
words may, will, expect,
anticipate, believe,
estimate, plan, could,
may, hope, and similar expressions in
this document to identify forward-looking statements. When we
make forward-looking statements, we are basing them on our
managements beliefs and assumptions, using information
currently available to us. Because such forward-looking
statements involve risks, both known and unknown, and
uncertainties, there are important factors that could cause
actual results to differ materially from those expressed or
implied by such forward looking statements, including but not
limited to:



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | our ability to continue to grow our operations on
    a profitable basis;                
|
| |  | our ability to consummate acquisitions and
    integrate them with our operations;       
|
| |  | adverse legislation or regulation;                                                       
|
| |  | availability of acceptable products for sale or
    significant increases in their costs;
|
| |  | economic conditions affecting consumer spending;                                         
|
| |  | our ability to respond to changes in consumer
    preferences;                           
|
| |  | our ability to sustain or increase historical
    revenues and profit margins; and       
|
| |  | continuation of current trends and general
    economic conditions.                      

These forward-looking statements are subject to
change and uncertainty that are beyond our control and have been
made based upon our expectations and beliefs concerning future
developments and their potential effect on our business. We
cannot assure you that future developments will be in accordance
with our expectations or that the effect of future developments
will be those we anticipate. Actual results could differ
materially from those we expect, depending upon the outcome of
certain factors, including those described in the
forward-looking statements. We caution readers not to place
undue reliance on these forward-looking statements, which speak
only as of their dates. We have described some important factors
that could cause our actual results to differ materially from
our expectations in this document. Except as otherwise required
by federal securities laws, we undertake no obligation to
publicly update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise.

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THANE INTERNATIONAL, INC.

2003 FORM 10-K ANNUAL REPORT

|               |  |                                                                                                    |  |   
|-------------- |  | -------------------------------------------------------------------------------------------------- |  | --
|PART I        
|Item 1.        |  | Business                                                                                           |  | 1 
|Item 2.        |  | Properties                                                                                         |  | 12
|Item 3.        |  | Legal Proceedings                                                                                  |  | 12
|Item 4.        |  | Submission of Matters to a Vote of Security
    Holders                                            |  | 12
|PART II       
|Item 5.        |  | Market for Registrants Common Equity and
    Related Stockholder Matters                          |  | 12
|Item 6.        |  | Selected Financial Data                                                                            |  | 14
|Item 7.        |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |  | 15
|Item 7A.       |  | Quantitative and Qualitative Disclosures About
    Market Risk                                     |  | 24
|Item 8.        |  | Financial Statements and Supplementary Data                                                        |  | 25
|Item 9.        |  | Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure           |  | 50
|PART III      
|Item 10.       |  | Directors and Executive Officers of the Registrant                                                 |  | 50
|Item 11.       |  | Executive Compensation                                                                             |  | 53
|Item 12.       |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |  | 58
|Item 13.       |  | Certain Relationships and Related Transactions                                                     |  | 62
|Item 14.       |  | Controls and Procedures                                                                            |  | 64
|PART IV       
|Item 15.       |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                               |  | 64
|Item 16.       |  | Principal Accountant, Fees and Services                                                            |  | 66
|Signatures     |  | 67                                                                                                
|Certifications |  | 68                                                                                                

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PART I

Item 1.     Business

Overview

We are a leading international, multi-channel
direct marketer of branded consumer products in the fitness,
health and beauty and housewares product categories. We
currently distribute our products throughout the United States
and, through our 186 international distributors and strategic
partners, in over 80 countries around the world. Our
international infrastructure primarily consists of four
complementary distribution channels; direct response television,
traditional mass-market retailers, home shopping channels and
the Internet. Our distribution capabilities enable us to tailor
our individual product distribution strategies to maximize
customer awareness and brand recognition, thereby extending the
products life cycle and maximizing potential profitability.

We have built, and continue to expand, one of the
industrys largest new product portfolios by leveraging our
advanced, market driven internal development capabilities and
extensive access to third-party idea generation and products. We
seek to develop clearly differentiated, demonstrable products
with high-perceived value that capitalize on emerging market
trends and that can be tailored to our global distribution
channels. We believe that our industry reputation as a quality
business partner, as well as our worldwide marketing and
distribution efforts facilitates our position as a partner of
choice for third-party product inventors, a critical component
in fostering our diverse pipeline of innovative consumer
products. With more than 20 years experience, we have
developed a proven ability to successfully identify, test,
refine and cost effectively bring to market what we believe to
be the most promising concepts from this pipeline.

The Direct Marketing Industry

The direct marketing industry is large,
fragmented and growing at a faster rate than the overall retail
industry. The $1.7 trillion United States direct marketing
industry has a diverse set of channels, including direct mail,
telemarketing, television, radio, newspaper, magazines and
others and is comprised primarily of single-channel or
single-product companies. Typically, industry participants
engage in direct response advertising communications to generate
direct orders, interested party leads or store/website traffic.
According to The Direct Marketing Association, the domestic
direct marketing industry had a compounded annual growth rate of
10.3% between 1995 and 2000. Health and fitness-related products
and kitchen appliances have been among the strongest performing
categories in recent years. The Direct Marketing Association
predicts this growth will continue at a projected compounded
annual growth rate of 9.6% through 2005.

The international direct marketing industry,
although still in the early stages of development, generated
approximately $617 billion of consumer sales in 2001. We
believe that higher margins are attainable in the international
markets due to the significantly lower level of competition
there as compared to United States markets. The Direct Marketing
Association projects a 9% growth rate in the international
markets through 2005.

Direct Response
Television.Cable networks represent
the traditional conduit for delivering direct response
television programs. Historically, direct response television
programming has aired on cable networks during off-peak periods.
The deregulation of the cable television industry in 1984 and
the resulting proliferation of channels, including cable
channels dedicated to particular demographic segments, pursuits
or lifestyles have opened up additional opportunities for direct
response television producers to reach targeted households and
has been a major factor behind the rising popularity of direct
response television programs.

The continued growth of satellite and cable
subscribers has positioned direct response television as a
direct marketing channel with significant domestic and
international growth prospects. This distribution channel
includes 30-minute direct response programs, short-form direct
response advertisements (30, 60 and 90 second commercials) as
well as home shopping channels. The direct response television
format allows advertisers to reach an audience cost effectively
while educating the consumer, creating product and brand
awareness quickly and generating immediate revenues and near
term sales leads. In recent years, direct

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response television programs have proven to be
effective in creating brand recognition and for simplifying the
process for new products to be introduced by traditional
retailers.


Most direct response television programs involve
products whose features and advantages benefit from a lengthy
demonstration or explanation and that are amenable to impulse
buying. The leading product categories for direct response
television programs are cosmetics, fitness/exercise products,
diet/nutrition products, kitchen tools and appliances,
self-improvement/education/motivation courses, music (CDs and
cassettes) and home videos/DVDs. Direct response television
programs discuss and demonstrate the products and provide a
toll-free number for viewers to call to purchase the products.
In addition, direct response television programs today typically
provide a Web address for viewers to obtain additional
information or make their purchases online.

As the industry has developed, the variety of
products and services promoted though direct response television
programs has steadily increased. Direct response television
programs are now routinely used to introduce new products, drive
retail traffic, schedule demonstrations and build product and
brand awareness for products ranging from automobiles to mutual
funds.

The commercial success of a number of well-known
direct response television campaigns in the fitness, kitchen and
beauty product categories highlighted the ability of direct
response television programming to launch new products, build
brand awareness quickly and cost-effectively, and generate
immediate revenues and sales leads. In addition, these early
successes led to the extension of direct response television
programs to many other product categories, including
automobiles, computers and financial services. The success of
the direct response television format has captured the interest
of traditional advertisers seeking to educate consumers about a
complex product or service, while promoting product and brand
awareness and acquiring sales leads. In recent years, such
well-known companies as General Motors, Ford, Nissan, Lexus,
Jaguar, Mercedes-Benz, Land Rover, AT&T, Corning, Johnson
& Johnson, Time-Life, H&R Block, Microsoft, Magnavox,
Apple Computer, Bose, Kodak, Nikon, Princess Cruises, Campbell,
Quaker State, Glaxo Wellcome, Philips, Taylor Made and Fidelity
Investments have employed direct response television programs to
promote their products and services. The adoption of direct
response television programs by such recognized household names
has added credibility to the direct response television medium.

Industry leaders are developing new business
models that augment consumer initiated sales calls with outbound
telemarketing. Direct response television programs are being
utilized increasingly as part of an integrated, multi-channel
marketing campaign that includes traditional 30-second
television advertising and print advertising. Direct response
television programs are often employed to introduce new products
destined for eventual sale through traditional retail outlets.

Recent years have also seen a convergence of
direct response television programs with Internet direct
response marketing. Virtually all direct response television
programs now display a URL in addition to a toll-free telephone
number. The addition of an e-commerce component is estimated to
boost direct response sales by an estimated 3% to 10% per
campaign by Response Magazines Fifth Annual State of the
Industry Report. The eventual technological convergence of
television and the Internet is expected to create new
opportunities for the direct marketing industry by removing
filters between the marketer and the consumer, offering new
levels of interactivity and customization, and speeding the
delivery of information and offers to the consumer.

Business Strategies

Our operating strategy is to (i) continually
enhance our diverse product portfolio, (ii) utilize our
highly developed multi-tiered domestic and international
infrastructure of distribution channels to maximize the
profitability of our products, (iii) maintain a low cost
position in our industry by virtue of our scale, by combining
in-house expertise in critical value-added functions such as
product selection, marketing development, media buying and
direct response television production with a strategy of
outsourcing to low-cost providers non-core functions such as
manufacturing, order processing and fulfillment, and
(iv) minimize business risk by retaining a highly variable
cost structure and curtailing inventory risk.

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Enhance Diverse Product
Portfolio.A diverse product portfolio
provides us with a stable source of revenues and less exposure
to changes in consumer preferences. We actively seek products
through numerous sources such as inventors, product owners,
design companies, manufacturers, advertising and media agencies,
production houses, trade shows as well as our own internal
development staff. We believe that our industry reputation as a
quality business partner as well as our ability to launch a
coordinated worldwide marketing and distribution effort make us
a partner of choice for product owners and attracts numerous
product proposals from third parties. We review thousands of
product proposals annually. In addition, we have an in-house
product development staff to create products to capitalize on
market opportunities in domestic and international markets.

Leverage Multi-Tiered Domestic and
International Distribution
Infrastructure.We utilize multiple
distribution channels to maximize customer awareness and brand
recognition of our products, thereby extending their lifecycle
and maximizing their profit potential. We believe that we are
the only direct marketer that can introduce a product in the
United States and, through our 186 international distributors
and strategic partners, in over 80 countries worldwide within a
60-day period. We utilize direct response television to create
customer awareness and brand loyalty of our products on a
profitable and expeditious basis. The media exposure of a direct
response television campaign typically allows us to expand our
sources of revenue and achieve higher levels of profitability by
leveraging our media investments through other distribution
channels such as retail, home shopping channels (e.g. QVC and
Home Shopping Network), print advertisements, catalogs,
telemarketing and the Internet. Our revenue mix for fiscal 2003
was 40% domestic direct to consumer, 8% wholesale, 32%
international and 20% Internet and other.

Maintain Low Cost
Structure.We strive to maintain a low
cost structure by combining our in-house expertise in product
testing, marketing development, media buying and direct response
television production with outsourced non-core functions such as
manufacturing, order processing and fulfillment. We utilize our
in-house expertise in functions that are critical to the success
of our business and contracts with third-party providers where
we can achieve significant cost savings and efficiencies. In
addition, we have structured our international operations as
distributorships and strategic partnerships to avoid the
significant costs and risks associated with managing
far-reaching overseas operations.

Minimize Business
Risk.We have developed a number of
strategies to minimize business risk, including
(i) maintaining a high ratio of variable costs, which
results from outsourcing all non-core activities to low-cost
third-party providers, (ii) minimizing inventory levels by
not placing significant orders until demand is actually
generated, and (iii) adopting a systematic and highly
disciplined market testing methodology, which rigorously screens
products prior to committing significant resources to them.

Growth Strategy

Our growth strategy is to (i) continue to
develop various marketing channels to extend product life cycles
and create additional revenue and profit opportunities,
(ii) make strategic acquisitions of synergistic single
product or distribution channel companies that can benefit from
our highly developed infrastructure, (iii) increase
international sales by further expanding the scope of our
relationships with existing international distributors and
strategic partners and adding new international distributors and
strategic partners in underserved markets, (iv) increase
our focus on product branding through direct response television
to facilitate sales across distribution channels and product
categories and build valuable brand equity over time by virtue
of our significant annual media spending, and (v) add
revenue diversification through ancillary business opportunities
such as membership clubs, media buying and product sourcing
services for third parties.

Recent Acquisition

In May 2002, we acquired Reliant Interactive
Media Corp. Reliant is a direct marketer of consumer products
primarily through direct response television and through
secondary sources such as the Internet and QVC. Reliant manages
the direct marketing for the majority of its products in both
the United States and the United Kingdom. This includes product
selection and development, manufacturing by third parties,
acquiring television media through a media agency, production
and broadcast of programming and outsourced order

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processing, fulfillment, and customer service.
The acquisition of Reliant expanded our existing housewares
product category, enhanced our product generation infrastructure
and improved our product development capabilities.


Product Overview

We have successfully attracted and generated a
significant flow of product ideas from numerous sources over the
years. We have a reputation in the industry as a quality
business partner because of our fair dealings with our partners,
our creative ability to make an effective marketing message, our
worldwide marketing expertise and network, and our ability to
obtain low-cost manufacturing and fulfillment services, all of
which create value for our product partners. Moreover, we
believe our historical success with individual products as a
result of our multi-tiered distribution channels has enabled us
to attract the most innovative and lucrative opportunities.
Consequently, we believe that we have a competitive advantage in
attracting and retaining product partners.

The first critical step of the marketing process
consists of reviewing and analyzing products for selection and
acquisition. We have a structured and disciplined methodology,
utilizing twelve selection criteria to evaluate the potential of
each product. The selection process includes two series of
market tests in which the potential market demand for a product
is quantified on the basis of our performance in certain
well-chosen test markets. Test markets are selected based on
their demographic characteristics and effectiveness in past
tests. It is important to note that certain products are
developed and marketed specifically for certain channels of
distribution (e.g., retail only or home shopping channels only),
often in conjunction with an exclusive offering.

We bring both internally and externally generated
products to market. We have a product development staff whose
responsibility is to identify new products that will be
successful in direct response television marketing and other
direct marketing channels. We review products for acquisition
and/or development at various states of completion. We
differentiate products according to three product
development/acquisition models, each of which typically accounts
for one third of our existing product portfolio: products
acquired from owners or inventors; in-house developed products;
and distribution partnerships.

Products Acquired from Owners or
Inventors.We acquire products from
independent products owners and inventors at different stages of
development from initial idea through prototype development to
finished products. In situations where we acquire products from
third parties, we typically acquire all marketing rights,
manufacturing and inventory control, and either purchase the
product from the owner or pay the product owner a royalty based
on revenues from the project.

In-House Developed
Products.We independently develop and
fund in-house products. When developing an in-house product, we
will create the concept, develop the prototype, and produce the
direct response television program. All of the profits from
in-house developed products are retained by the Company. Our
in-house products are typically developed in lower risk product
classes where there is known demand and we can utilize our
in-house expertise to develop the product. We also engage
outside designers and engineers to assist in developing product
concepts. Our in-house product development capabilities allow us
to enter product classes swiftly and maximize profit potential.

Distribution
Partnerships.We enter into
distribution partnerships with product owners in situations
where the product owners fund the production and marketing and
we receive distribution rights. When we enter into these
distribution partnerships, we will typically share equally in
the net profits, but we have minimal financial risk in the event
the product is unsuccessful. Distribution partnerships usually
last for three years with an option to extend if the product is
successful.

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Current Products

We market a variety of consumer products which we
classify into three product categories: fitness, health &
beauty and housewares. During fiscal 2003, we offered numerous
products to consumers through our various distribution channels.
We currently offer the following products:

Fitness.



| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | The Orbitrek and the Orbitrek Pro,elliptical cardiovascular, full-body
    exercise machines.

Health and beauty.



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | KlearAction,an
    all-in-one acne treatment system that keeps pimples, blemishes
    and blackheads under control and minimizes future outbreaks;
|
| |  | Youth Cocktail,natural age-Fighting herbal vitamins
    and minerals;                                                                             
|
| |  | Magnassager,a
    powerful hand-held massager utilizing three rotating stainless
    steel balls to provide muscle relief; and                    
|
| |  | Sudden Lift,a
    comprehensive facial skin care system that temporarily lifts and
    firms skin, erases wrinkles, fine lines and puffiness.     

Housewares.



| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Le Presse,a high
    quality food preparation system with numerous slicing
    attachments;                                                                                                                     
|
| |  | Flavorwave Oven,an
    infrared oven that cooks food evenly from the inside out faster
    than a microwave oven;                                                                                               
|
| |  | Thunderstick and Thunderstick Pro Mixers,each a powerful handheld blender/food
    processor that can be used to replace a variety of counter top
    appliances, including mixers, juicers and coffee grinders;
|
| |  | True Sleeper,a
    visco elastic foam mattress topper that provides an extra
    comfortable sleeping surface over your existing mattress; and                                                                  
|
| |  | Q portable
    grill,a compact, affordable gas grill
    weighing eight pounds, with dual gas controls, stainless steel
    construction and a full range of cooking temperatures.                            

Multi-Tiered Distribution Channels

We believe that our multi-tiered distribution
channels provide us a competitive advantage in attracting,
marketing and selling products. The various distribution
channels enable us to introduce products in multiple markets
through multiple channels simultaneously. This allows us to
capitalize on the customer awareness and branding recognition
created by our investment in direct response television media.
It also allows us to capitalize on opportunities in individual
markets by developing and selling products specifically for
certain distribution channels. Our distribution channels consist
of (i) domestic direct response television,
(ii) international direct response television,
(iii) international wholesale, (iv) retail,
(v) home shopping channels, (vi) the Internet,
(vii) catalogs, (viii) credit card inserts,
(ix) print advertisements, and (x) database marketing.

Domestic Direct Response
Television.Direct response television
consists of 30-minute commercials that provide in-depth
demonstrations and explanations of the product and spot (one to
two minute) commercials. We design our direct response
television programming to create an entertaining and informative
presentation of our products features, uses and benefits.
We utilize direct response television to create customer
awareness and brand loyalty by frequent airing of our programs
in targeted markets. We closely monitor the sales generated from
each airing of our programs to measure consumer receptivity and
sales of the product. Direct response television allows us to
test new products and marketing messages quickly, efficiently
and accurately. It also enables us to actively manage the
product launch, product profitability and market penetration per
media dollar, and determine the appropriate life cycle of the
product in each targeted market.

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We believe that our ability to produce direct
response television programs for between $50,000 to $200,000 in
an average of 60 days is a competitive advantage. In
general, direct response television commercials for fitness and
health and beauty products often take more time to produce and
are often more costly to produce than commercials for our
housewares products because they often include before and after
segments, as well as customer testimonials. Our low-cost
production capabilities provide us with decreased risk,
increased potential profits and greater product diversity. In
addition, we are able to leverage our investment in a domestic
direct response television program by customizing it for
specific international markets, which typically entails
utilizing a native language voiceover and, occasionally, local
testimonials to enhance receptivity. The customization process
is typically quick and inexpensive.

We believe that direct response television drives
our multi-tiered distribution strategy by creating consumer
awareness in target markets on a profitable and cost-effective
basis, which can be subsequently capitalized on through our
other distribution channels such as wholesale, retail, Internet,
and other channels. We seek to coordinate our direct response
television strategy with other distribution channels
strategies to maximize sales and profitability of each product.
The media exposure of a direct response television campaign
typically allows us to expand our sources of revenue and achieve
higher levels of profitability by leveraging our media
investments through other distribution channels.

International Direct Response
Television.Our direct television
infrastructure includes international operations in Canada. Our
Canadian international direct response television resources are
operated in a similar manner to our domestic direct response
television resources, except that we make international media
purchases directly rather than through media brokers. During
fiscal 2003, our Canadian direct response television programming
generated sales of approximately $5.5 million of our total
international sales of $51.3 million. During the fourth
quarter of fiscal 2002, we expanded our international direct
response efforts to the United Kingdom, where we have developed
a full-time direct response television channel that allows us to
air our customized direct response programs throughout the
United Kingdom on a 24-hour basis.

We believe that our international direct response
television infrastructure supports our multi-tiered distribution
strategy in the same manner as our domestic efforts. The
increased consumer awareness created in these international
markets generates increased sales through our international
wholesale and retail channels.

International
Wholesale.We believe that we are the
only direct marketer that can introduce a product in the United
States and, through our 186 international distributors and
strategic partners, in more than 80 countries worldwide
within a 60-day period. We provide these distributors and
strategic partners with customized direct response television
programming, products and consulting services and the
distributors and strategic partners control the direct marketing
of the products, including media purchasing, order processing
and fulfillment, in their local markets. By allowing our
partners to control all local operations, we avoid local market
and currency risks as well as investments in inventory and
distribution infrastructure.

We have spent ten years developing strategic
relationships with leading consumer product distributors
throughout the world. We believe that our historical success,
innovative products and honest business practices provide us a
competitive advantage in attracting and retaining international
distributors and strategic partners, and discourage similar
relationships with our competitors. International sales have
grown from $1.3 million in fiscal 1998 to
$51.3 million in fiscal 2003. We believe that there is less
competition internationally and increasing availability of
television media (as deregulation of direct marketing continues
in additional countries) creating less margin pressure and
higher sales potential. We expect that international business
will represent our highest growth opportunity, both in terms of
increased sales in existing markets as well as expansion into
new territories.

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The map below employs shading to identify those
countries in which we have an existing strategic partnership.
Where we have multiple strategic partnerships, the number of
such partnerships is indicated by parenthetical notation next to
the name of the country.

(WORLD MAP)

Argentina(2)

Australia(2)


Austria(5)


Bahrain


Belgium(4)


Bolivia


Bosnia(3)


Brazil(2)


Bulgaria


Caribbean(5)


Chile(2)


Colombia


Costa Rica(2)


Croatia(3)


Cyprus(2)


Czech Republic(4)


Denmark(2)


Dominican Republic


Ecuador


Egypt


El Salvador


Estonia(2)


Finland(2)


France(2)


Germany(6)


Guatemala


Hungary(2)


India(2)


Indonesia


Ireland(2)


Israel


Italy(2)


Japan(5)


Kazakhstan


Kuwait


Latvia(2)


Lebanon


Lithuania(2)


Macedonia


Malaysia


Malta


Mexico(2)


Mongolia


Morocco


Nepal


Netherlands(3)


New Zealand


Nicaragua


Norway


Oman


Panama


Paraguay


Peru


Philippines(2)


Poland(3)


Portugal(2)


Puerto Rico(2)


Qatar


Romania(2)


Russia(4)


Saudi Arabia


Singapore(2)


Slovakia(3)


Slovenia


South Africa(3)


South Korea(4)


Spain(6)


Sri Lanka


Surinam


Sweden(3)


Switzerland(5)


Syria


Tahiti(2)


Taiwan


Thailand


Trinidad(2)


Tunis


Turkey


Ukraine(2)


United Arab Emirates


United Kingdom(9)


Uruguay


Venezuela


Yemen


Yugoslavia


Retail.We have many
major retail customers that stock our products in their stores,
including Target, Sports Authority, Big 5 and Walgreens.
Retail sales capitalize on the customer awareness and brand
loyalty created by direct response television programming
without the additional media costs. Consequently, gross margins
for retail sales are typically comparable to those of direct
response television. Retail sales attract those consumers who
either want to touch and feel the product or are not otherwise
inclined to purchase through a direct response television
program. We believe that the presence of our products in major
national retailers lends credibility to our products and
furthers customer awareness and brand loyalty.

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Home Shopping
Channels.We have preferred vendor
relationships with the two major United States home shopping
channels, Home Shopping Network and QVC. These relationships
enable us to market products on these channels on attractive
terms and conditions, as well as test products prior to
incurring the expense of producing a direct response television
program. Typically, we will wholesale products to the shopping
channels, use our own hosts and control the presentation of the
product. We believe that utilizing home shopping channels allows
us to market products to different demographics on a cost
effective basis and furthers product credibility, customer
awareness and brand loyalty.

Internet.We operate
several websites that are accessed through approximately
350 URLs and numerous search engine links to capture
sales on the Internet. We have key revenue-sharing marketing
partnerships in place with large online media companies, list
owners, search engine portals and other websites where online
shoppers tend to initiate their product searches. Our primary
website, Thane.com, is featured prominently on all our direct
response television programs, package inserts and product
packaging. Our websites are fully automated, including back-end
order processing and a fully-integrated inventory management
system.

Our websites provide consumers with a broad
selection of products in a user-friendly manner in three
different languages, while generating high margins. Our Internet
strategy leverages off of the significant direct response
television media spending and the customer awareness and brand
loyalty created through retail sales and home shopping channels.
Internet sales have increased from $884,000 in fiscal 1999 to
$24.0 million in fiscal 2003. We believe that Internet
sales and profitability will continue to grow as the Internet
becomes a more accepted medium for the purchase of goods and as
our customer base increases through our other distribution
channels.

Catalogs.We sell
our products to numerous national catalog publishers on a
wholesale basis. Some of our larger catalog customers include
J.C. Penney, Taylor Gifts, Publishers Clearing House,
Technobrands and Lifestyle Fascination. We believe that catalog
sales enable us to market our products to an expanded
demographic base of customers that have been targeted by the
cataloger. We sell our products to catalog companies wholesale
and therefore avoid inventory and fulfillment requirements.

Credit Card Inserts.We contract with certain syndicators to sell our products
through credit card inserts by advertising our products in bills
mailed to credit card customers. This distribution channel is a
low cost method by which we can market our products to selected
demographic groups. We selectively utilize credit card inserts
for lower priced products that do not require complicated
marketing information.

Print
Advertisements.We purchase print
advertising for our products in selective situations to
supplement existing marketing efforts or as a low cost
alternative marketing channel. Print advertisement can serve as
an effective reminder to consumers to purchase a product or
means to target a market not otherwise reached through other
distribution channels.

Database Marketing.We market additional products to our existing customers through
inbound telemarketing upsells, catalog and reorder package
inserts, outbound telemarketing and direct mail. These revenues
require little or no media related costs and generate a much
higher margin sale. Continuity offers are developed for all
topical and ingestible products. These programs automatically
ship consumers 30, 60, or 90 day supplies of their
originally purchased product until such time as the customer
initiates cancellation of their membership. These database
marketing activities produce ongoing high margin revenues,
increase long-term customer value, maintain customer awareness
and build brand loyalty.

Occasionally, we also utilize a
two-step marketing approach. Our two-step approach
typically focuses first on spot commercials and direct response
television programs that we air with no mention of price to
generate consumer interest in and requests for product
information. The second step focuses on converting inquiries
into sales, which are accomplished through a combination of
response mailings and outbound telemarketing. We typically
respond to each product inquiry regarding our direct-marketed
products by forwarding detailed literature that describes the
product line, outlines key features, highlights available
accessories and provides additional information about how to
purchase the product. If a potential customer does not respond
within a certain time period, we proceed with additional
follow-up mailings or outbound

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telemarketing calls that convey a different
marketing message and typically offer certain inducements to
encourage a sale. The specific marketing message and offer at
each stage will vary on a case-by-case basis, based on what our
statistical tracking indicates is most likely to trigger a sale.


Operations

Product Selection.Reviewing and analyzing products for selection and acquisition
is the first critical step of the marketing process. We have a
structured and disciplined methodology utilizing twelve
selection criteria to evaluate the potential of each product.
The selection process includes two series of market tests in
which the potential market demand for a product is quantified on
the basis of its performance in certain well-chosen test
markets. Test markets are selected based on their demographic
characteristics and effectiveness in past tests.

We bring both internally and externally generated
products to market. We have a product development staff whose
sole responsibility is to identify new products that will be
successful in direct response television marketing and
subsequently in other direct marketing channels. We review
products for acquisition and/or development at various stages of
completion.

Direct Response Television
Production.We have extensive
experience in producing direct response television programs,
having produced over 30 programs since the beginning of fiscal
2001. After we decide to market a product we will typically
produce the thirty-minute direct response television program
in-house. Depending on the type of product, we can produce
programs in-house for between $50,000 to $200,000. Our in-house
production costs are substantially below the industry average
and provide us with decreased risk, increased potential profits
and greater product diversity. Developing the production
in-house also enables us to manage with efficiency and
flexibility one of the most crucial parts of the direct
marketing process.

Inventory
Management.We seek to minimize our
inventory risk by (i) establishing demand for our products
prior to purchasing inventory through small media tests,
(ii) gradually expanding the marketing of our products with
incremental media purchases and through the home shopping
channels, (iii) purchasing inventory based on current
demand and four to six week fill times to the consumer during
the early and late stages of a products life cycle,
(iv) shipping direct from the factory to international
distributors, thus booking an immediate sale with no inventory
investment, (v) focusing on current sell-through of
products in the retail channel when determining factory orders,
(vi) utilizing our numerous channels of distribution to
sell products and (vii) discounting unsold product on the
home shopping channels and the Internet.

Product
Manufacturing.We outsource the
production of our merchandise to third-party manufacturers,
primarily in China. Given the importance of obtaining high
quality, low cost products, we have built a dedicated in-house
company, Concept and Products Solutions, Inc., that focuses
exclusively on developing proprietary relationships with
overseas manufacturers to source quality products at the lowest
cost available. This effort has been so successful that we now
offer our services to third-party direct marketers. We typically
source products from multiple manufacturers in order to avoid
supplier concentration risks. Our management has an average of
eight years experience with our primary manufacturers. These
long-term relationships provide all parties with confidence and
mutually beneficial incentives. We believe that one of our
competitive advantages is our ability to minimize our
manufacturing costs while maintaining quality and production
continuity. We employ in-house personnel and third-parties to
oversee the manufacturing process and provide quality
assurance/quality control functions. We believe that our
oversight of the manufacturing process enhances the economics of
our products through lower manufacturing costs and reduced
warranty claims.

Media Purchasing.We
perform the media purchasing function in-house. With programming
available to approximately 60 million households in the
United States, we are historically one of the largest buyers of
direct response television programming media time. Our size and
reputation enable us to leverage our purchasing power when
negotiating airtime with television channels and is one of our
most significant competitive advantages. We purchase media time
through our media agency subsidiary and other media brokerage
agencies. Purchasing media time through different agencies
maximizes flexibility and lowers costs while enabling us to
select appropriate media time.

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The goals of our direct response television
program are to generate sales and create consumer awareness of
the product in order to facilitate sales through other
distribution channels. Media purchases are a significant
component of cost of goods sold and therefore are diligently
managed to minimize the cost of media per order received. This
media management is conducted throughout the life cycle of the
product each time the program is aired.

Order Processing.Our direct response television programs typically ask viewers to
call a toll free number to order the advertised product at the
advertised price. We outsource our order processing primarily
through long-standing arrangements with third parties such as
West Corporation. We closely monitor order processing to obtain
customer ordering data and for quality control purposes through
on-line communications and database access. We also seek to have
our order processing attempt to up-sell products or offer
additional related products to maximize sales to each customer.

We utilize, in conjunction with our third-party
order processors, a proprietary skill-based call routing system
that automatically routes each incoming call to the most highly
qualified sales agent or customer service representative
available. The appropriate representative then answers product
questions, proactively educates the potential customer about the
benefits of our product line and typically up-sells the benefits
of additional product options or higher priced models in our
product lines. This sophisticated system allows us to better
utilize the call center agents, prioritize call types and
improve customer service.

Order Fulfillment.We have outsourced our order fulfillment function to Innotrac
Corporation to minimize fixed costs for our direct response
television distribution channel. Innotrac receives merchandise
from the manufacturers and manages the shipment, payment and
return process. We have been involved in building the
information systems related to these activities and maintain
control over this process by tracking the operations on a daily
basis. We have our manufacturers drop ship directly to our
international distributors and strategic partners.

Customer Service.We
provide customer service through third-party contractors who
respond to customer inquiries and process product returns. We
typically offer an unconditional 30-day money back return policy
to our customers. Our products are typically covered by
manufacturer warranties.

Customers

Our customers include thousands of individual
domestic and international consumers, numerous retail chains,
the Home Shopping Network, QVC, 186 international distributors
and strategic partners and many national catalog publishers. No
single customer accounted for greater than five percent (5%) of
revenues for any of our 2001, 2002 and 2003 fiscal years.

Warranties

We generally offer an unconditional 30-day money
back return policy to purchasers of any of our products. Our
manufacturers typically offer warranties, which vary depending
upon the product and the manufacturer. The average return rate
of our products, excluding Krane Products, Inc., for each of
fiscal 2001, 2002 and 2003 was 9.1%, 7.5% and 9.3%,
respectively. The average return rate for Krane for 2003 was
40.7%. We believe that our return experience for each channel of
distribution is within the customary range for direct marketing
businesses.

Competition

The direct marketing industry is large and highly
fragmented, with the majority of industry sales generated by
single-product and single-channel companies. We define our
primary competition as multi-channel and multi-product direct
marketing companies. We believe that our primary competitors are
Guthy-Renker and Good Times Entertainment Limited, both of which
market their products in the United States through direct
response television, retail, the Internet and other wholesale
channels. Companies such as American Telecast, Direct Focus,
Tristar Products, AMS Direct and Ronco currently market several

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successful products primarily through direct
response television programs. Additionally, there are a number
of direct marketing companies that market their products
primarily through catalogs.


We face significant competition within each of
our merchandise categories from large and small retailers, other
domestic direct marketing companies, and various international
competitors in individual markets. Many of the large retailers
also sell their products through other channels such as the
Internet and catalogs. We compete with a variety of consumer
products companies and retailers, many of which have
substantially greater financial, marketing and other resources
than us.

Intellectual Property

Our success at attracting, marketing and selling
products depends significantly on our ability to establish brand
name recognition for our products. In order to protect our brand
awareness, we own or license intellectual property rights
associated with each product, including trademark, copyright and
patent protections. In addition, we typically seek to acquire
all related Internet URLs associated with our products. We
protect ourselves from competitors that produce, market and sell
imitations of our products through establishment and enforcement
of our intellectual property rights. In addition to securing
intellectual property rights related to our products, we rely on
confidentiality, license and other agreements with employees,
customers, international distributors, strategic partners and
others to protect our proprietary rights.

Government Regulation

Various aspects of our business are subject to
regulation and ongoing review by a variety of federal, state,
local and foreign government agencies, including the Federal
Trade Commission, the United States Post Office, the Consumer
Products Safety Commission, the Federal Communications
Commission, the Food and Drug Administration, attorney generals
of various states and other state and local consumer protection
and health agencies. The statutes, rules and regulations
applicable to our operations, and to various products marketed
by us, are numerous, complex and subject to change.

Our international business is subject to the laws
and regulations of Canada, the United Kingdom and Germany, and
our international strategic partners are subject to the laws of
the European Union and the various other countries in which we
sell products, including, but not limited to, the various
consumer and health protection laws and regulations in these
markets. If any significant actions were brought against us or
any of our subsidiaries or strategic partners 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 we obtain a significant portion of media, we could
be materially and adversely affected. There can be no assurance
that changes in the laws and regulations of any territory which
forms a significant portion of our market will not adversely
affect our business or results of operations.

We collect and remit sales tax in the states
where we have a physical presence. Certain states in which our
only activity is direct marketing have attempted to require
direct marketers, such as us, to collect and remit sales tax on
sales to customers residing in such states. A 1995 United States
Supreme Court decision held that Congress can legislate such a
change; however to date Congress has taken no such action. We
are prepared to collect sales taxes for other states if laws are
passed requiring such collection. We do not believe that a
change in the laws requiring the collecting of sales taxes will
have a material adverse effect on our financial condition or
results of operations.

Employees

As of July 11, 2003, we had approximately
159 employees, of which 23 were in direct response television
production, 12 were in product development and acquisition and
124 were in sales, operations, administration and accounting.
None of our employees are represented by a labor organization.
We consider our employee relations to be good.

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Item 2.     Properties

We lease approximately 22,362 square feet of
space located at 78-140 Calle Tampico, La Quinta, California at
which we maintain our principal executive offices. The lease for
this facility has a 20-year term commencing April 2001 and
provides for annual rent of approximately $268,000. Until August
2002, this facility was owned by William F. Hay and Denise
DuBarry-Hay. See Item 13  Certain
Relationships and Related Transactions.

We also lease approximately 7,048 square feet of
office space located at 4800 North Federal Highway,
Suite 300E, Boca Raton, Florida. The lease for this
property has a term ending December 2004. We also lease
approximately 6,000 square feet of office space located at 2701
North Rocky Point Drive, Suite 200, Tampa, Florida pursuant
to a lease having a term ending February 2005. The leases for
these facilities provide for annual rental payments of $165,000
and $200,000, respectively.

In addition to the foregoing leases, we also
lease an aggregate of 30,439 square feet of office space and
10,972 square feet of warehouse space at various locations
throughout the United States and London, England.

We believe that our current facilities are in
good operating condition and are adequate for our current
operations.

Item 3.     Legal
Proceedings

The Company is involved in a class-action lawsuit
brought by certain former shareholders of Reliant related to
certain non-financial disclosures made in the Companys
registration statement on Form S-4 in conjunction with the
Companys acquisition of Reliant. The Company believes that
it has meritorious defenses with regard to this litigation and
will aggressively defend its position. Management therefore does
not believe that the resolution of this matter will have a
material adverse impact on the Companys financial
position, results of operations, or cash flows.

We are a party from time to time in other routine
legal proceedings arising in the ordinary course of its
business. Although the outcome of any proceedings cannot be
predicted accurately, we do not believe any liability that might
result from the proceedings could have a material adverse effect
on our business, financial condition and results of operations.

Item 4.     Submission
of Matters to a Vote of Security Holders

The annual meeting of the stockholders of Thane
International, Inc. was held on November 7, 2002 at which
the following action was taken:



| |    |                                                                                                                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | The stockholders elected the three Class I
    directors, Mr. William F. Hay, Ms. Denise DuBarry-Hay and
    Mr. Dean Belbas, for terms expiring on the date of the
    annual meeting in 2005. The voting was as follows:

FOR:     32,375,253
shares                    WITHHELD:     18,776
shares




PART II



|        |                                                                              
|------- | -----------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common
    Equity and Related Stockholder Matters

Our common stock commenced trading on the
over-the-counter market under the symbol THAN on
May 24, 2002. Prior to that time, our common stock was not
publicly traded, and no market information is

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available. The following table sets forth, for
the period indicated, the high and low reported prices per share
of our common stock on the over-the-counter market reporting
system.


|                                                       |  |             |      |     |  |   |      | 
|------------------------------------------------------ |  | ----------- | ---- | --- |  | - | ---- | 
|                                                       |  |            
|                                                       |  | Stock Price
|                                                       |  |            
|Fiscal Year                                            |  | High        |      | Low
|                                                       |  |             |      |    
|2003                                                   |  |             |      |     |  |   |      | 
|First Quarter (From May 24, 2002 to
    June 28, 2002) |  | $           | 8.50 |     |  | $ | 4.80 | 
|Second Quarter                                         |  | $           | 4.70 |     |  | $ | 1.65 | 
|Third Quarter                                          |  | $           | 1.50 |     |  | $ | 0.33 | 
|Fourth Quarter                                         |  | $           | 0.60 |     |  | $ | 0.30 | 
|April 1, 2003 to July 11, 2003                         |  | $           | 0.51 |     |  | $ | 0.24 | 

As of June 6, 2003, there were approximately
595 holders of record of our common stock.

We have never declared or paid dividends on our
common stock since our formation. We do not currently intend to
pay dividends on common stock in the foreseeable future so that
we may reinvest our earnings in the development of our business.

Recent Sales of Unregistered
Securities

In March 2002, we issued an aggregate of
2,585,474 shares of our common stock to the stockholders of
Krane Holdings, Inc., a Delaware corporation, in connection with
our acquisition of all of the issued and outstanding capital
stock of Krane.

In March 2002, we issued warrants to purchase up
to an aggregate of 792,896 shares of our common stock at a
price of $.001 per share to two financial institutions with
whom we had a business relationship. We issued these warrants in
exchange for certain previously issued warrants to purchase
shares of its common stock in connection with the refinancing of
our credit facility.

In May 2002, we issued an aggregate of
3,532,414 shares of our common stock to the Stockholders of
Reliant Interactive Media Corp, a Nevada corporation, in
connection with our acquisition of all the issued and
outstanding capital stock of Reliant. Of these total shares,
2,214,275 were placed in escrow in accordance with the terms of
the merger agreement.

These stock and warrant issuances were deemed to
be exempt from registration under the Securities Act in reliance
upon Section 4(2) thereof as a transaction by an issuer not
involving any public offering.

From June 1999 to November 2002, we issued
options to purchase up to an aggregate of 2,880,000 shares
and 546,000 shares of our common stock to certain employees
pursuant to our 1999 and 2002 Stock Option Plans, respectively.
There are currently 2,856,000 and 521,000 options outstanding
pursuant to our 1999 and 2002 Stock Option Plans, respectively.

These option issuances were deemed to be exempt
from registration under the Securities Act in reliance upon
Rule 701 promulgated thereunder in that they were offered
and sold either pursuant to written compensatory benefit plans
or pursuant to a written contract relating to compensation, as
provided by Rule 701. In addition, such issuances were deemed to
be exempt from registration under Section 4(2) of the
Securities Act as transactions by an issuer not involving any
public offering.

There were no underwritten offerings employed in
connection with any of the transactions described above.

The recipients of securities in each transaction
described above represented their intentions to acquire the
securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate
legends where affixed to the securities issued in each
transaction. All recipients had adequate access, through their
relationship with us, to information about us.

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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected consolidated financial
data for the most recent five fiscal years ended March 31
is qualified by reference to and should be read in conjunction
with the Financial Statements and the Notes thereto, and
Managements Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this
Form 10-K. The Statement of Operations Data set forth below
with respect to fiscal 2001, 2002 and 2003 and the Balance Sheet
Data as of March 31, 2002 and 2003 are derived from
Thanes audited financial statements included elsewhere in
this Form 10-K. The Statement of Operations Data for fiscal
1999 and 2000 and the Balance Sheet Data as of March 31,
1999, 2000 and 2001 are derived from audited financial
statements not included herein.

|                                                         |  |                        |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|-------------------------------------------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                         |  | 1999                   |         | 2000 |  | 2001 |         | 2002 |  | 2003
|                                                         |  |                        |         |      |  |      |         |      |  |     
|                                                         |  |                       
|                                                         |  | (Dollars in thousands)
|Statement of Operations Data                             |  |                        |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Total revenues                                           |  | $                      | 109,236 |      |  | $    | 79,582  |      |  | $    | 189,937 |   |  | $ | 231,453 |   |  | $ | 159,224 |  
|Cost of sales, including selling expenses                |  |                        | 90,925  |      |  |      | 63,039  |      |  |      | 148,722 |   |  |   | 179,775 |   |  |   | 132,866 |  
|General and administrative expenses                      |  |                        | 7,135   |      |  |      | 8,376   |      |  |      | 12,210  |   |  |   | 20,662  |   |  |   | 34,655  |  
|Impairment of goodwill(4)                                |  |                        |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   | 25,888  |  
|Depreciation                                             |  |                        | 194     |      |  |      | 196     |      |  |      | 146     |   |  |   | 422     |   |  |   | 715     |  
|Total costs and expenses                                 |  |                        | 98,254  |      |  |      | 71,611  |      |  |      | 161,078 |   |  |   | 200,859 |   |  |   | 194,124 |  
|Income (loss) from operations                            |  |                        | 10,982  |      |  |      | 7,971   |      |  |      | 28,859  |   |  |   | 30,594  |   |  |   | (34,900 | )
|Interest income (expense), net(1)(3)                     |  |                        | 230     |      |  |      | (1,991  | )    |  |      | (2,497  | ) |  |   | (11,492 | ) |  |   | (5,006  | )
|Minority interest and other                              |  |                        | (187    | )    |  |      | (269    | )    |  |      | (317    | ) |  |   | (382    | ) |  |   | (286    | )
|Income (loss) before income taxes (benefit)              |  |                        | 11,025  |      |  |      | 5,711   |      |  |      | 26,045  |   |  |   | 18,720  |   |  |   | (40,192 | )
|Provision (benefit) for income taxes                     |  |                        | 3,916   |      |  |      | 1,501   |      |  |      | 10,053  |   |  |   | 8,860   |   |  |   | (3,143  | )
|Net income (loss)                                        |  | $                      | 7,109   |      |  | $    | 4,210   |      |  | $    | 15,992  |   |  | $ | 9,860   |   |  |   | (37,049 | )
|Balance Sheet Data (at end of
    period):               |  |                        |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Cash and cash equivalents                                |  | $                      | 7,120   |      |  | $    | 2,249   |      |  | $    | 4,060   |   |  | $ | 13,568  |   |  | $ | 3,875   |  
|Working capital                                          |  |                        | 12,504  |      |  |      | 2,992   |      |  |      | 13,649  |   |  |   | 20,460  |   |  |   | 12,521  |  
|Total assets                                             |  |                        | 22,264  |      |  |      | 18,787  |      |  |      | 63,157  |   |  |   | 93,326  |   |  |   | 53,969  |  
|Total debt                                               |  |                        |        |      |  |      | 22,500  |      |  |      | 23,433  |   |  |   | 27,907  |   |  |   | 29,099  |  
|Total stockholders equity (deficit)(1)                  |  |                        | 13,953  |      |  |      | (11,016 | )    |  |      | 5,195   |   |  |   | 36,047  |   |  |   | 9,115   |  
|Statement of Cash Flow Data:                             |  |                        |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net cash provided by (used in) operating
    activities  |  | $                      | 2,869   |      |  | $    | 1,791   |      |  | $    | 1,567   |   |  | $ | 23,199  |   |  | $ | (8,012  | )
|Net cash provided by (used in) investing
    activities  |  |                        | (216    | )    |  |      | (139    | )    |  |      | (669    | ) |  |   | (1,710  | ) |  |   | (1,384  | )
|Net cash provided by (used in) financing
    activities  |  |                        | (1,096  | )    |  |      | (6,523  | )    |  |      | 913     |   |  |   | (11,981 | ) |  |   | (297    | )
|Net increase (decrease) in cash and cash
    equivalents |  | $                      | 1,557   |      |  | $    | (4,871  | )    |  | $    | 1,811   |   |  | $ | 9,508   |   |  | $ | (9,693  | )

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##### Table of Contents



|                                                                    |  |                        |        |      |  |      |       |      |  |      |        |   |  |   |        |   |  |   |         |   
|------------------------------------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ------ | - |  | - | ------- | --
|                                                                    |  | 1999                   |        | 2000 |  | 2001 |       | 2002 |  | 2003
|                                                                    |  |                        |        |      |  |      |       |      |  |     
|                                                                    |  |                       
|                                                                    |  | (Dollars in thousands)
|Other Operating and Financial Data:                                 |  |                        |        |      |  |      |       |      |  |      |        |   |  |   |        |   |  |   |         |   
|EBITDA(2)                                                           |  | $                      | 11,176 |      |  | $    | 8,167 |      |  | $    | 29,005 |   |  | $ | 31,016 |   |  | $ | (34,185 | ) 
|Capital expenditures                                                |  |                        | 182    |      |  |      | 139   |      |  |      | 319    |   |  |   | 961    |   |  |   | 440     |   
|Total costs and expenses as a percentage of total
    revenues      |  |                        | 89.95  | %    |  |      | 89.98 | %    |  |      | 84.81  | % |  |   | 86.78  | % |  |   | 121.92  | % 
|Income (loss) from operations as a percentage of
    total revenues |  |                        | 10.05  | %    |  |      | 10.01 | %    |  |      | 15.19  | % |  |   | 13.22  | % |  |   | (21.92  | )%
|EBITDA as a percentage of total revenues(2)                         |  |                        | 10.23  | %    |  |      | 10.26 | %    |  |      | 15.27  | % |  |   | 13.40  | % |  |   | (21.47  | )%



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In June 1999, Thane completed a leveraged
    recapitalization pursuant to which Thane redeemed approximately
    $36.0 million of equity securities and borrowed
    approximately $23.5 million in debt. The accounting
    treatment for the transaction reduced stockholders equity
    by $29.9 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(2) | As used in the table above, EBITDA consists of
    earnings (loss) before interest, income taxes, minority interest
    and other, depreciation, and amortization. From the table above,
    EBITDA is computed by combining the amounts related to income
    (loss) from operations and depreciation and amortization. We
    believe that, because EBITDA is a measure of financial
    performance, it is useful to investors as an indicator of a
    companys ability to fund its operations and to service or
    incur debt. EBITDA is not a measure calculated under accounting
    principles generally accepted in the United States. Other
    companies may calculate EBITDA differently. It is not an
    alternative to operating income as an indicator of our operating
    performance or an alternative to cash flows from operating
    activities as a measure of liquidity and investors should
    consider these measures as well.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(3) | In connection with the refinancing of prior
    credit facilities, we entered into an agreement in February 2002
    to repurchase certain warrants held by our prior lenders to
    acquire 3,964,448 shares of common stock. On March 13,
    2002, we purchased all of the warrants issued to such lenders in
    exchange for a $4.0 million cash payment and the issuance
    of new warrants to purchase an aggregate of 792,896 shares of
    common stock. As a result, we recorded approximately
    $9.1 million in interest expense in fiscal 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(4) | As of December 31, 2002, Krane was in
    default of its credit facility with LaSalle Bank National
    Association due to violations of certain debt covenants. In
    addition, this credit facility matured in February 2003. The
    Company was unable to negotiate a waiver for these violations or
    a short-term extension of this facility. As a result, on
    June 18, 2003, LaSalle exercised its secured rights under
    this facility, and accordingly, took possession of 100% of the
    capital stock of Krane. In addition, the Companys
    evaluation of the fair value of Kranes assets, as of
    March 31, 2003, indicated they were not sufficient to
    recover the recorded costs. Therefore, as of March 31,
    2003, Thane recognized a non-cash write-off of 100% of the
    goodwill associated with the Krane acquisition, or
    $21.8 million. In conjunction with the Krane acquisition,
    Thanes current lenders entered into an intercreditor
    agreement with LaSalle whereby they agreed that there would be
    no cross-default between the credit facilities of Krane and
    Thane. Accordingly, the aforementioned events did not result in
    a default under Thanes existing credit facility. Finally,
    the Company performed an evaluation of its remaining goodwill.
    Due to the unpredictable nature of Reliants future cash
    flows and the employment agreements with former majority
    shareholders of Reliant expiring on March 31, 2005, the
    Company concluded that the fair value of Reliants assets
    are not sufficient to recover the recorded costs. Accordingly,
    the Company has recognized a non-cash write-off of the goodwill
    associated with Reliant of $4.1 million.



|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion should be read in
conjunction with the consolidated financial statements and
accompanying notes, which appear elsewhere in this
Form 10-K. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual
results could differ materially from those

15



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##### Table of Contents



anticipated in those forward-looking
statements as a result of various factors, including those
discussed below and elsewhere in this Form 10-K.


General

We are engaged in the multi-channel direct
marketing of consumer products and services in the fitness,
health and beauty and housewares product categories. Our
distribution channels in the United States and, through our 186
international distributors and strategic partners, in 80
countries around the world include direct response television,
home shopping channels, catalogs, retail, print advertising,
credit card inserts and the Internet. We develop and acquire
products, arrange low-cost, offshore manufacturing and then
market and distribute our products through our various
distribution channels. We have historically been dependent on a
limited number of successful products to generate a significant
portion of our total revenues. We seek to reduce the risk
associated with relying on a limited number of successful
products for a disproportionate amount of our revenues by
continually enhancing our diverse product portfolio and
utilizing multiple distribution channels to extend product life
cycles and maximize profit potential.

We generate revenues by selling our products
(i) directly to consumers through our direct response
television programs and the Internet, and (ii) wholesale
through international distributors and strategic partners,
retailers, home shopping channels, catalogs, telemarketing and
credit card inserts. We also generate revenues through our media
purchasing, consumer clubs and product sourcing activities. We
allocate all of our United States media costs to our direct
marketing businesses and none to our wholesale business.
Production costs are allocated solely to our direct marketing
business even though the direct response television programs are
used to support our wholesale and international businesses.
Typically, as a product nears the end of its lifecycle, we will
gradually reduce the selling price of the product to further
extend the lifecycle of the product.

Over the past several years, we have focused on
building our international and wholesale channels of
distribution. International sales have grown from $1.3 million
in fiscal 1998 to $51.3 million in fiscal 2003. Wholesale
revenues have increased from $1.8 million in fiscal 1999 to
$12.9 million in fiscal 2003. We expect that international
and wholesale channels of distribution will continue to be a
larger part of our revenues. We typically purchase merchandise
from our overseas manufacturers, and sell products to our
international distributors and strategic partners, in U.S.
dollars. Accordingly, while we do not experience significant
exposure to foreign currency risk, our trading partners do.

Our revenues vary throughout the year, with third
and fourth fiscal quarter revenues being historically the
highest. This was not the case for the year ended March 31,
2002, however. Due to the direct response and wholesale success
of a fitness product in the first and second quarters of fiscal
2002, revenues were higher in the first two quarters than the
last two quarters and operating income was essentially the same
in the first half and the last half of the year. In fiscal 2003,
revenues were essentially the same in the first half and the
last half of the year and operating income (loss) was higher in
the first half primarily due to write-offs, discussed below, of
$8.2 million taken in the third quarter, discussed below,
and a charge of $25.9 million for impairment of goodwill in
the fourth quarter of fiscal 2003. We expect the typical
seasonal trend in fiscal 2004. These seasonal trends have been
and may continue to be affected by the timing and success of new
product offerings, expansion of our international and wholesale
distribution channels and the potential growth of other
distribution channels.

We acquired Krane Products, Inc. on
March 15, 2002, therefore, only fifteen days of financial
information for Krane is presented for the year ended March 31,
2002. We acquired Reliant Interactive Media Corp. on
May 22, 2002, therefore, the financial information for
Reliant for the year ended March 31, 2003 only includes the
period May 22, 2002 to March 31, 2003.

16



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##### Table of Contents



Results of Operations

The following table sets forth data from the
Statements of Operations for the periods indicated as a
percentage of revenue.

|                                          |                                       |                               |        |      |   |      |        |      |   |  |        |       |  
|----------------------------------------- | ------------------------------------- | ----------------------------- | ------ | ---- | - | ---- | ------ | ---- | - |  | ------ | ----- | -
|                                          |                                       |                              
|                                          |                                       | For the Years Ended March 31,
|                                          |                                       |                              
|                                          |                                       | 2001                          |        | 2002 |   | 2003
|                                          |                                       |                               |        |      |   |     
|Total revenues                            |                                       |                               | 100.00 | %    |   |      | 100.00 | %    |   |  | 100.00 | %    
|Cost of sales, including selling expenses |                                       |                               | 78.30  | %    |   |      | 77.67  | %    |   |  | 83.45  | %    
|Gross profit                              |                                       |                               | 21.70  | %    |   |      | 22.33  | %    |   |  | 16.55  | %    
|Operating Expenses                        |                                       |                               |        |      |   |      |        |      |   |  |        |      
|                                          | General and administrative            |                               |        | 6.43 | % |      |        | 8.93 | % |  |        | 21.76 | %
|                                          | Impairment of goodwill                |                               |        | 0.00 | % |      |        | 0.00 | % |  |        | 16.26 | %
|                                          | Depreciation                          |                               |        | 0.08 | % |      |        | 0.18 | % |  |        | 0.45  | %
|Income (loss) from operations             |                                       |                               | 15.19  | %    |   |      | 13.22  | %    |   |  | (21.92 | )%   
|Other Expenses                            |                                       |                               |        |      |   |      |        |      |   |  |        |      
|                                          | Interest, minority interest and other |                               |        | 1.48 | % |      |        | 5.13 | % |  |        | 3.32  | %
|Income (loss) before taxes (benefit)      |                                       |                               | 13.71  | %    |   |      | 8.09   | %    |   |  | (25.24 | )%   
|Provision (benefit) for income taxes      |                                       |                               | 5.29   | %    |   |      | 3.83   | %    |   |  | (1.97  | )%   
|Net income (loss)                         |                                       |                               | 8.42   | %    |   |      | 4.26   | %    |   |  | (23.27 | )%   

The Year Ended March 31, 2003 Compared to
the Year Ended March 31, 2002

In the third quarter of the year ended
March 31, 2003, the Company took a total write-off of
$8.2 million. Of the total loss before income taxes of
$(40.2) million for the year, $8.2 million was as a result
of the write-off. The write-off primarily consisted of product
financing receivables, inventory, prepaid royalties and
production costs related to products that we are no longer able
to sell in our distribution channels, in the amount of $6.2
million. In addition, the total write-off amount includes a
charge of $1.4 million related to a settlement with the Canadian
government regarding a health and beauty product sold in Canada
for which the Company was required to refund customers who
returned the product. The total charge of $8.2 million, for
the year ended March 31, 2003, reduced total revenues by
$2.2 million; increased cost of sales, including selling
expenses, by $5.8 million; and increased general and
administrative expenses and other expenses by $30,000 and
$129,000, respectively.

As of December 31, 2002, Krane was in
default of its credit facility with LaSalle Bank National
Association due to violations of certain debt covenants. In
addition, this credit facility matured in February 2003. The
Company was unable to negotiate a waiver for these violations or
a short-term extension of this facility. As a result, on
June 18, 2003, LaSalle exercised its secured rights under
this facility, and accordingly, took possession of 100% of the
capital stock of Krane. In addition, the Companys
evaluation of the fair value of Kranes assets, as of
March 31, 2003, indicated they were not sufficient to
recover the recorded costs. Therefore, as of March 31,
2003, the Company recognized a non-cash write-off of 100% of the
goodwill associated with the Krane acquisition, or
$21.8 million. In conjunction with the Krane acquisition,
Thanes current lenders entered into an intercreditor
agreement with LaSalle whereby they agreed that there would be
no cross-default between the credit facilities of Krane and
Thane. Accordingly, the aforementioned events did not result in
a default under Thanes existing credit facility. At
March 31, 2003, total assets of Krane were approximately
$5.7 million and total liabilities were approximately
$12.0 million.

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As a result of the above, the operations of Krane
will be presented as discontinued beginning in the first quarter
of fiscal 2004. The historical amounts for Krane included in the
Companys results from operations for the years ended
March 31, 2003 and 2002 are as follows (in thousands):

|                                          |  |                |        |                |  |   |       | 
|----------------------------------------- |  | -------------- | ------ | -------------- |  | - | ----- | 
|                                          |  | March 31, 2003 |        | March 31, 2002
|                                          |  |                |        |               
|Total revenues                            |  | $              | 25,566 |                |  | $ | 1,251 | 
|Cost of sales; including selling expenses |  |                | 17,551 |                |  |   | 305   | 
|General and administrative                |  |                | 6,399  |                |  |   | 662   | 
|Depreciation and amortization             |  |                | 489    |                |  |   | 6     | 
|                                          |  |                |        |                |  |   |       | 
|Income from operations                    |  |                | 1,127  |                |  |   | 278   | 
|Interest expense                          |  |                | 1,860  |                |  |   | 90    | 
|                                          |  |                |        |                |  |   |       | 
|Income (loss) before taxes                |  | $              | (733   | )              |  | $ | 188   | 
|                                          |  |                |        |                |  |   |       | 

Finally, the Company performed an evaluation of
its remaining goodwill. Due to the unpredictable nature of
Reliants future cash flows and the employment agreements
with former majority shareholders of Reliant expiring on
March 31, 2005, the Company concluded that the fair value
of Reliants assets are not sufficient to recover the
recorded costs. Accordingly, the Company has recognized a
non-cash write-off of the goodwill associated with Reliant of
$4.1 million.

All comparisons to the prior year below are based
on historical amounts for the year ended March 31, 2003,
and, accordingly, include the write-offs discussed above.

Total revenuesdecreased $72.2 million, or 31.2%, to $159.2 million
for the year ended March 31, 2003 from $231.4 million
for the year ended March 31, 2002. The decrease in total
revenues is primarily attributable to wholesale sales decreasing
$49.5 million, or 79.4%, from $62.4 million for the
year ended March 31, 2002 to $12.9 million for the
year ended March 31, 2003. International sales decreased
$40.1 million, or 43.8%, from $91.4 million for the
year ended March 31, 2002 to $51.3 million for the
year ended March 31, 2003. These decreases were partially
offset by direct to consumer sales increasing
$17.4 million, or 22.4%, from $77.6 million for the
year ended March 31, 2002 to $95.0 million for the year
ended March 31, 2003.

Direct to consumer sales consist of products and
services sold through direct response TV programs, telemarketing
and the Internet to U.S. consumers. Wholesale sales consist of
products and services sold to U.S. based businesses such as
television shopping channels, retailers, catalogers and other
direct marketing companies. International sales consist of
products sold outside the U.S. both to consumers and
international distributors and strategic partners.

In the year ended March 31, 2002, wholesale
revenues were comprised predominately of a single fitness
product and the year ended March 31, 2003 did not have such
a successful product. The decrease in international sales for
the year ended March 31, 2003 was directly attributable to
decreased sales of a single health and beauty product which
comprised a majority of the international sales in fiscal 2002.
Direct to consumer sales in fiscal 2003 increased
$17.4 million, primarily due to a full year of sales of
$24.3 million from Krane, which was acquired in March 2002,
and increased Internet sales of $12.6 million, which was
offset by a decrease in sales of products sold through direct
response TV programs of $23.1 million.

Within the direct to consumer and wholesale
businesses, we have historically been dependent on a limited
number of successful products to generate a significant portion
of our total revenues. We continue to seek to reduce the risk
associated with relying on a limited number of successful
products for a disproportionate amount of our revenues by
continually enhancing our diverse product portfolio and
utilizing multiple distribution channels to extend product life
cycles and maximize profit potential.

Cost of salesconsists of product costs, advertising costs, media costs,
fulfillment costs and royalty costs. Cost of sales decreased
$46.9 million, or 26.1%, to $132.9 million for fiscal
2003 from $179.8 million for fiscal 2002. As a percentage
of total revenues, cost of sales increased from 77.67% for the
year ended March 31, 2002 to 83.45% for the year ended
March 31, 2003. The decrease in cost of sales dollars is
directly attributable

18



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##### Table of Contents



to the lower sales levels discussed above. The
increase in cost of sales as a percentage of total revenues for
the year ended March 31, 2003 as compared to the year ended
March 31, 2002 is partially due to the write-off discussed above
as well as lower gross profit margins in the wholesale business
during the year.


Gross profitdecreased $25.3 million, or 49.0%, to $26.4 million
for the year ended March 31, 2003 from $51.7 million
for fiscal 2002. As a percentage of total revenues, gross profit
decreased 5.78%, from 22.33% for the year ended March 31,
2002 to 16.55% for the year ended March 31, 2003. The
decrease in gross profit as a percentage of total revenues for
the year ended March 31, 2003, as compared to
March 31, 2002 is partially due to the write-off discussed
above as well as lower gross profit margins in the direct to
consumer and wholesale businesses during the year due to an
attempt to liquidate slow moving inventory.

General and administrative
expensesincreased $14.0 million,
or 67.7%, to $34.7 million for fiscal 2003 from
$20.7 million for fiscal 2002. As a percentage of total
revenues, general and administrative expenses increased to
21.76% for the year ended March 31, 2003 from 8.93% for the
year ended March 31, 2002. Of the general and
administrative expense increase of $14.0 million for the
year, $9.2 million was due to general and administrative costs
related to our acquisitions of Krane in March 2002, and Reliant
in May 2002. In addition, general and administrative costs of
our Internet division increased $1.1 million. The balance
of the increase was primarily due to increases in legal expenses.

Impairment of
Goodwill.As of December 31,
2002, Krane was in default of its credit facility with LaSalle
Bank National Association due to violations of certain debt
covenants. In addition, this credit facility matured in February
2003. The Company was unable to negotiate a waiver for these
violations or a short-term extension of this facility. As a
result, on June 18, 2003, LaSalle exercised its secured
rights under this facility, and accordingly, took possession of
100% of the capital stock of Krane. Therefore, as of
March 31, 2003, Thane recognized a non-cash write-off of
100% of the goodwill associated with the Krane acquisition, or
$21.8 million.

Additionally, the Company performed an evaluation
of its remaining goodwill. Due to the unpredictable nature of
Reliants future cash flows and the employment agreements
with the former majority shareholders of Reliant expiring on
March 31, 2005, the Company concluded that the fair value
of Reliants assets are not sufficient to recover the
recorded costs. Accordingly, the Company has recognized a
non-cash write-off of the goodwill associated with Reliant of
$4.1 million.

Depreciation expensefor the year ended March 31, 2003 increased $293,000 due
primarily to the acquisitions discussed above.

Income (loss) from
operationsdecreased
$65.5 million, or 214.1%, to a loss of $(34.9) million for
fiscal 2003 from income of $30.6 million for fiscal 2002.
As a percentage of total revenues, income (loss) from operations
decreased from 13.22% for fiscal 2002 to (21.92)% for fiscal
2003. The $8.2 million write-off discussed above during the
third quarter of fiscal 2003 and the goodwill write-offs
totaling $25.9 million discussed above during the fourth
quarter of fiscal 2003 contributed to the decline, as well as
lower sales levels and increased general and administrative
expenses discussed above. Loss from operations related to direct
to consumer sales was $(36.2) million in fiscal 2003 compared to
income of $2.5 million in fiscal 2002. Loss from operations
related to wholesale sales in fiscal 2003 was $(4.1) million as
compared to income of $12.5 million in fiscal 2002. Income
from operations related to international sales in fiscal 2003
was $5.3 million, as compared to $15.6 million in fiscal
2002.

Other expensesconsist of net interest expense and minority interest. Net other
expense, for the year ended March 31, 2003, decreased
approximately $6.6 million primarily as the result of a
$9.1 million interest expense reduction from fiscal 2002 as
discussed below offset by higher debt levels due to the Krane
acquisition and higher interest rates due to the refinancing of
Thane debt in March 2002.

In connection with the refinancing of prior
credit facilities, we entered into an agreement in February 2002
to repurchase certain warrants held by our prior lenders to
acquire 3,964,448 shares of our common stock. On March 13,
2002, we purchased all of the warrants issued to such lenders in
exchange for a $4.0 million cash payment and the issuance of new
warrants to purchase an aggregate of 792,896 shares of our
common stock. As a result, we recorded approximately
$9.1 million in interest expense and 3,171,552 shares of

19



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##### Table of Contents



our outstanding stock held by our majority
stockholder were canceled. Minority interest increased slightly
due to profit increases from our non-wholly owned subsidiaries.


Income (loss) before income taxes
(benefit)decreased
$58.9 million, or 314.7%, to a loss of $(40.2) million for
the year ended March 31, 2003 from income of
$18.7 million for the year ended March 31, 2002. The
total revenue decrease, increased general and administrative
expenses and the write-offs discussed above were the primary
reasons for the decrease in fiscal 2003. After applying the
effective tax rate (benefit) of (7.8)% and 47.3%, for fiscal
2003 and fiscal 2002, respectively, net income (loss) for the
respective periods was $(37.0) million and
$9.9 million, a $46.9 million or 475.8% decrease.

The Year Ended March 31, 2002 Compared to
the Year Ended March 31, 2001

Total revenuesincreased $41.5 million, or 21.9%, to $231.4 million
for fiscal 2002 from $189.9 million for fiscal 2001. The
increase in total revenues is primarily attributable to
wholesale sales increasing $27.7 million, or 79.9%, from
$34.7 million to $62.4 million, international sales
increasing $69.4 million, or 314.5%, from $22.0 million to
$91.4 million, which were offset by a decrease in United
States direct marketing sales of $55.6 million, or 41.7%,
from $133.2 million to $77.7 million. Wholesale sales
consist of products and services sold to United States based
businesses such as television shopping channels, retailers,
catalogers and Internet companies. International sales consist
of products sold outside the United States both to consumers and
international distributors and strategic partners. United States
direct marketing sales consist of products and services sold
directly to United States consumers. The increase in wholesale
revenues was primarily related to an increase in the number of
retail and catalog customers, which was driven by increased
demand for a fitness product. The increase in international
sales was attributable to increased sales of fitness and health
and beauty products to a large number of international
distributors and strategic partners. The decrease in United
States direct marketing sales is primarily related to decreased
sales of fitness and health and beauty products. We expect
wholesale and international sales to continue to be an
increasing percentage of our total revenues as these
distribution channels continue to mature.

Cost of salesconsists of product costs, advertising costs, media costs,
fulfillment costs and royalty costs. The increase in cost of
sales dollars is primarily due to higher sales levels. Cost of
sales increased $31.1 million, or 20.9%, to
$179.8 million for fiscal 2002 from $148.7 million for
fiscal 2001. As a percentage of total revenues, cost of sales
decreased from 78.30% for the year ended March 31, 2001 to
77.67% for the year ended March 31, 2002.

Gross profitincreased $10.5 million, or 25.5%, to $51.7 million
for fiscal 2002 from $41.2 million for fiscal 2001. As a
percentage of total revenues, gross profit increased 0.63% from
21.70% for fiscal 2001 to 22.33% for fiscal 2002. The decrease
in gross profit as a percentage of total revenues is the result
of decreased gross profits on domestic direct marketing sales.
Gross profit margins were affected slightly by increased media
expenditures, changes in product mix and reduced pricing of
certain fitness products.

General and administrative
expensesincreased $8.5 million,
or 69.7%, to $20.7 million for fiscal 2002 from
$12.2 million for fiscal 2001. As a percentage of total
revenues, general and administrative expenses increased to 8.93%
for fiscal 2002 from 6.43% for fiscal 2001. General and
administrative expenses increased as a result of the building of
our infrastructure during the year to handle our growth and in
anticipation of our future growth. Total company employees,
excluding Krane employees, were 137 at March 31, 2002
compared to 102 at March 31, 2001, which partially
contributed to an increase of $4.4 million in payroll
expense for the year. The balance of the increase was primarily
the result of increases in general corporate overhead as Thane
expanded its operations to several new locations. Depreciation
increased $276,000 due primarily to our entering into a capital
lease of our corporate headquarters in September 2001.

Income from
operationsincreased
$1.7 million, or 5.9%, to $30.6 million for fiscal
2002 from $28.9 million for fiscal 2001. As a percentage of
total revenues, income from operations decreased from 15.19% for
fiscal 2001 to 13.22% for fiscal 2002. The decrease in income
from operations as a percentage of total revenues is primarily
attributable to the increased general and administrative
expenses discussed above.

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Other expensesconsist of net interest expense and minority interest. Net
interest expense increased approximately $9.0 million. In
connection with the refinancing of prior credit facilities, we
entered into an agreement in February 2002 to repurchase certain
warrants held by our prior lenders to acquire
3,964,448 shares of our common stock. On March 13,
2002, we purchased all of the warrants issued to such lenders in
exchange for a $4.0 million cash payment and the issuance
of new warrants to purchase an aggregate of 792,896 shares of
our common stock. As a result, we recorded approximately
$9.1 million in interest expense and 3,171,552 shares
of our outstanding stock held by our majority stockholder were
canceled. Minority interest increased slightly due to profit
increases from our non-wholly owned subsidiaries.

Income before income
taxesdecreased $7.3 million, or
28.1%, to $18.7 million for fiscal 2002 from
$26.0 million for fiscal 2001. The $9.1 million charge
to interest expense discussed above was the primary reason for
the decrease. After applying the effective tax rate of 47.3% and
38.6%, for fiscal 2002 and fiscal 2001, respectively, net income
for the respective periods was $9.9 million and
$16.0 million, a 38.1% decrease.

Financial Condition, Liquidity and Capital
Resources

As of March 31, 2003, cash and cash
equivalents were $3.9 million compared to
$13.6 million at March 31, 2002. Total assets were
$53.9 million at March 31, 2003 compared to
$93.3 million at March 31, 2002, and total working
capital decreased to $12.5 million at March 31, 2003
from $20.5 million at March 31, 2002. The total asset
decrease of $39.4 million was primarily the result of the
cash decrease of $9.7 million, goodwill decrease of
$22.2 million and decreases in receivables and inventories
of $5.5 million The primary reason for the working capital
decrease was an increase in current maturities of long-term debt
of $6.6 million at March 31, 2003, which is more fully
described below.

For the fiscal year ended March 31, 2003,
the net cash used in operating activities was
$(8.0) million compared to net cash provided by operating
activities of $23.2 million for the fiscal year ended
March 31, 2002. Net cash used in investing and financing
activities was $(1.7) million in the fiscal year ended
March 31, 2003 as compared to net cash used in investing
and financing activities of $(13.7) million in the fiscal
year ended March 31, 2002. The change from 2002 to 2003 is
primarily due to the net payments during 2002 related to the
line of credit and term debt. The operating activity decrease
from year to year was primarily the result of the decrease in
net income (loss) of $46.9 million offset by impairment of
goodwill of $25.9 million.

In March 2002, the Company entered into a loan
and security agreement with Congress Financial Corporation
(Congress) and Ableco Finance, LLC
(Ableco) that provided a $20.0 million senior
secured revolving credit facility and an aggregate of
$14.0 million in term loans. Under this agreement, the
Company and all of its wholly-owned subsidiaries, with the
exception of Krane, are either borrowers or guarantors of these
facilities. These facilities were used to refinance prior credit
facilities, repurchase outstanding warrants to purchase shares
of common stock, pay certain fees and expenses related to the
Reliant and Krane acquisitions and provide for future working
capital requirements. Additionally, in conjunction with this
loan and security agreement, Congress, Ableco and Kranes
lenders, LaSalle Bank National Association and Prairie Capital
Mezzanine Fund, executed an Intercreditor Agreement whereby the
lenders agreed that there would be no cross-default between the
credit facilities of the respective companies.

In October 2002, due to the lack of availability
on the Companys revolving line of credit resulting from
the exclusion of certain assets in the borrowing base
calculation, the Company entered into an amendment to its
original credit facility that provided for an additional
$5.0 million term loan due September 2003. Up to
$2.0 million of the term loan was guaranteed by an
affiliate of H.I.G. Direct Marketing Holdings, Inc., the
Companys majority stockholder.

As of December 31, 2002, the Company was in
violation of certain debt covenants under the current Ableco
credit facility. Accordingly, on February 6, 2003, the
Company entered into an amendment to its credit facility that
waived the existing financial covenants as of December 31,
2002, set new financial covenants on a quarterly basis going
forward, terminated the revolving line of credit portion of this
facility under which no monies were borrowed, and required
acceleration of the term loan payment originally due in
September 2003. The Company paid $1.0 million of the term
loan due September 2003 upon the execution of the amendment and
an additional $1.0 million was paid as required prior to
March 31, 2003. In addition, the

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original loan and security agreement with
Congress was assigned in its entirety to Ableco. All other terms
of the original loan and security agreement remained materially
the same. Finally, the $2.0 million guarantee discussed
above was extended to all term loans under the Ableco credit
facility.


As of March 31, 2003, the Company was in
violation of certain debt covenants under the current Ableco
credit facility. Accordingly, on June 26, 2003, the Company
entered into an amendment to its credit facility that waived the
existing financial covenants as of March 31, 2003 and set
new financial covenants on a quarterly basis going forward. In
addition, the Company agreed to use all the proceeds of its
expected tax refund of approximately $4.5 million to satisfy the
balance of the term loan due September 2003 of $3.0 million
and use the balance to prepay the other term loans. All other
terms of the original loan and security agreement remained
materially the same. At July 11, 2003 the balance of the
term loans due under the Ableco credit facility was
approximately $14.5 million.

As of December 31, 2002, Krane was in
default of its credit facility with LaSalle Bank National
Association due to violations of certain debt covenants. In
addition, this credit facility matured in February 2003. The
Company was unable to negotiate a waiver for these violations or
a short-term extension of this facility. As a result, on
June 18, 2003, LaSalle exercised its secured rights under
this facility, and accordingly, took possession of 100% of the
capital stock of Krane. In addition, the Companys
evaluation of the fair value of Kranes assets, as of
March 31, 2003, indicated they were not sufficient to
recover the recorded costs. Therefore, as of March 31,
2003, Thane recognized a non-cash write-off of 100% of the
goodwill associated with the Krane acquisition, or
$21.8 million. In conjunction with the Krane acquisition
and as discussed above, Thanes current lenders entered
into an intercreditor agreement with LaSalle whereby they agreed
that there would be no cross-default between the credit
facilities of Krane and Thane. Accordingly, the aforementioned
events did not result in a default under Thanes Ableco
credit facility.

At March 31, 2003, total assets of Krane
were approximately $5.7 million and total liabilities were
approximately $12.0 million. As a result of LaSalle taking
100% of the capital stock of Krane on June 18, 2003, the
Company expects to record an extraordinary gain from
extinguishment of debt, in the first quarter of 2004, of
approximately $5.0 million.

In connection with the refinancing of prior
credit facilities, we entered into an agreement in February 2002
to repurchase certain warrants held by our prior lenders to
acquire 3,964,448 shares of our common stock. On
March 13, 2002, we purchased all of the warrants issued to
such lenders in exchange for $4.0 million cash payment and
the issuance of new warrants to purchase an aggregate of 792,896
shares of our common stock. As a result, we recorded
approximately $9.1 million in interest expense during 2002.

We believe that, through future cash flows, sales
of certain of our non-core subsidiaries and financing
alternatives available, we can continue to meet our short-term
obligations and continue to generate the working capital
necessary to provide for the long-term liquidity and our future
internal growth.

Critical Accounting Policies

Revenue
Recognition

The Company recognizes revenue upon concluding
that all of the fundamental criteria for revenue recognition
have been met. All of the criteria are usually met at the time
of product shipment. The Company also earns commission income
from media brokers and income from third parties for consulting
services rendered. The commission income earned from media
brokers is netted against advertising expense included in cost
of sales. The Company also earns revenue on membership referral
fees from a joint venture with a third-party. All shipping and
handling costs are recorded within cost of sales.

Generally, it is the Companys policy to
refund unconditionally the total price of merchandise, less
shipping and handling, for merchandise returned within 30 days.
The Company provides an allowance, based on experience, for
returned merchandise. Revenues are shown net of returns,
discounts and sales incentives.

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Accounts
Receivable

Accounts receivable consist primarily of amounts
due to us from our normal business activities. We maintain an
allowance for doubtful accounts to reflect the expected
uncollectibility of accounts receivable based on past collection
history and specific risks identified in the portfolio.

Inventories

Inventories consist primarily of products
purchased for resale and are stated at the lower of cost
(determined by the first-in, first out method) or market. An
allowance for obsolete inventory is maintained to reflect the
expected unsaleable inventory based on an evaluation of slow
moving products.

Income
Taxes

The Company recognizes deferred tax liabilities
and assets for the expected future tax consequences of temporary
timing differences between the financial statement and tax basis
of assets and liabilities at the applicable enacted tax rates. A
valuation allowance is maintained to reduce its deferred tax
assets to the amount that is more likely than not to be
realized. While the Company has considered future taxable income
and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event the
Company were to determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase
income in the period such determination was made. Likewise,
should the Company determine that it would not be able to
realize all or part of its net deferred tax asset in the future,
an adjustment to the deferred tax asset would be charged to
income in the period such determination was made.

Goodwill

Goodwill represents the excess of the purchase
price of each of the Companys acquisitions over the fair
market value of the net assets acquired. The acquisitions have
been accounted for under FAS 141 Business
Combinations, and in accordance with FAS 142,
Goodwill & Intangibles, goodwill has not been
amortized and is tested annually or more frequently if
circumstances indicate potential impairment, by comparing the
fair value of assets to its carrying amount.

Recent
Accounting Pronouncements

In April 2003, the FASB issued
Statement 149, an amendment of FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging
Activities, which requires prospective application for
contracts entered into or modified after June 30, 2003,
except for contracts which exist in fiscal quarters that began
prior to June 15, 2003, and for hedging relationships
designated after June 30, 2003. For existing contracts for
fiscal quarters that began prior to June 15, 2003, the
provisions of this Statement that relate to Statement 133
Implementation Issues should continue to be applied in
accordance with their respective effective dates. Statement 149
requires that contracts with comparable characteristics be
accounted for similarly. The Company does not expect the
adoption of this pronouncement to have a material impact on the
results of its operations, financial position or liquidity.

In May 2003, the FASB issued Statement 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. Statement
150 establishes standards for classifying and measuring certain
financial instruments with characteristics of both liabilities
and equity. Statement 150 requires that an issuer classify
a financial instrument that is within its scope as a liability
(or an asset in some circumstances) because that financial
instrument embodies an obligation of the issuer. Statement 150
is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective for the
first interim period beginning after June 15, 2003, except
for mandatorily redeemable financial instruments of a nonpublic
entity for which this statement is effective for fiscal periods
beginning December 15, 2003. The Company does not expect
the adoption of this pronouncement to have a material impact on
the results of its operations, financial position, or liquidity.

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In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities (Interpretation 46), an
interpretation of ARB No. 51. Interpretation 46 addresses
consolidation by business enterprises of variable interest
entities. Interpretation 46 applies immediately to variable
interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first year or
interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The
Company is in the initial stages of reviewing this
interpretation, but does not believe it has any variable
interest entities to which Interpretation 46 would apply.



|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

In connection with borrowings under our senior
secured credit facility with Ableco, we will experience market
risk with respect to changes in the general level of interest
rates and its effect upon our interest expense. Borrowings under
this facility bear interest at variable rates based on the prime
rate. Because such rate varies from period to period, an
increase in interest rates will result in additional interest
expense and a reduction in interest rates will result in reduced
interest expense. Accordingly, our present exposure to interest
rate fluctuations is primarily dependent on rate changes that
may occur while the senior secured credit facility is
outstanding.

Our variable rate debt currently consists of
three term loans for total borrowings of $15.2 million.

Purchases, as well as sales of products through
our international distribution channels, are denominated in U.S.
dollars and as such we have minimal foreign currency fluctuation
risk.

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Item 8.     Financial
Statements and Supplementary Data






INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS


|                                          |                                                               |      |    |    | 
|----------------------------------------- | ------------------------------------------------------------- | ---- | -- | -- | 
|                                          |                                                               | Page
|                                          |                                                               |     
|Report of Independent Auditors            |                                                               |      | 26 |   
|Audited Consolidated Financial Statements |                                                               |      |    |   
|                                          | Consolidated Balance Sheets                                   |      |    | 27 | 
|                                          | Consolidated Statements of Operations                         |      |    | 28 | 
|                                          | Consolidated Statements of Stockholders
    Equity (Deficit) |      |    | 29 | 
|                                          | Consolidated Statements of Cash Flows                         |      |    | 30 | 
|                                          | Notes to Audited Consolidated Financial Statements            |      |    | 31 | 

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REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

Thane International, Inc. and Subsidiaries


We have audited the accompanying consolidated
balance sheets of Thane International, Inc. and subsidiaries as
of March 31, 2003 and 2002, and the related consolidated
statements of operations, shareholders equity (deficit),
and cash flows for each of the three years in the period ended
March 31, 2003. Our audits also included the financial
statement schedule listed in the Index at Item 15(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
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Thane International, Inc. and
subsidiaries at March 31, 2003 and 2002, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended March 31,
2003, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.

Ernst & Young LLP

Orange County, California

June 30, 2003, except for Note 11


as
to which the date is July 2, 2003


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THANE INTERNATIONAL, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                             |                                                                                                                                 |                                                                                              |            |             |        |   |            |            |        | 
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ---------- | ----------- | ------ | - | ---------- | ---------- | ------ | 
|                                             |                                                                                                                                 |                                                                                             
|                                             |                                                                                                                                 | March 31,                                                                                   
|                                             |                                                                                                                                 |                                                                                             
|                                             |                                                                                                                                 | 2003                                                                                         |            | 2002       
|                                             |                                                                                                                                 |                                                                                              |            |            
|ASSETS                                      
|Current Assets:                              |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|                                             | Cash and cash equivalents                                                                                                       |                                                                                              | $          | 3,875,000   |        |   | $          | 13,568,000 |       
|                                             | Accounts receivable, net of allowance for
    doubtful accounts of $6,358,000 and $6,342,000 in 2003 and 2002,
    respectively |                                                                                              |            | 18,045,000  |        |   |            | 19,753,000 |       
|                                             | Other receivables                                                                                                               |                                                                                              |            | 1,747,000   |        |   |            | 621,000    |       
|                                             | Inventories, net of reserves of $4,678,000 and
    $4,134,000 in 2003 and 2002, respectively                                    |                                                                                              |            | 7,279,000   |        |   |            | 13,458,000 |       
|                                             | Prepaid advertising                                                                                                             |                                                                                              |            | 1,575,000   |        |   |            | 427,000    |       
|                                             | Prepaid expenses and other                                                                                                      |                                                                                              |            | 1,313,000   |        |   |            | 1,755,000  |       
|                                             | Due from affiliate                                                                                                              |                                                                                              |            |            |        |   |            | 3,156,000  |       
|                                             | Deferred income taxes                                                                                                           |                                                                                              |            | 5,984,000   |        |   |            | 6,579,000  |       
|                                             | Income taxes receivable                                                                                                         |                                                                                              |            | 4,982,000   |        |   |            | 515,000    |       
|                                             |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|Total Current Assets:                        |                                                                                                                                 |                                                                                              | 44,800,000 |             |        |   | 59,832,000 |           
|Property and Equipment                       |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|                                             | Building                                                                                                                        |                                                                                              |            | 3,260,000   |        |   |            | 3,260,000  |       
|                                             | Furniture, fixtures and equipment                                                                                               |                                                                                              |            | 2,957,000   |        |   |            | 2,247,000  |       
|                                             | Less accumulated depreciation                                                                                                   |                                                                                              |            | (1,524,000  | )      |   |            | (821,000   | )     
|                                             |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|                                             |                                                                                                                                 |                                                                                              | 4,693,000  |             |        |   | 4,686,000  |           
|Non-current Assets:                          |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|                                             | Production costs, net of accumulated amortization
    of $1,781,000 and $52,000 in 2003 and 2002, respectively                  |                                                                                              |            | 704,000     |        |   |            | 471,000    |       
|                                             | Goodwill                                                                                                                        |                                                                                              |            | 2,228,000   |        |   |            | 24,415,000 |       
|                                             | Financing costs, net                                                                                                            |                                                                                              |            | 1,096,000   |        |   |            | 1,402,000  |       
|                                             | Deferred income taxes                                                                                                           |                                                                                              |            | 66,000      |        |   |            | 496,000    |       
|                                             | Other non-current assets                                                                                                        |                                                                                              |            | 382,000     |        |   |            | 2,024,000  |       
|                                             |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|Total non-current assets:                    |                                                                                                                                 |                                                                                              | 4,476,000  |             |        |   | 28,808,000 |           
|                                             |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|Total assets                                 |                                                                                                                                 | $                                                                                            | 53,969,000 |             |        | $ | 93,326,000 |           
|                                             |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|LIABILITIES AND STOCKHOLDERS
    EQUITY    
|Current Liabilities                          |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|                                             | Accounts payable                                                                                                                |                                                                                              | $          | 5,080,000   |        |   | $          | 8,819,000  |       
|                                             | Allowance for product refunds and returns                                                                                       |                                                                                              |            | 2,506,000   |        |   |            | 3,523,000  |       
|                                             | Accrued expenses                                                                                                                |                                                                                              |            | 6,999,000   |        |   |            | 14,238,000 |       
|                                             | Line of credit                                                                                                                  |                                                                                              |            | 1,872,000   |        |   |            | 1,522,000  |       
|                                             | Current portion of long-term debt                                                                                               |                                                                                              |            | 15,281,000  |        |   |            | 9,040,000  |       
|                                             | Current portion of capital lease obligation                                                                                     |                                                                                              |            | 41,000      |        |   |            |           |       
|                                             | Deferred consideration                                                                                                          |                                                                                              |            | 500,000     |        |   |            | 2,230,000  |       
|                                             |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|Total current liabilities:                   |                                                                                                                                 |                                                                                              | 32,279,000 |             |        |   | 39,372,000 |           
|Long-term debt less current portion          |                                                                                                                                 |                                                                                              | 8,667,000  |             |        |   | 14,107,000 |           
|Capital lease obligation                     |                                                                                                                                 |                                                                                              | 3,238,000  |             |        |   | 3,238,000  |           
|Minority interest                            |                                                                                                                                 |                                                                                              | 670,000    |             |        |   | 562,000    |           
|Commitments and contingencies                |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|Stockholders equity:                         |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|                                             | Preferred Stock, par value $0.001                                                                                               |                                                                                              |            |             |        |   |            |            |       
|                                             | Authorized shares  50,000,000                                                                                                  |                                                                                              |            |             |        |   |            |            |       
|                                             |                                                                                                                                 | Issued and outstanding shares  0                                                            |            |             |       |   |            |            |       | 
|                                             | Class A common stock, par value $0.001:                                                                                         |                                                                                              |            |             |        |   |            |            |       
|                                             |                                                                                                                                 | Authorized shares  200,000,000                                                              |            |             |        |   |            |            |        | 
|                                             |                                                                                                                                 | Issued and outstanding shares 
    35,462,781 and 31,791,406 in 2003 and 2002, respectively |            |             | 35,000 |   |            |            | 32,000 | 
|                                             | Warrants                                                                                                                        |                                                                                              |            | 5,130,000   |        |   |            | 5,130,000  |       
|                                             | Notes receivable  stockholders                                                                                                 |                                                                                              |            | (225,000    | )      |   |            |           |       
|                                             | Additional paid-in capital                                                                                                      |                                                                                              |            | 32,453,000  |        |   |            | 22,114,000 |       
|                                             | Retained earnings (deficit)                                                                                                     |                                                                                              |            | (28,278,000 | )      |   |            | 8,771,000  |       
|                                             |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|Total stockholders equity                   |                                                                                                                                 |                                                                                              | 9,115,000  |             |        |   | 36,047,000 |           
|                                             |                                                                                                                                 |                                                                                              |            |             |        |   |            |           
|Total Liabilities & Stockholders
    equity |                                                                                                                                 | $                                                                                            | 53,969,000 |             |        | $ | 93,326,000 |           
|                                             |                                                                                                                                 |                                                                                              |            |             |        |   |            |           

See accompanying notes.

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THANE INTERNATIONAL, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                     |                                            |                      |             |             |  |      |             |             |  |   |             |             | 
|------------------------------------ | ------------------------------------------ | -------------------- | ----------- | ----------- |  | ---- | ----------- | ----------- |  | - | ----------- | ----------- | 
|                                     |                                            |                     
|                                     |                                            | Year Ended March 31,
|                                     |                                            |                     
|                                     |                                            | 2003                 |             | 2002        |  | 2001
|                                     |                                            |                      |             |             |  |     
|Revenues:                            |                                            |                      |             |             |  |      |             |             |  |   |             |            
|                                     | Net product sales                          |                      | $           | 149,194,000 |  |      | $           | 218,905,000 |  |   | $           | 182,499,000 | 
|                                     | Other                                      |                      |             | 10,030,000  |  |      |             | 12,548,000  |  |   |             | 7,438,000   | 
|                                     |                                            |                      |             |             |  |      |             |             |  |   |             |            
|Total revenues                       |                                            |                      | 159,224,000 |             |  |      | 231,453,000 |             |  |   | 189,937,000 |            
|Costs and expenses:                  |                                            |                      |             |             |  |      |             |             |  |   |             |            
|                                     | Costs of sales, including selling expenses |                      |             | 132,866,000 |  |      |             | 179,775,000 |  |   |             | 148,722,000 | 
|                                     | General and administrative expenses        |                      |             | 34,655,000  |  |      |             | 20,662,000  |  |   |             | 12,210,000  | 
|                                     | Impairment of goodwill                     |                      |             | 25,888,000  |  |      |             |            |  |   |             |            | 
|                                     | Depreciation                               |                      |             | 715,000     |  |      |             | 422,000     |  |   |             | 146,000     | 
|                                     |                                            |                      |             |             |  |      |             |             |  |   |             |            
|Total costs and expenses             |                                            |                      | 194,124,000 |             |  |      | 200,859,000 |             |  |   | 161,078,000 |            
|                                     |                                            |                      |             |             |  |      |             |             |  |   |             |            
|Income (loss) from operations        |                                            |                      | (34,900,000 | )           |  |      | 30,594,000  |             |  |   | 28,859,000  |            
|Interest expense, net                |                                            |                      | 5,006,000   |             |  |      | 11,492,000  |             |  |   | 2,497,000   |            
|Minority interest, and other         |                                            |                      | 286,000     |             |  |      | 382,000     |             |  |   | 317,000     |            
|                                     |                                            |                      |             |             |  |      |             |             |  |   |             |            
|Income (loss) before taxes (benefit) |                                            |                      | (40,192,000 | )           |  |      | 18,720,000  |             |  |   | 26,045,000  |            
|Provision (benefit) for income taxes |                                            |                      | (3,143,000  | )           |  |      | 8,860,000   |             |  |   | 10,053,000  |            
|                                     |                                            |                      |             |             |  |      |             |             |  |   |             |            
|Net income (loss)                    |                                            | $                    | (37,049,000 | )           |  | $    | 9,860,000   |             |  | $ | 15,992,000  |            
|                                     |                                            |                      |             |             |  |      |             |             |  |   |             |            
|Weighed average shares  basic       |                                            |                      | 33,029,868  |             |  |      | 32,533,958  |             |  |   | 32,079,968  |            
|Basic earnings (loss) per share      |                                            | $                    | (1.12       | )           |  | $    | 0.30        |             |  | $ | 0.50        |            
|Weighted average shares  diluted    |                                            |                      | 33,029,868  |             |  |      | 35,064,425  |             |  |   | 32,079,968  |            
|Diluted earnings (loss) per share    |                                            | $                    | (1.12       | )           |  | $    | 0.28        |             |  | $ | 0.50        |            

See accompanying notes.

28



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##### Table of Contents






THANE INTERNATIONAL, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIT)

|                          |                                                        |                      |            |            |   |          |        |              |   |          |           |               |  |           |          |            |   |   |            |            |   |   |             |             |   |   |             |             |  
|------------------------- | ------------------------------------------------------ | -------------------- | ---------- | ---------- | - | -------- | ------ | ------------ | - | -------- | --------- | ------------- |  | --------- | -------- | ---------- | - | - | ---------- | ---------- | - | - | ----------- | ----------- | - | - | ----------- | ----------- | -
|                          |                                                        |                      |            |            |   |          |        |              |   |          |           |              
|                          |                                                        | Class A Common Stock |            |            |   |          |        |              |   |          |           | Total        
|                          |                                                        |                      |            |            |   | Notes    |        | Additional   |   | Retained |           | Stockholders
|                          |                                                        | Number of            |            |            |   |          |        | Receivable  |   | Paid-In  |           | Earnings      |  | Equity   
|                          |                                                        | Shares               |            | Amount     |   | Warrants |        | Stockholders |   | Capital  |           | (Deficit)     |  | (Deficit)
|                          |                                                        |                      |            |            |   |          |        |              |   |          |           |               |  |          
|Balance at April 1, 2000  |                                                        |                      | 32,000,000 |            |   | $        | 32,000 |              |   | $        |          |               |  | $         |         |            |   | $ | 6,033,000  |            |   | $ | (17,081,000 | )           |   | $ | (11,016,000 | )          
|                          | Common stock repurchased                               |                      |            | (62,912    | ) |          |        |             |   |          |           |              |  |           |          |           |   |   |            | (66,000    | ) |   |             |            |   |   |             | (66,000     | )
|                          | Purchase of minority interest in Thane Direct          |                      |            | 640,000    |   |          |        | 1,000        |   |          |           |              |  |           |          |           |   |   |            | 284,000    |   |   |             |            |   |   |             | 285,000     |  
|                          | Net income                                             |                      |            |           |   |          |        |             |   |          |           |              |  |           |          |           |   |   |            |           |   |   |             | 15,992,000  |   |   |             | 15,992,000  |  
|                          |                                                        |                      |            |            |   |          |        |              |   |          |           |               |  |           |          |            |   |   |            |            |   |   |             |             |   |   |             |            
|Balance at March 31, 2001 |                                                        |                      | 32,577,088 |            |   |          | 33,000 |              |   |          |          |               |  |           |         |            |   |   | 6,251,000  |            |   |   | (1,089,000  | )           |   |   | 5,195,000   |            
|                          | Common stock repurchased                               |                      |            | (248,898   | ) |          |        |             |   |          |           |              |  |           |          |           |   |   |            | (1,185,000 | ) |   |             |            |   |   |             | (1,185,000  | )
|                          | Cancellation of common stock                           |                      |            | (3,171,552 | ) |          |        | (3,000       | ) |          |           |              |  |           |          |           |   |   |            | 3,000      |   |   |             |            |   |   |             |            |  
|                          | Issuance of warrants                                   |                      |            |           |   |          |        |             |   |          |           | 5,130,000     |  |           |          |           |   |   |            |           |   |   |             |            |   |   |             | 5,130,000   |  
|                          | Common stock issued in connection with acquisition     |                      |            | 2,634,768  |   |          |        | 2,000        |   |          |           |              |  |           |          |           |   |   |            | 17,045,000 |   |   |             |            |   |   |             | 17,047,000  |  
|                          | Net income                                             |                      |            |           |   |          |        |             |   |          |           |              |  |           |          |           |   |   |            |           |   |   |             | 9,860,000   |   |   |             | 9,860,000   |  
|                          |                                                        |                      |            |            |   |          |        |              |   |          |           |               |  |           |          |            |   |   |            |            |   |   |             |             |   |   |             |            
|Balance at March 31, 2002 |                                                        |                      | 31,791,406 |            |   |          | 32,000 |              |   |          | 5,130,000 |               |  |           |         |            |   |   | 22,114,000 |            |   |   | 8,771,000   |             |   |   | 36,047,000  |            
|                          | Common stock issued in connection with acquisition     |                      |            | 3,532,414  |   |          |        | 3,000        |   |          |           |              |  |           |          | (2,500,000 | ) |   |            | 9,224,000  |   |   |             |            |   |   |             | 6,727,000   |  
|                          | Payment of deferred consideration                      |                      |            | 138,961    |   |          |        |             |   |          |           |              |  |           |          |           |   |   |            | 1,115,000  |   |   |             |            |   |   |             | 1,115,000   |  
|                          | Accrued interest on stockholders notes
    receivable |                      |            |           |   |          |        |             |   |          |           |              |  |           |          | (128,000   | ) |   |            |           |   |   |             |            |   |   |             | (128,000    | )
|                          | Allowance on stockholders notes receivable            |                      |            |           |   |          |        |             |   |          |           |              |  |           |          | 2,403,000  |   |   |            |           |   |   |             |            |   |   |             | 2,403,000   |  
|                          | Net income                                             |                      |            |           |   |          |        |             |   |          |           |              |  |           |          |           |   |   |            |           |   |   |             | (37,049,000 | ) |   |             | (37,049,000 | )
|                          |                                                        |                      |            |            |   |          |        |              |   |          |           |               |  |           |          |            |   |   |            |            |   |   |             |             |   |   |             |            
|Balance at March 31, 2003 |                                                        |                      | 35,462,781 |            |   | $        | 35,000 |              |   | $        | 5,130,000 |               |  | $         | (225,000 | )          |   | $ | 32,453,000 |            |   | $ | (28,278,000 | )           |   | $ | 9,115,000   |            
|                          |                                                        |                      |            |            |   |          |        |              |   |          |           |               |  |           |          |            |   |   |            |            |   |   |             |             |   |   |             |            

See accompanying notes.

29



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##### Table of Contents






THANE INTERNATIONAL, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                           |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |            |             |           | 
|---------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ----------------------------------------- | ---------------------------------------- | ---------- | ---------- | --------- | ----------- | ---------- | ---------- | ---------- | ---------- | ---------- | ----------- | --------- | 
|                                                                                                           |                                                           |                                          
|                                                                                                           |                                                           | Year Ended March 31,                     
|                                                                                                           |                                                           |                                          
|                                                                                                           |                                                           | 2003                                      |                                          | 2002       |            | 2001     
|                                                                                                           |                                                           |                                           |                                          |            |            |          
|Operating activities                                                                                       |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |           
|Net income (loss)                                                                                          |                                                           | $                                         | (37,049,000                              | )          |            | $         | 9,860,000   |            |            | $          | 15,992,000 |           
|Adjustments to reconcile net income
    (loss) to net cash provided by (used in) operating
    activities: |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |           
|                                                                                                           | Impairment of goodwill                                    |                                           |                                          | 25,888,000 |            |           |             |           |            |            |            |           |            
|                                                                                                           | Depreciation                                              |                                           |                                          | 715,000    |            |           |             | 422,000    |            |            |            | 146,000    |            
|                                                                                                           | Amortization of production costs                          |                                           |                                          | 2,094,000  |            |           |             | 910,000    |            |            |            | 361,000    |            
|                                                                                                           | Amortization of financing costs                           |                                           |                                          | 816,000    |            |           |             | 167,000    |            |            |            | 165,000    |            
|                                                                                                           | Amortization of discount on acquired debt                 |                                           |                                          | 660,000    |            |           |             | 23,000     |            |            |            |           |            
|                                                                                                           | Interest on stockholders notes receivable                |                                           |                                          | (128,000   | )          |           |             |           |            |            |            |           |            
|                                                                                                           | Allowance on stockholders notes receivable               |                                           |                                          | 2,403,000  |            |           |             |           |            |            |            |           |            
|                                                                                                           | Loss on disposal of assets                                |                                           |                                          | 129,000    |            |           |             |           |            |            |            |           |            
|                                                                                                           | Interest expense attributable to issuance of
    warrants |                                           |                                          |           |            |           |             | 5,130,000  |            |            |            |           |            
|                                                                                                           | Write-off of financing costs                              |                                           |                                          |           |            |           |             | 376,000    |            |            |            |           |            
|                                                                                                           | Provision for doubtful accounts                           |                                           |                                          | 737,000    |            |           |             | (41,000    | )          |            |            | 1,588,000  |            
|                                                                                                           | Provision for inventory reserves                          |                                           |                                          | 544,000    |            |           |             | (224,000   | )          |            |            | 4,112,000  |            
|                                                                                                           | Deferred income taxes                                     |                                           |                                          | 1,089,000  |            |           |             | (2,256,000 | )          |            |            | (3,131,000 | )          
|                                                                                                           | Minority interest                                         |                                           |                                          | 157,000    |            |           |             | 382,000    |            |            |            | 306,000    |            
|                                                                                                           | Changes in operating assets and
    liabilities:          |                                           |                                          |            |            |           |             |            |            |            |            |            |            
|                                                                                                           |                                                           | Accounts receivable                       |                                          |            | 1,808,000  |           |             |            | 9,382,000  |            |            |            | (21,588,000 | )        
|                                                                                                           |                                                           | Other receivables                         |                                          |            | 1,280,000  |           |             |            | 1,368,000  |            |            |            | (715,000    | )        
|                                                                                                           |                                                           | Inventories                               |                                          |            | 6,526,000  |           |             |            | 7,971,000  |            |            |            | (19,365,000 | )        
|                                                                                                           |                                                           | Prepaid advertising                       |                                          |            | (1,148,000 | )         |             |            | 3,667,000  |            |            |            | (1,575,000  | )        
|                                                                                                           |                                                           | Prepaid expenses and other                |                                          |            | 980,000    |           |             |            | 779,000    |            |            |            | (1,283,000  | )        
|                                                                                                           |                                                           | Production costs                          |                                          |            | (1,466,000 | )         |             |            | (589,000   | )          |            |            | (719,000    | )        
|                                                                                                           |                                                           | Due from affiliate                        |                                          |            | 3,156,000  |           |             |            | (3,156,000 | )          |            |            |            |          
|                                                                                                           |                                                           | Other assets                              |                                          |            | (48,000    | )         |             |            | (1,554,000 | )          |            |            | (245,000    | )        
|                                                                                                           |                                                           | Accounts payable                          |                                          |            | (4,118,000 | )         |             |            | (5,933,000 | )          |            |            | 11,210,000  |          
|                                                                                                           |                                                           | Allowance for product refunds and returns |                                          |            | (1,237,000 | )         |             |            | (1,000,000 | )          |            |            | 3,486,000   |          
|                                                                                                           |                                                           | Accrued expenses                          |                                          |            | (7,903,000 | )         |             |            | 7,300,000  |            |            |            | 3,956,000   |          
|                                                                                                           |                                                           | Income taxes, net                         |                                          |            | (3,897,000 | )         |             |            | (9,785,000 | )          |            |            | 8,866,000   |          
|                                                                                                           |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |           
|Net cash provided by (used in) operating
    activities                                                    |                                                           |                                           | (8,012,000                               | )          |            |           | 23,199,000  |            |            |            | 1,567,000  |           
|Investing activities                                                                                       |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |           
|Purchases of furniture, fixtures and equipment                                                             |                                                           |                                           | (440,000                                 | )          |            |           | (961,000    | )          |            |            | (319,000   | )         
|Acquisition of companies, net of cash acquired                                                             |                                                           |                                           | 1,556,000                                |            |            |           | (749,000    | )          |            |            |           |           
|Acquisitions of minority interest                                                                          |                                                           |                                           |                                         |            |            |           |            |            |            |            | (350,000   | )         
|Notes issued to stockholders                                                                               |                                                           |                                           | (2,500,000                               | )          |            |           |            |            |            |            |           |           
|                                                                                                           |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |           
|Net cash provided by (used in) investing
    activities                                                    |                                                           |                                           | (1,384,000                               | )          |            |           | (1,710,000  | )          |            |            | (669,000   | )         
|Financing activities                                                                                       |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |           
|Proceeds from line of credit                                                                               |                                                           |                                           | 350,000                                  |            |            |           | 5,000,000   |            |            |            | 8,133,000  |           
|Payments on line of credit                                                                                 |                                                           |                                           |                                         |            |            |           | (13,333,000 | )          |            |            | (3,000,000 | )         
|Proceeds from long-term debt                                                                               |                                                           |                                           | 5,000,000                                |            |            |           | 14,000,000  |            |            |            |           |           
|Payments on long-term debt                                                                                 |                                                           |                                           | (4,859,000                               | )          |            |           | (15,414,000 | )          |            |            | (4,200,000 | )         
|Debt issuance costs                                                                                        |                                                           |                                           | (510,000                                 | )          |            |           | (1,061,000  | )          |            |            |           |           
|Repurchase of common stock                                                                                 |                                                           |                                           |                                         |            |            |           | (1,185,000  | )          |            |            | (66,000    | )         
|Payment of deferred consideration                                                                          |                                                           |                                           | (190,000                                 | )          |            |           |            |            |            |            |           |           
|Payments on capital lease obligations                                                                      |                                                           |                                           | (39,000                                  | )          |            |           | (22,000     | )          |            |            |           |           
|Net investments from (payments to) minority owners                                                         |                                                           |                                           | (49,000                                  | )          |            |           | 34,000      |            |            |            | 45,000     |           
|                                                                                                           |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |           
|Net cash provided by (used in) financing
    activities                                                    |                                                           |                                           | (297,000                                 | )          |            |           | (11,981,000 | )          |            |            | 913,000    |           
|                                                                                                           |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |           
|Net increase (decrease) in cash and cash
    equivalents                                                   |                                                           |                                           | (9,693,000                               | )          |            |           | 9,508,000   |            |            |            | 1,811,000  |           
|Cash and cash equivalents at beginning of year                                                             |                                                           |                                           | 13,568,000                               |            |            |           | 4,060,000   |            |            |            | 2,249,000  |           
|                                                                                                           |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |           
|Cash and cash equivalents at end of year                                                                   |                                                           | $                                         | 3,875,000                                |            |            | $         | 13,568,000  |            |            | $          | 4,060,000  |           
|                                                                                                           |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |           
|Supplemental disclosures of cash flow
    information                                                      |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |           
|Cash paid during the period for:                                                                           |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |           
|                                                                                                           |                                                           |                                           | Interest, including purchase of warrants |            | $          | 2,939,000 |             |            | $          | 5,939,000  |            |            | $           | 2,427,000 | 
|                                                                                                           |                                                           |                                           | Income taxes                             |            | $          | 4,204,000 |             |            | $          | 20,933,000 |            |            | $           | 4,125,000 | 
|Supplemental disclosures of non-cash
    items                                                             |                                                           |                                           |                                          |            |            |           |             |            |            |            |            |           
|Capitalization of prepaid acquisition costs                                                                |                                                           | $                                         | 1,681,000                                |            |            | $         |            |            |            | $          |           |           
|Payment of deferred consideration with stock                                                               |                                                           | $                                         | 1,115,000                                |            |            | $         |            |            |            | $          |           |           
|Adjustment to deferred consideration (Note 2)                                                              |                                                           | $                                         | 425,000                                  |            |            | $         |            |            |            | $          |           |           
|Asset acquired under capital lease                                                                         |                                                           | $                                         | 80,000                                   |            |            | $         | 3,260,000   |            |            | $          |           |           
|Write-off of fully amortized production costs                                                              |                                                           | $                                         |                                         |            |            | $         | 2,750,000   |            |            | $          |           |           

See accompanying notes.

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##### Table of Contents






THANE INTERNATIONAL, INC. AND
SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS

1.     Summary of
Operations and Basis of Presentation



| |                          
| | -------------------------
| | Organization and Business

Thane International, Inc. (the Company) was
incorporated on August 28, 1996 under the state laws of
Delaware. The Company is engaged in the development and
distribution of products primarily through infomercials. The
Company also sells its products to retailers and distributors.
The Company does business domestically and internationally.

On May 21, 1999, the Company entered into an
Agreement and Plan of Merger (the Recapitalization). Under the
terms of the Recapitalization, a company formed by an investor
group merged with and into the Company resulting in a new
capital structure.

On January 12, 2001, the Company acquired
the remaining 15% interest in Thane Direct, Inc. for $350,000
and 20,000 shares of the Companys common stock. As a
result of this transaction, Thane Direct, Inc. became a wholly
owned subsidiary as of that date.



| |                      
| | ---------------------
| | Basis of Presentation

For the year ended March 31, 2003, the
Company incurred a net loss of $37,049,000 and for the year
ended March 31, 2002 net income was $9,860,000. In
addition, cash (used in) and provided from operating activities
was $(8,012,000) and $23,199,000 for the years ended
March 31, 2003 and 2002, respectively. The net loss for
2003 includes the write-off of goodwill of $25,888,000
(Note 2) and the $8,200,000 write-off in the third quarter
(Note 3).

As of March 31, 2003, and during 2003, the
Companys principal source of liquidity consisted of cash
of $3,875,000 and borrowings under the Companys credit
facility. As discussed in Note 5, the credit facility
requires the Company to be in compliance with certain
restrictive covenants. The Company was not in compliance with
certain of these restrictive covenants at March 31, 2003
and the Company entered into an amendment of its credit facility
that waived the existing financial covenants as of
March 31, 2003. In addition, management expects the Company
to meet its obligations as they come due and expects to have
sufficient sources of financing to continue its operations
through at least March 31, 2004. Accordingly, the
accompanying financial statements have been prepared on a going
concern basis.

2.     Acquisitions

Internet
Retailer

On August 6, 2001, the Company purchased the
stock of an internet retailer, Tradewind Products, Inc., for
approximately $1,000,000. In accordance with the purchase
agreement, there are contingent payments in the form of cash and
Company stock that may be made in the event certain thresholds
are met. As it is more likely than not that these thresholds
will be met, the Company has accrued $2,230,000 for these
payments. This acquisition was accounted for using the purchase
method of accounting and its operating results are included in
the statement of income subsequent to the date of acquisition.

A summary of goodwill recorded in connection with
the transaction is as follows:

|                                        |  |   |           | 
|--------------------------------------- |  | - | --------- | 
|Excess of cost over net assets acquired |  | $ | 286,000   | 
|Deferred consideration                  |  |   | 2,230,000 | 
|Acquisition costs                       |  |   | 137,000   | 
|                                        |  |   |           | 
|Total goodwill                          |  | $ | 2,653,000 | 
|                                        |  |   |           | 

31



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In June 2002, the Company paid $190,000 in cash
and $1,115,000 in the form of 138,961 shares of Company
Class A common stock, calculated in accordance with the
terms of the purchase agreement, toward its deferred
consideration. In May 2003, the Company renegotiated the
remaining deferred consideration from a stock based payment of
$925,000 to a cash based payment of $500,000. Upon execution of
the agreement, the Company paid $300,000 toward this obligation
and goodwill was reduced from $2,653,000 to $2,228,000. The
remaining $200,000 is contingent upon certain events and is
payable, if due, as of November 3, 2003.

Krane
Products

On March 15, 2002, the Company acquired 100%
of Krane Holdings, Inc. (Krane) and its wholly-owned subsidiary
Krane Products, Inc. in exchange for approximately
2,635,000 shares of the Companys common stock. Each
share of Krane stock was exchanged for approximately
2.424 shares of the Companys common stock in a
transaction valued at $17,047,000. This acquisition was
accounted for using the purchase method of accounting and its
operating results are included in the statement of income
subsequent to the date of acquisition. The components of the
purchase price and goodwill are as follows:

|                             |                                              |  |   |             |  
|---------------------------- | -------------------------------------------- |  | - | ----------- | -
|Allocation of Purchase Price |                                              |  |   |            
|                             | Cash                                         |  | $ | 621,000     |  
|                             | Accounts receivable                          |  |   | 4,213,000   |  
|                             | Deferred tax assets                          |  |   | 1,697,000   |  
|                             | Property and equipment                       |  |   | 389,000     |  
|                             | Financing costs                              |  |   | 356,000     |  
|                             | Other assets                                 |  |   | 331,000     |  
|                             | Excess of cost over net liabilities acquired |  |   | 21,499,000  |  
|                             | Accounts payable                             |  |   | (231,000    | )
|                             | Accrued expenses and other liabilities       |  |   | (868,000    | )
|                             | Long term debt (net)                         |  |   | (10,960,000 | )
|                             |                                              |  |   |            
|                             | Total purchase price                         |  | $ | 17,047,000  |  
|                             |                                              |  |   |            
|Components of goodwill:      |                                              |  |   |            
|                             | Excess of cost over net liabilities acquired |  | $ | 21,499,000  |  
|                             | Acquisition costs                            |  |   | 263,000     |  
|                             |                                              |  |   |            
|                             | Total goodwill                               |  | $ | 21,762,000  |  
|                             |                                              |  |   |            

As of December 31, 2002, Krane was in
default of its credit facility with LaSalle Bank National
Association due to violations of certain debt covenants (Note
5). In addition, this credit facility matured in February 2003.
The Company was unable to negotiate a waiver for these
violations or a short-term extension of this facility. As a
result, on June 18, 2003, LaSalle exercised its secured
rights under this facility, and accordingly, took possession of
100% of the capital stock of Krane. In addition, the
Companys evaluation of the fair value of Kranes
assets indicated they were not sufficient to recover the
recorded costs. Therefore, as of March 31, 2003, Thane
recognized a non-cash write-off of 100% of the goodwill
associated with the Krane acquisition, or $21,762,000.
Accordingly, the operations of Krane will be presented as
discontinued beginning in the first quarter of fiscal 2004 and
as a result of LaSalle exercising its rights, the assets and
liabilities of Krane will no longer be consolidated with the
Company as of June 18, 2003. At March 31, 2003, total
assets of Krane were approximately $5.7 million and total
liabilities were approximately $12.0 million. As a result
of LaSalle taking 100% of the capital stock of Krane on
June 18, 2003, the Company expects to record an
extraordinary gain from extinguishment of debt, in the first
quarter of 2004, of approximately $5.0 million.

32



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Reliant
Interactive Media Corp.

In May 2002, the Company acquired 100% of Reliant
Interactive Media Corp. (Reliant) in exchange for
3,532,414 shares of the Companys common stock, of
which 2,214,275 were issued to Reliants principal
shareholders and placed in escrow (the Escrowed
Shares). Each share of Reliant stock was exchanged for
approximately 0.3049459 shares of the Companys common
stock in a transaction originally valued at approximately
$24,727,000 resulting in initial goodwill of $19,626,000.

In accordance with the employment agreements
entered into between the Company and Reliants principal
shareholders, the Company loaned $2,500,000 to Reliants
principal shareholders, with the underlying notes accruing
interest at 6%. In the event that certain thresholds are met in
future years, the loans will be forgiven and recognized as
compensation expense. The notes and accrued interest are
reflected as a reduction of equity.

Of the 2,214,275 escrowed shares of the
Companys stock, 442,854 shares represent collateral
for these loans. The amount of the loans and accrued interest of
$2,628,000 has been reduced by $2,403,000, such that the net
amount of the loan and accrued interest approximate the fair
market value of the collateral shares. The $2,403,000 has been
recorded as compensation expense, which is a component of
general and administrative expenses, and will be adjusted as an
increase or decrease to expense based on changes in market value
of the underlying shares until such time as the loan is repaid.
The remaining 1,771,421 shares have also been placed in
escrow and may be earned in the event that certain future
quarterly and cumulative earnings thresholds are met. As of
March 31, 2003, none of these thresholds had been met and
all shares remained in escrow. All of the shares in escrow
revert back to the majority shareholders in the event the
thresholds are not met. Subsequent to year-end,
1,771,421 shares were released from escrow and purchased by
two of the majority shareholders of the Company (Note 11).

Due to the contingent nature of the earnings
thresholds discussed above and the unlikely nature that they
will be achieved in the future, the Company revalued its
purchase accounting as of the acquisition date to exclude all
shares placed in escrow. This resulted in a decrease of the
goodwill and paid-in-capital amounts previously reported by
approximately $15,500,000.

33



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of the final purchase price and
goodwill are as follows:

|                              |                                              |  |   |            |  
|----------------------------- | -------------------------------------------- |  | - | ---------- | -
|Allocation of purchase price: |                                              |  |   |           
|                              | Cash                                         |  | $ | 1,696,000  |  
|                              | Accounts receivable, net                     |  |   | 837,000    |  
|                              | Other receivables                            |  |   | 3,054,000  |  
|                              | Inventories                                  |  |   | 891,000    |  
|                              | Income taxes receivable                      |  |   | 570,000    |  
|                              | Prepaid expenses and other assets            |  |   | 924,000    |  
|                              | Production costs                             |  |   | 861,000    |  
|                              | Excess of cost over net liabilities acquired |  |   | 2,305,000  |  
|                              | Accounts payable                             |  |   | (1,028,000 | )
|                              | Accrued expenses and other liabilities       |  |   | (883,000   | )
|                              |                                              |  |   |           
|                              | Total purchase price                         |  | $ | 9,227,000  |  
|                              |                                              |  |   |           
|Components of goodwill:       |                                              |  |   |           
|                              | Excess of cost over net liabilities acquired |  | $ | 2,305,000  |  
|                              | Acquisition costs                            |  |   | 1,821,000  |  
|                              |                                              |  |   |           
|                              | Total goodwill                               |  | $ | 4,126,000  |  
|                              |                                              |  |   |           

During 2003, the Company performed an evaluation
of its goodwill related to the acquisition of Reliant. Due to
the unpredictable nature of future cash flows and the employment
agreements with the former majority shareholders of Reliant
expiring on March 31, 2005, the Company concluded that the
fair value of Reliants assets are not sufficient to
recover the recorded costs. Accordingly, the Company has
recognized a non-cash write-off of the goodwill associated with
Reliant of $4,126,000 in 2003.



| |                              
| | -----------------------------
| | Pro Forma Results (Unaudited)

The unaudited pro forma financial information
below for the years ended March 31, 2003, 2002 and 2001
were prepared as if the transactions above had occurred on
April 1, 2000, and assumes the refinancing and warrant
repurchase (Note 5) occurred on March 31, 2000 to
facilitate the transactions as of this date.

|                                  |  |                       |             |      |  |      |             |  |  |   |             | 
|--------------------------------- |  | --------------------- | ----------- | ---- |  | ---- | ----------- |  |  | - | ----------- | 
|                                  |  |                      
|                                  |  | Years Ended March 31,
|                                  |  |                      
|                                  |  | 2003                  |             | 2002 |  | 2001
|                                  |  |                       |             |      |  |     
|Revenues                          |  | $                     | 164,223,000 |      |  | $    | 314,017,000 |  |  | $ | 261,957,000 | 
|Total costs and expenses          |  | $                     | 199,920,000 |      |  | $    | 276,472,000 |  |  | $ | 228,360,000 | 
|Net income (loss)                 |  | $                     | (37,521,000 | )    |  | $    | 20,334,000  |  |  | $ | 17,706,000  | 
|Basic earnings (loss) per share   |  | $                     | (1.13       | )    |  | $    | 0.61        |  |  | $ | 0.54        | 
|Diluted earnings (loss) per share |  | $                     | (1.13       | )    |  | $    | 0.57        |  |  | $ | 0.54        | 

The unaudited pro forma financial information is
not necessarily indicative of what actual results would have
been had the transaction occurred at the beginning of the
respective year, nor does it purport to indicate the results of
future operations of the Company.

34



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                               
|-- | ----------------------------------------------
|3. | Summary of Significant Accounting
    Policies



| |                            
| | ---------------------------
| | Principles of Consolidation

The accompanying consolidated financial
statements include the accounts of Thane
International, Inc. and all of its direct and indirect
wholly-owned subsidiaries, TDG, Inc., West Coast Direct
Marketing, Inc., La Quinta Services Corp., Concept and
Product Solutions, Inc., Thane Direct, Inc., Thane
Direct Canada, Inc., Thane Direct FSC, Inc.,
Thane Direct UK Limited, Xebec Productions, Inc., Time
Prophets, Inc., Krane Holdings, Inc., Krane
Products, Inc., Reliant Interactive Media Corp., TrendPro
TV GmbH, Tradewind Products, Inc., and majority-owned
subsidiaries, Clinical Results, Inc., and Fox Marketing, Inc.
All significant intercompany balances and transactions have been
eliminated.

Use of
Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reported period. Actual
results could differ from those estimates.

Reclassification

Certain amounts for 2002 and 2001 have been
reclassified to conform with the 2003 financial statement
presentation.

On February 14, 2002, the Companys
Board of Directors approved a 32 for one stock split with a
record date of February 19, 2002. All historical
information regarding shares, earnings per share and stock
options give effect to the split, applied retroactively as if
the split occurred on June 10, 1999 (the date of the
Recapitalization).

Change in
Accounting Policy

Effective April 1, 2002, the Company changed
its method of accounting for media commissions from recognizing
gross media revenues and expenses to recognizing the net
commission as a component of other revenues. The adoption of
this policy has no effect on the Companys income from
operations and amounts in all periods presented have been
reclassified to reflect this change.

Concentration
of Risk

Advertising, order taking and order fulfillment
are each outsourced primarily to a few companies, which
potentially subjects the Company to a concentration of supplier
risk. Although these services are currently concentrated with a
few key suppliers, management believes that other suppliers
could provide similar services and comparable terms.

The Company has a diversified customer base,
which includes some customers who are located in foreign
countries. For the years ended March 31, 2003, 2002 and
2001, revenue from international customers was approximately
32%, 35% and 11%, respectively, of total revenues. The Company
monitors extensions of credit and maintains allowances for
potential credit losses. Such losses have generally been within
managements expectations.

35



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Cash and Cash
Equivalents

For purposes of the statement of cash flows, the
Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At
times, the Company may have cash in banks in excess of its
federally insured limits.

Accounts
Receivable

Accounts receivable consist primarily of amounts
due to us from our normal business activities. The Company
maintains an allowance for doubtful accounts to reflect the
expected uncollectibility of accounts receivable based on past
collection history and specific risks identified in the
portfolio.

Inventories

Inventories consist primarily of products
purchased for resale and are stated at the lower of cost
(determined by the first-in, first-out method) or market.

Income
Taxes

The Company recognizes deferred tax liabilities
and assets for the expected future tax consequences of temporary
timing differences between the financial statement and tax basis
of assets and liabilities at the applicable enacted tax rates. A
valuation allowance is maintained to reduce its deferred tax
assets to the amount that is more likely than not to be
realized. While the Company has considered future taxable income
and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event the
Company were to determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase
income in the period such determination was made. Likewise,
should the Company determine that it would not be able to
realize all or part of its net deferred tax asset in the future,
an adjustment to the deferred tax asset would be charged to
income in the period such determination was made.

Reserves

In the quarter ended December 31, 2002, the
Company recorded a total write-off of $8,200,000. The write-off
primarily consisted of product financing receivables, inventory,
prepaid royalties and production costs related to products that
we are no longer able to sell in the Companys distribution
channels, in the amount of $6,200,000. In addition, the total
write-off amount includes a charge of $1,400,000 related to a
settlement with the Canadian government regarding a health and
beauty product sold in Canada for which the Company was required
to refund customers who returned the product. The total charge
of $8,200,000, reduced total revenues by $2,200,000, increased
cost of sales, including selling expenses, by $5,800,000 and
increased general and administrative expenses and other expenses
by $30,000 and $129,000, respectively.

Costs
Associated with Infomercials

Television advertisement of products comprises
the main components of the Companys direct-response
marketing efforts, and its primary purpose is to elicit sales to
customers. The costs associated with airing television
infomercials include media and production costs. In December
1993, the American Institute of Certified Public Accountants
issued Statement of Position 93-7 (SOP 93-7) entitled
Reporting on Advertising Costs. The Company defers
these costs associated with infomercials in accordance with
SOP 93-7.

36



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Prepaid
Advertising

Prepaid advertising includes payments made for
media and telemarketing costs associated with orders for
products that have been placed, but not yet shipped. These costs
are expensed when the sales are recognized.

Net advertising expense was approximately
$22,598,000, $53,861,000 and $43,250,000 for the years ended
March 31, 2003, 2002 and 2001, respectively. This expense
is reflected in cost of sales in the consolidated statements of
income.

Production
Costs

Production costs include various costs incurred
by the Company to produce an infomercial in which the
Companys products are marketed. These costs are amortized
over the estimated revenue stream, not to exceed 18 months.

Property and
Equipment

Property and equipment are recorded at cost.
Major additions and improvements are capitalized. Depreciation,
for financial statement purposes, is computed using the
straight-line method and accelerated methods over the estimated
useful lives of three to five years for furniture, fixtures and
equipment and 20 years for the building. When assets are
sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting
gain or loss is included in income.

Impairment of
Long-Lived Assets

The Company evaluates the recoverability of its
long-lived assets in accordance with Financial Accounting
Standards Board (FASB) Statement of Financial Accounting
Standards (FAS) No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. FAS No. 144 requires
the recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets. The Company
assesses potential impairments to its long-lived assets when
there is evidence that events or changes in circumstances have
made recovery of the assets carrying value unlikely.
Should an impairment exist, the impairment loss would be
measured based on the carrying value of the asset over the
assets fair value or estimates of future undiscounted cash
flow. At March 31, 2003, the Companys review of
long-lived assets, other than goodwill, showed no indications of
loss or impairment. Accordingly, no impairment loss was recorded
in 2003, 2002 or 2001.

Goodwill

Goodwill represents the excess of the purchase
price of each of the Companys acquisitions over the fair
market value of the net assets acquired. The acquisitions have
been accounted for under FAS No. 141 Business
Combinations, and in accordance with FAS No. 142,
Goodwill & Other Intangible Assets, goodwill has not
been amortized and is tested annually or more frequently if
circumstances indicate potential impairment, by comparing the
fair value of assets to its carrying amount (Note 2).

37



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The changes in the carrying amount of goodwill
for the year ended March 31, 2003, are as follows:

|                             |                                         |          |           |          |   |         |            |             |   |   |   |            |   |   |            |             |  
|---------------------------- | --------------------------------------- | -------- | --------- | -------- | - | ------- | ---------- | ----------- | - | - | - | ---------- | - | - | ---------- | ----------- | -
|                             |                                         | Internet |           |          |   |         |            |            
|                             |                                         | Retailer |           | Krane    |   | Reliant |            | Total      
|                             |                                         |          |           |          |   |         |            |            
|Balance as of March 31, 2002 |                                         | $        | 2,653,000 |          |   | $       | 21,762,000 |             |   | $ |  |            |   | $ | 24,415,000 |            
|                             | Goodwill acquired during the year       |          |           |         |   |         |            |            |   |   |   | 4,126,000  |   |   |            | 4,126,000   |  
|                             | Goodwill impairment                     |          |           |         |   |         |            | (21,762,000 | ) |   |   | (4,126,000 | ) |   |            | (25,888,000 | )
|                             | Renegotiation of deferred consideration |          |           | (425,000 | ) |         |            |            |   |   |   |           |   |   |            | (425,000    | )
|                             |                                         |          |           |          |   |         |            |             |   |   |   |            |   |   |            |            
|Balance as of March 31, 2003 |                                         | $        | 2,228,000 |          |   | $       |           |             |   | $ |  |            |   | $ | 2,228,000  |            
|                             |                                         |          |           |          |   |         |            |             |   |   |   |            |   |   |            |            

Accrued
Expenses

Accrued expenses include the following for the
years ended March 31:

|                                                 |  |      |           |      |  |   |            | 
|------------------------------------------------ |  | ---- | --------- | ---- |  | - | ---------- | 
|                                                 |  | 2003 |           | 2002
|                                                 |  |      |           |     
|Accrual for management and employee compensation |  | $    | 1,702,000 |      |  | $ | 3,660,000  | 
|Deferred revenue                                 |  |      | 745,000   |      |  |   | 2,071,000  | 
|Royalties and profit participation               |  |      | 179,000   |      |  |   | 3,852,000  | 
|Accrued acquisition costs                        |  |      |          |      |  |   | 1,210,000  | 
|Accrual for unbilled legal fees                  |  |      | 598,000   |      |  |   | 462,000    | 
|Accrued management fees                          |  |      | 375,000   |      |  |   | 75,000     | 
|Accrued interest                                 |  |      | 298,000   |      |  |   | 53,000     | 
|Other                                            |  |      | 3,102,000 |      |  |   | 2,855,000  | 
|                                                 |  |      |           |      |  |   |            | 
|                                                 |  | $    | 6,999,000 |      |  | $ | 14,238,000 | 
|                                                 |  |      |           |      |  |   |            | 

Revenue
Recognition

The Company recognizes revenue upon concluding
that all of the fundamental criteria for revenue recognition
have been met. All of the criteria are usually met at the time
of product shipment. The Company also earns commission income
from media brokers and income from third parties for consulting
services rendered. The commission income earned from media
brokers is netted against advertising expense included in cost
of sales. The Company also earns revenue on membership referral
fees from a joint venture with a third-party. All shipping and
handling costs are recorded within cost of sales.

Generally, it is the Companys policy to
refund unconditionally the total price of merchandise, less
shipping and handling, for merchandise returned within
30 days. The Company provides an allowance, based on
experience, for returned merchandise.

Stock-Based
Employee Compensation

The Company accounts for stock-based employee
compensation plans under the intrinsic value method in
accordance with Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees
(APB 25), and related Interpretations. The Company has
adopted the disclosure only provisions of FAS No. 123
Accounting for Stock-Based Compensation (FAS 123) as
amended by FAS No. 148 Accounting for Stock-Based
Compensation  Transition & Disclosure
(FAS 148). FAS 148 provides alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In
addition, FAS 148 amends the disclosure requirements of
FAS 123 to require more prominent and more frequent
disclosures in financial statements of the effects of
stock-based compensation.

38



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company has two stock-based employee
compensation plans and accounts for these plans under the
recognition and measurement principles of APB 25. No stock
based employee compensation costs are reflected in net income,
as all options granted under these plans had exercise prices
that were equal to or greater than the market value of the
common stock on their grant date. In previous fiscal years as a
private entity, the Company utilized the minimum value method to
estimate the fair value of options granted. In 2003, the Company
utilized the Black-Scholes option-pricing model. Had the Company
elected to adopt the fair value recognition provisions of
FAS 123, there would have been no material change to net
income (loss) or earnings (loss) per share.

Fair Value of
Financial Instruments

The following methods and assumptions were used
to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:



| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and Cash
    Equivalents.The carrying amount
    approximates fair value because of the short-term maturity of
    these instruments.                                       
|
| | Line of Credit and Term
    Debt.The carrying amount approximates
    fair value based on the current rates offered to the Company for
    debt of the same remaining maturities.
|
| | Accounts Receivable.The carrying amount approximates fair value.                                                                                                                 
|
| | Accounts Payable.The carrying amount approximates fair value.                                                                                                                    



| |                          
| | -------------------------
| | Earnings (Loss) Per Share

The computation of basic and diluted income
(loss) per share of common stock based on the weighted
average number of shares outstanding during the period of the
financial statements as follows:

|                              |                                                                    |                                   |   |               |   |           |   |            |  |  |   |       |  
|----------------------------- | ------------------------------------------------------------------ | --------------------------------- | - | ------------- | - | --------- | - | ---------- |  |  | - | ----- | -
|                              |                                                                    |                                  
|                              |                                                                    | For the Year Ended March 31, 2003
|                              |                                                                    |                                  
|                              |                                                                    | Loss                              |   | Shares        |   | Per-Share
|                              |                                                                    | (Numerator)                       |   | (Denominator) |   | Amount   
|                              |                                                                    |                                   |   |               |   |          
|Basic Loss Per Share          |                                                                    |                                   |   |               |   |           |   |            |  |  |   |      
|                              | Loss available to common stockholders                              |                                   | $ | (37,049,000   | ) |           |   | 33,029,868 |  |  | $ | (1.12 | )
|                              |                                                                    |                                   |   |               |   |           |   |            |  |  |   |      
|Effect of Dilutive Securities |                                                                    |                                   |  |               |   |           |  |            |  |  |   |      
|                              |                                                                    |                                   |   |               |   |           |   |            |  |  |   |      
|Diluted Loss Per Share        |                                                                    |                                   |   |               |   |           |   |            |  |  |   |      
|                              | Loss available to common stockholders plus
    assumed conversions |                                   | $ | (37,049,000   | ) |           |   | 33,029,868 |  |  | $ | (1.12 | )
|                              |                                                                    |                                   |   |               |   |           |   |            |  |  |   |      

The computation of weighted average shares for
the year ended March 31, 2003 excludes the 2,214,275
Escrowed Shares related to the Reliant acquisition (Note 2).

39



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                              |                                                                      |                                   |   |               |  |           |  |            |  |  |   |      | 
|----------------------------- | -------------------------------------------------------------------- | --------------------------------- | - | ------------- |  | --------- |  | ---------- |  |  | - | ---- | 
|                              |                                                                      |                                  
|                              |                                                                      | For the Year Ended March 31, 2002
|                              |                                                                      |                                  
|                              |                                                                      | Income                            |   | Shares        |  | Per-Share
|                              |                                                                      | (Numerator)                       |   | (Denominator) |  | Amount   
|                              |                                                                      |                                   |   |               |  |          
|Basic Income Per Share        |                                                                      |                                   |   |               |  |           |  |            |  |  |   |     
|                              | Income available to common stockholders                              |                                   | $ | 9,860,000     |  |           |  | 32,533,958 |  |  | $ | 0.30 | 
|                              |                                                                      |                                   |   |               |  |           |  |            |  |  |   |     
|Effect of Dilutive Securities |                                                                      |                                   |   |               |  |           |  |            |  |  |   |     
|                              | Common stock options                                                 |                                   |   |              |  |           |  | 1,598,621  |  |  |   |      | 
|                              | Common stock amounts                                                 |                                   |   |              |  |           |  | 792,885    |  |  |   |      | 
|                              | Deferred consideration                                               |                                   |   |              |  |           |  | 138,961    |  |  |   |      | 
|                              |                                                                      |                                   |   |               |  |           |  |            |  |  |   |     
|Diluted Income Per Share      |                                                                      |                                   |   |               |  |           |  |            |  |  |   |     
|                              | Income available to common stockholders plus
    assumed conversions |                                   | $ | 9,860,000     |  |           |  | 35,064,425 |  |  | $ | 0.28 | 
|                              |                                                                      |                                   |   |               |  |           |  |            |  |  |   |     

|                              |                                                                      |                                   |   |               |  |           |   |            |  |  |   |      | 
|----------------------------- | -------------------------------------------------------------------- | --------------------------------- | - | ------------- |  | --------- | - | ---------- |  |  | - | ---- | 
|                              |                                                                      |                                  
|                              |                                                                      | For the Year Ended March 31, 2001
|                              |                                                                      |                                  
|                              |                                                                      | Income                            |   | Shares        |  | Per-Share
|                              |                                                                      | (Numerator)                       |   | (Denominator) |  | Amount   
|                              |                                                                      |                                   |   |               |  |          
|Basic Income Per Share        |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     
|                              | Income available to common stockholders                              |                                   | $ | 15,992,000    |  |           |   | 32,079,968 |  |  | $ | 0.50 | 
|                              |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     
|Effect of Dilutive Securities |                                                                      |                                   |  |               |  |           |  |            |  |  |   |     
|                              |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     
|Diluted Income Per Share      |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     
|                              | Income available to common stockholders plus
    assumed conversions |                                   | $ | 15,992,000    |  |           |   | 32,079,968 |  |  | $ | 0.50 | 
|                              |                                                                      |                                   |   |               |  |           |   |            |  |  |   |     



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In April 2003, the FASB issued
Statement 149, Amendment of Statement 133,
Accounting for Derivative Instruments and Hedging
Activities, which requires prospective application for
contracts entered into or modified after June 30, 2003,
except for contracts which exist in fiscal quarters that began
prior to June 15, 2003, and for hedging relationships
designated after June 30, 2003. For existing contracts for
fiscal quarters that began prior to June 15, 2003, the
provisions of this Statement that relate to Statement 133
Implementation Issues should continue to be applied in
accordance with their respective effective dates.
Statement 149 requires that contracts with comparable
characteristics be accounted for similarly. The Company does not
expect the adoption of this pronouncement to have a material
impact on the results of its operations, financial position or
liquidity.

In May 2003, the FASB issued Statement 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.Statement
150 establishes standards for classifying and measuring certain
financial instruments with characteristics of both liabilities
and equity. Statement 150 requires that an issuer classify a
financial instrument that is within its scope as a liability (or
an asset in some circumstances) because that financial
instrument embodies an obligation of the issuer. Statement 150
is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective for the
first interim period beginning after June 15, 2003, except
for mandatorily redeemable financial instruments of a nonpublic
entity for which this statement is effective for fiscal periods
beginning December 15, 2003. The Company does not expect
the adoption of this pronouncement to have a material impact on
the results of its operations, financial position, or liquidity.

40



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities (Interpretation 46), an
interpretation of ARB No. 51. Interpretation 46
addresses consolidation by business enterprises of variable
interest entities. Interpretation 46 applies immediately to
variable interest entities created after January 31, 2003,
and to variable interest entities in which an enterprise obtains
an interest after that date. It applies in the first year or
interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The
Company is in the initial stages of reviewing this
interpretation, but does not believe it has any variable
interest entities to which Interpretation 46 would apply.



| |                                      
| | -------------------------------------
| | Segments of a Business
    Enterprise

Financial Accounting Standards Board Statement
No. 131, Disclosure about Segments of an Enterprise
and Related Information, establishes standards for the way
that public business enterprises report information about
operating segments in annual consolidated financial statements
and requires that those enterprises report selected information
about operating segments in interim financial reports. The
statement also establishes standards for related disclosures
about products and services, geographic areas and major
customers. The Company operates in one segment, consumer
products.



|   |                           
|-- | --------------------------
|4. | Related Party Transactions

Previously, the Company paid a management fee of
approximately $21,000 per month to the Companys equity
investor. In January 2002, the Company and the equity investor
entered into an amended agreement that terminated the monthly
fee in the original agreement in exchange for a one time cash
payment of $1,500,000 under a new five-year agreement expiring
January 2007. The payment is contingent on the raising of
additional capital by the Company. The Company is currently
accruing $25,000 per month related to this fee. Upon payment,
the unaccrued balance of the fee will be capitalized and
amortized over the remaining term of the agreement. Included in
general and administrative expenses are management consulting
and financial services fees paid to H.I.G. Capital, LLC, an
affiliate of the Companys majority stockholder H.I.G.
Direct Marketing Holdings. The Company incurred approximately
$300,000, $187,000 and $451,000 in these management fees for
fiscal 2003, 2002 and 2001, respectively.

During the year ended March 31, 2002, the
Company purchased inventory of approximately $2,365,000 from an
affiliated entity whose principal stockholders are the majority
stockholders of the Company. The amount paid by the Company for
the inventory was at cost plus a 2% markup.

On May 1, 2001, the Company entered into a
five-year operating lease for the use of an aircraft with a
related entity whose principal stockholders are stockholders of
the Company. The lease is approximately $30,000 per month, plus
maintenance, insurance and costs. During fiscal 2003, the lease
payment was renegotiated down to approximately $26,000 per
month. The Company also leases, on a month-to-month basis, an
automobile from this entity for approximately $2,000 per month.

The Company leases a residential property from
two of its stockholders and officers on a month-to-month basis
for approximately $4,000 per month. The residence is used solely
for the purpose of housing for Company employees traveling to
the Companys headquarters. Management believes these
accommodations save the Company substantial lodging expenses.

Prior to August 2002, the Company leased an
office building under a capital lease from two of its
stockholders (Note 7).

The Company has retained the services of the law
firm Hall, Dickler, Kent, Goldstein and Wood, LLP.
Ms. Linda Goldstein, who served as one of our directors
from May 2002 to August 2002, is a partner of Hall, Dickler,
Kent, Goldstein and Wood, LLP. During her tenure as a director,
the Company paid approximately $198,000 in legal fees in
connection with this professional relationship.

41



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

During acquisition negotiations with Reliant
Interactive Media Corp. (Note 2), the Company agreed to
finance inventory and media for certain products for Reliant in
exchange for a financing fee. As of March 31, 2002, the
Company had a $3,156,000 receivable from Reliant related to
the agreement. Prior to the consummation of the acquisition, all
amounts were repaid by Reliant.

During 2003, in connection with the acquisition
of Reliant, the Company loaned $2,500,000 to the former
principal shareholders of Reliant (Note 2).



|   |                                  
|-- | ---------------------------------
|5. | Long-Term Debt and Line of Credit

Ableco Credit
Facility

In March 2002, the Company entered into a loan
and security agreement with Congress Financial Corporation
(Congress) and Ableco Finance (Ableco)
that provided a $20,000,000 senior secured revolving credit
facility and an aggregate of $14,000,000 in long-term loans.
Under this agreement, the Company and all of its wholly-owned
subsidiaries, with the exception of Krane, are either borrowers
or guarantors of this facility. These facilities were used to
refinance prior credit facilities, repurchase outstanding
warrants to purchase shares of common stock, pay certain fees
and expenses related to the Reliant and Krane acquisitions and
provide for future working capital requirements. Additionally,
in conjunction with this loan and security agreement, Congress,
Ableco and Kranes lenders, LaSalle Bank National
Association and Prairie Capital Mezzanine Fund, executed an
intercreditor agreement whereby the lenders agreed that there
would be no cross-default between the credit facilities of the
respective companies.

In October 2002, due to the lack of availability
on the Companys revolving line of credit resulting from
the exclusion of certain assets in the borrowing base
calculation, the Company entered into an amendment to its
original credit facility that provided for an additional
$5,000,000 subordinated term loan (Term Loan C) due
September 2003. Up to $2,000,000 of the term loan is guaranteed
by an affiliate of H.I.G. Direct Marketing Holdings, the
Companys majority stockholder.

As of December 31, 2002, the Company was in
violation of certain debt covenants within its Ableco credit
facility. Accordingly, on February 6, 2003, the Company
entered into an amendment to this credit facility that waived
the existing financial covenants as of December 31, 2002,
set new financial covenants on a quarterly basis going forward,
terminated the revolving line of credit portion of this facility
under which no monies were borrowed and required acceleration of
the term loan payment originally due in September 2003. The
Company paid $1,000,000 of the term loan due September 2003 upon
the execution of the amendment and an additional $1,000,000 was
paid as required prior to March 31, 2003. In addition, the
original loan and security agreement with Congress was assigned
in its entirety to Ableco. All other terms of the original loan
and security agreement remained materially the same. Finally,
the $2,000,000 guarantee discussed above was extended to all
term loans under the Ableco credit facility.

As of March 31, 2003, the Company was in
violation of certain debt covenants under the current Ableco
credit facility. Accordingly, on June 26, 2003, the Company
entered into an amendment to its credit facility that waived the
existing financial covenants as of March 31, 2003 and set
new financial covenants on a quarterly basis going forward. In
addition, the Company agreed to use all the proceeds of its
expected tax refund of approximately $4,500,000 to satisfy the
$3,000,000 balance of the term loan due September 2003 and to
prepay the other term loans. All other terms of the original
loan and security agreement remained materially the same.



| |              
| | -------------
| | Acquired Debt

In connection with the acquisition of Krane, the
Company acquired certain borrowings under a term loan and a
revolving loan, which are secured by the assets of Krane, as
well as an unsecured term loan. As part of the Ableco credit
facility, the lenders entered to an intercreditor agreement,
whereby, the assets of Krane were

42



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

pledged solely as collateral of the Krane debt,
and the assets of the remaining consolidated Company were
pledged solely as security to the Ableco credit facility.

The revolving loan provides maximum borrowings of
$2,500,000. Under the terms of the Agreement, interest is
payable monthly and accrues at a base rate equal to the greater
of the Federal Rate plus 0.5% or the prime rate, plus a base
rate margin of 2.00%. The rate as of March 31, 2003, due to
the default interest rate provisions of the credit agreement,
was 13.25%. Interest on the outstanding principal balance is
payable monthly, while the principal balance was due February
2003. The Company had $1,872,000 and $1,522,000 outstanding
under the revolving loan at March 31, 2003 and 2002,
respectively.

In connection with the original issuance of
Kranes credit facility, the lenders acquired shares and
warrants to purchase shares of Kranes common stock at a
purchase price less than market. As a result, the total
difference of the purchase price for the shares and their
estimated fair value resulted in a debt discount. The
unamortized portion of this discount acquired was approximately
$683,000 and is being amortized as interest expense over the
remaining term of the debt. For the years ended March 31,
2003 and 2002, amortization of this discount included in
interest expense is $660,000 and $23,000, respectively.

In March 2002, Thane purchased as treasury stock
the 248,898 shares of Thane common stock that were issued to
Kranes current lenders upon closing of the Krane merger in
exchange for an aggregate cash payment of approximately
$1,185,000.

As of December 31, 2002, Krane was in
default of its credit facility with LaSalle Bank National
Association due to violations of certain debt covenants. In
addition, this credit facility matured in February 2003. The
Company was unable to negotiate a waiver for these violations or
a short-term extension of this facility. As a result, on
June 18, 2003, LaSalle exercised its secured rights under
this facility, and accordingly, took possession of 100% of the
capital stock of Krane. In addition, the Companys
evaluation of the fair value of Kranes assets indicated
they were not sufficient to recover the recorded costs.
Therefore, as of March 31, 2003, Thane recognized a
non-cash write-off of 100% of the goodwill associated with the
Krane acquisition, or $21,762,000. In conjunction with the Krane
acquisition, Thanes current lenders entered into an
intercreditor agreement with LaSalle whereby they agreed that
there would be no cross-default between the credit facilities of
Krane and Thane. Accordingly, the aforementioned events did not
result in a default under Thanes Ableco credit facility.



| |                       
| | ----------------------
| | Summary of Obligations

Long-term debt consists of the following as of
March 31:

|                       |                                                                                                                                                                                                                                  |      |   |            |  |  |   |            | 
|---------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | - | ---------- |  |  | - | ---------- | 
|                       |                                                                                                                                                                                                                                  | 2003 |   | 2002      
|                       |                                                                                                                                                                                                                                  |      |   |           
|AbleCo Credit Facility |                                                                                                                                                                                                                                  |      |   |            |  |  |   |           
|                       | Term loan A, payable on March 13, 2005,
    interest payable monthly at the prime rate plus 7%, but never
    less than 11.75% and never more than 13.75% (11.75% at
    March 31, 2003)                                         |      | $ | 10,000,000 |  |  | $ | 10,000,000 | 
|                       | Term loan B, payable in monthly installments
    of $167,000 through April 1, 2004, interest payable monthly
    at the prime rate plus 7%, but never less than 11.75% and never
    more than 13.75% (11.75% at March 31, 2003) |      |   | 2,167,000  |  |  |   | 4,000,000  | 
|                       | Term loan C, payable September 15,
    2003, interest payable monthly at the prime rate plus 7%, but
    never less than 11.75% and never more than 13.75% (11.75% at
    March 31, 2003)                                        |      |   | 3,000,000  |  |  |   |           | 

43



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                     |                                                                                                                                                                                                                                                                                                                                         |      |            |           |  |   |            |           | 
|-------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ---------- | --------- |  | - | ---------- | --------- | 
|                     |                                                                                                                                                                                                                                                                                                                                         | 2003 |            | 2002     
|                     |                                                                                                                                                                                                                                                                                                                                         |      |            |          
|Acquired Debt        |                                                                                                                                                                                                                                                                                                                                         |      |            |           |  |   |            |          
|                     | Term loan A, net of unamortized discount, payable
    in quarterly installments with any remaining principal due in
    full February 2003, interest payable monthly at a base rate
    equal to the greater of the federal funds rate plus 0.5% or the
    prime rate, plus a base rate margin of 2.25% (13.50% at
    March 31, 2003) |      |            | 6,281,000 |  |   |            | 7,206,000 | 
|                     | Unsecured loan, net of unamortized discount,
    principal payable in June 2003, interest payable monthly at
    15.00%                                                                                                                                                                                                                 |      |            | 2,500,000 |  |   |            | 1,941,000 | 
|                     |                                                                                                                                                                                                                                                                                                                                         |      |            |           |  |   |            |          
|                     |                                                                                                                                                                                                                                                                                                                                         |      | 23,948,000 |           |  |   | 23,147,000 |          
|Less current portion |                                                                                                                                                                                                                                                                                                                                         |      | 15,281,000 |           |  |   | 9,040,000  |          
|                     |                                                                                                                                                                                                                                                                                                                                         |      |            |           |  |   |            |          
|                     |                                                                                                                                                                                                                                                                                                                                         | $    | 8,667,000  |           |  | $ | 14,107,000 |          
|                     |                                                                                                                                                                                                                                                                                                                                         |      |            |           |  |   |            |          

Future maturities for long-term debt outstanding
as of March 31, 2003 are as follows:

|     |  |   |            | 
|---- |  | - | ---------- | 
|2004 |  | $ | 15,281,000 | 
|2005 |  |   | 8,667,000  | 
|     |  |   |            | 
|     |  | $ | 23,948,000 | 
|     |  |   |            | 

Included in interest expense (income), net, is
interest expense of approximately $5,199,000, $11,700,000 and
$2,424,000 for 2003, 2002 and 2001, respectively.

The weighted average interest rate on short term
borrowings as of March 31, 2003 and 2002 was 13.25% and
5.57%, respectively.

6.     Income
Taxes

The provision for income tax expense
(benefit) consists of the following for the years ended
March 31:

|          |  |      |            |      |  |      |            |   |  |   |            |  
|--------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|          |  | 2003 |            | 2002 |  | 2001
|          |  |      |            |      |  |     
|Current:  |  |      |            |      |  |      |            |   |  |   |            |  
|Federal   |  | $    | (5,480,000 | )    |  | $    | 9,025,000  |   |  | $ | 11,988,000 |  
|State     |  |      | (81,000    | )    |  |      | 871,000    |   |  |   | 1,196,000  |  
|Foreign   |  |      | 1,329,000  |      |  |      | 1,220,000  |   |  |   |           |  
|          |  |      |            |      |  |      |            |   |  |   |            |  
|          |  |      | (4,232,000 | )    |  |      | 11,116,000 |   |  |   | 13,184,000 |  
|Deferred: |  |      |            |      |  |      |            |   |  |   |            |  
|Federal   |  |      | 1,220,000  |      |  |      | (2,110,000 | ) |  |   | (2,956,000 | )
|State     |  |      | (131,000   | )    |  |      | (146,000   | ) |  |   | (175,000   | )
|          |  |      |            |      |  |      |            |   |  |   |            |  
|          |  |      | 1,089,000  |      |  |      | (2,256,000 | ) |  |   | (3,131,000 | )
|          |  |      |            |      |  |      |            |   |  |   |            |  
|          |  | $    | (3,143,000 | )    |  | $    | 8,860,000  |   |  | $ | 10,053,000 |  
|          |  |      |            |      |  |      |            |   |  |   |            |  

Income (loss) subject to foreign taxes for the
year ended March 31, 2003 and 2002 was approximately
$(921,000) and $2,214,000, respectively.

44



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The reconciliation of the United States statutory
tax rate to the effective income tax rate is as follows for the
years ended March 31:

|                                              |  |      |       |      |  |      |      |   |  |  |      |  
|--------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                              |  | 2003 |       | 2002 |  | 2001
|                                              |  |      |       |      |  |     
|United States statutory rate                  |  |      | 35.0  | %    |  |      | 35.0 | % |  |  | 35.0 | %
|State income tax, net of federal tax benefits |  |      | 3.4   |      |  |      | 2.3  |   |  |  | 2.3  |  
|Foreign taxes                                 |  |      | 0.5   |      |  |      | 6.4  |   |  |  |     |  
|Foreign tax credits                           |  |      | 0.8   |      |  |      | (5.6 | ) |  |  |     |  
|Change to cumulative reserves                 |  |      | (4.7  | )    |  |      | 7.7  |   |  |  |     |  
|Permanent differences                         |  |      | (25.3 | )    |  |      | 0.6  |   |  |  | 0.1  |  
|Valuation allowance                           |  |      | (2.2  | )    |  |      |     |   |  |  |     |  
|Other                                         |  |      | 0.3   |      |  |      | 0.9  |   |  |  | 1.2  |  
|                                              |  |      |       |      |  |      |      |   |  |  |      |  
|                                              |  |      | 7.8   | %    |  |      | 47.3 | % |  |  | 38.6 | %
|                                              |  |      |       |      |  |      |      |   |  |  |      |  

Deferred tax assets (liabilities) are
comprised of the following as of March 31:

|                                        |  |      |            |      |  |      |           |   |  |   |            |  
|--------------------------------------- |  | ---- | ---------- | ---- |  | ---- | --------- | - |  | - | ---------- | -
|                                        |  | 2003 |            | 2002 |  | 2001
|                                        |  |      |            |      |  |     
|Reserves                                |  | $    | 5,968,000  |      |  | $    | 5,182,000 |   |  | $ | 4,026,000  |  
|Deferred revenue                        |  |      | 279,000    |      |  |      | 959,000   |   |  |   | 70,000     |  
|Accrued royalties                       |  |      |           |      |  |      | 466,000   |   |  |   |           |  
|State net operating loss carry-forwards |  |      | 882,000    |      |  |      |          |   |  |   |           |  
|Other                                   |  |      | 392,000    |      |  |      | 838,000   |   |  |   | 478,000    |  
|                                        |  |      |            |      |  |      |           |   |  |   |            |  
|                                        |  |      | 7,521,000  |      |  |      | 7,445,000 |   |  |   | 4,574,000  |  
|Media costs                             |  |      | (589,000   | )    |  |      | (370,000  | ) |  |   | (1,452,000 | )
|Valuation Allowance                     |  |      | (882,000   | )    |  |      |          |   |  |   |           |  
|                                        |  |      |            |      |  |      |           |   |  |   |            |  
|                                        |  |      | (1,471,000 | )    |  |      | (370,000  | ) |  |   | (1,452,000 | )
|                                        |  |      |            |      |  |      |           |   |  |   |            |  
|                                        |  | $    | 6,050,000  |      |  | $    | 7,075,000 |   |  | $ | 3,122,000  |  
|                                        |  |      |            |      |  |      |           |   |  |   |            |  

7.     Commitments
and Contingencies



| |       
| | ------
| | Leases

On June 1, 2001, the Company entered into a
capital lease for its corporate office building with two of the
Companys stockholders. The lease has a related obligation
of approximately $3,260,000, at inception, with an imputed
interest rate of 9.25% and a term of 20 years. Based on the
escalating lease payments of 4% per year, at the imputed rate,
the lease accrues interest in excess of principal payments until
June 2005. The Company is accruing this interest as a component
of accrued expenses. In August 2002, the stockholders sold the
building to an unrelated third-party subject to the terms of the
existing lease. The lease terms have remained the same since the
sale of the property. Depreciation of the building has been
included in depreciation expense in the Companys
consolidated statement of operations.

The Company leases certain facilities and
equipment under non-cancelable operating leases that expire at
various dates.

45



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Future minimum lease commitments under
non-cancelable operating leases, including leases with related
parties as discussed in Note 4, and the capital lease for
the years ending March 31 are as follows:

|                                        |  |           |           |               |  |   |            |  
|--------------------------------------- |  | --------- | --------- | ------------- |  | - | ---------- | -
|                                        |  | Operating |           |              
|                                        |  | Leases    |           | Capital Lease
|                                        |  |           |           |              
|2004                                    |  | $         | 1,604,000 |               |  | $ | 329,000    |  
|2005                                    |  |           | 1,347,000 |               |  |   | 300,000    |  
|2006                                    |  |           | 936,000   |               |  |   | 312,000    |  
|2007                                    |  |           | 176,000   |               |  |   | 324,000    |  
|2008                                    |  |           | 94,000    |               |  |   | 337,000    |  
|Thereafter                              |  |           |          |               |  |   | 5,930,000  |  
|                                        |  |           |           |               |  |   |            |  
|                                        |  | $         | 4,157,000 |               |  |   | 7,532,000  |  
|                                        |  |           |           |               |  |   |            |  
|Less amounts representing interest      |  |           |           |               |  |   | (4,253,000 | )
|                                        |  |           |           |               |  |   |            |  
|Present value of minimum lease payments |  |           |           |               |  |   | 3,279,000  |  
|Less current portion                    |  |           |           |               |  |   | (41,000    | )
|                                        |  |           |           |               |  |   |            |  
|                                        |  |           |           |               |  | $ | 3,238,000  |  
|                                        |  |           |           |               |  |   |            |  

Certain agreements require the Company to pay
utilities in addition to lease payments. Total rental expense
for the years ended March 31, 2003, 2002 and 2001 was
approximately $1,785,000, $1,124,000, and $643,000,
respectively, including rental expense to related parties of
approximately $436,000, $499,000 and $180,000, respectively.



| |                        
| | -----------------------
| | Product Line Agreements

The Company has entered into various agreements
including exclusive marketing agreements, talent agreements,
profit sharing agreements, producer agreements, and host
agreements. The terms and conditions for royalty and profit
sharing are defined in the agreements. Profit sharing and
royalty expense for the years ended March 31, 2003, 2002
and 2001 were approximately $4,891,000, $14,534,000 and
$2,295,000, respectively, and is included in cost of sales.



| |           
| | ----------
| | Regulation

Substantially all aspects of the Companys
marketing operations are subject to oversight and regulation by
federal, state and local agencies including the Federal Trade
Commission (FTC). FTC regulations are primarily governed under
Section 5 of the Federal Trade Commission Act prohibiting
deceptive advertising. Various state and local governments have
comparable fair practice laws, which are applicable to the
Company. In addition, the infomercial industry has set up
guidelines for the truth and substantiation of infomercial
claims and products through its self-regulation trade
association, Electronic Retailing Association (ERA), of which
the Company is a member. The Company believes that all of its
current infomercials comply with applicable FTC standards and
the ERA guidelines. Certain infomercial products could be
regulated by other agencies such as the Food and Drug
Administration and the Consumer Product Safety Commission,
although as of March 31, 2003, the Company has not been
subject to regulation by these agencies.

During the quarter ended December 31, 2002,
the Company entered into a settlement agreement with an agency
of the Canadian government pursuant to which the Company was
required to offer a refund to customers who purchased a health
and beauty product sold by the Company in Canada. For the year
ended March 31, 2003, the Company has expensed $1,800,000,
included in net product sales, and has reserves remaining of
approximately $664,000 as of March 31, 2003 for these
returns.

46



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |           
| | ----------
| | Litigation

The Company is involved in a class-action lawsuit
brought by certain former shareholders of Reliant related to
certain non-financial disclosures made in the Companys
registration statement on Form S-4 in conjunction with the
Companys acquisition of Reliant. The Company believes that
it has meritorious defenses with regard to this litigation and
will aggressively defend its position. Management therefore does
not believe that the resolution of this matter will have a
material adverse impact on the Companys financial
position, results of operations, or cash flows.

The Company is also involved with other pending
litigation which has arisen in the ordinary course of business.
Although the outcome of these matters is not presently
determinable, management does not believe that the resolution of
these matters will have a material adverse impact on the
Companys financial position, results of operations, or
cash flows.

8.     Stockholders
Equity

In May 2002, in connection with the acquisition
of Reliant, the Company amended its articles of incorporation to
include 50,000,000 of authorized preferred stock. All rights and
privileges of the preferred stock are to be defined by the Board
of Directors at the time of issuance. As of March 31, 2003,
there were no shares of preferred stock issued or outstanding.

On June 10, 1999, in connection with the
Companys Recapitalization, the Company granted warrants to
purchase approximately 6,048,000 shares of Class A common
stock (Class A) to its majority stockholder. Additionally,
and in connection with the Companys old credit facility,
the Company provided warrants to its bank to purchase
approximately 3,964,000 shares of Class B non-voting common
stock (Class B) at a nominal initial exercise price. The
agreement provided the bank with a put option, which required
the Company to purchase the warrants or Class B shares
received as a result of exercising the warrants at fair market
value at the time of the put. The put option was only
exercisable at the earlier of certain events provided for in the
agreement or June 2004, but on or before June 2009. In addition,
the agreement provided the Company with a call option to
repurchase all, but not less than all, of the warrants or
Class B held by the bank as a result of exercising the
warrant at the fair market value at the time of the call. The
call option was subject to recapture provisions provided for in
the agreement that adjusts the amounts paid by the Company to
repurchase the warrants of Class B held as a result of
exercising the warrant. The call option may be exercised after
the later of June 2005 or one year after the exercise of the put
feature but before the earlier of June 2009 or the date of a
public offering.

In March 2002, in conjunction with its
refinancing, the Company redeemed these warrants for $4,000,000
cash and issued new warrants to purchase approximately 793,000
shares of the Companys common stock at a nominal exercise
price. The warrants expire, if unexercised, in March 2012. The
number of shares issuable upon the exercise of a warrant is
initially set at one but is subject to adjustment as provided
for in the agreement. The agreement provides certain
registration rights to the holder whereby registration can be
demanded upon the earlier of the first anniversary of the
issuance or 180 days following the effective date of a
registration statement for an initial public offering. As a
result of these transactions, the Company recorded approximately
$9,100,000 in interest expense for the year ended March 31,
2002.

In accordance with a redemption agreement between
the Company and its majority stockholder, the exercise of the
warrants previously held by the prior bank or redemption of the
same by the Company required the same number of shares held by
the majority stockholder to be canceled. Accordingly, the
Companys redemption of the warrants resulted in the
cancellation of approximately 3,172,000 shares.

Finally, in conjunction with the warrant
redemption, the Company also cancelled the warrants to purchase
approximately 6,048,000 shares of common stock that were granted
to its majority stockholder and the holders of the warrants
agreed to their cancellation.

47



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |              
|-- | -------------
|9. | Stock Options

On June 10, 1999, the Board of Directors
approved a stock option plan (the 1999 Plan) for eligible
employees, non-employee directors, and consultants to the
Company. The 1999 Plan authorizes options for 1,600,000 shares
of stock to be issued, subject to change by the Board of
Directors. Under the terms of the 1999 Plan, options will be
granted at the prevailing market rate as determined by a
calculation defined in the 1999 Plan or by the public market.
Under the 1999 Plan, the options vest over three years and are
exercisable at any time after vesting. The Company can
repurchase at its discretion any options that have been
exercised at fair market value. The term of the options will
expire ten years from the date of grant. During 2001, the
Company granted a total of 880,000 stock options. Based on the
exercise price and the related terms of the options, no
compensation expense was recorded. As of March 31, 2001,
there were 1,600,000 options issued and outstanding under the
1999 Plan.

In July 2001, the Companys Board of
Directors approved an increase in the number of shares
authorized under the 1999 Plan to 2,880,000 shares. During
August 2001 and December 2001, the Company granted a total of
1,520,000 stock options. Based on the exercise price and the
related terms of the options, no compensation expense was
recorded. As of March 31, 2002, there were 2,880,000
options outstanding under the 1999 Plan.

In January 2002, the Company approved a new stock
option plan (the 2002 Plan) for eligible employees, non-employee
directors and consultants to the Company. Under the 2002 Plan,
the options vest over three years and are exercisable at any
time after vesting. The Company reserved 1,500,000 shares of its
common stock for issuance under the 2002 Plan.

In November 2002, the Company granted a total of
618,000 shares, 72,000 of which were issued under the 1999 Plan
and 546,000 under the 2002 Plan. Based on the exercise price and
the related terms of the options, no compensation expense was
recorded. As of March 31, 2003, there were 521,000 shares
of options outstanding under the 2002 Plan and 2,856,000 under
the 1999 Plan.

A summary of the status and activities of the
stock option grants under the Plan is as follows for the years
ended March 31:

|                                                                   |                            |           |           |           |          |         |      |           |      |         |           |           |           |   |      |      |      |  |         |           |         |   |      |      |      | 
|------------------------------------------------------------------ | -------------------------- | --------- | --------- | --------- | -------- | ------- | ---- | --------- | ---- | ------- | --------- | --------- | --------- | - | ---- | ---- | ---- |  | ------- | --------- | ------- | - | ---- | ---- | ---- | 
|                                                                   |                            |           |           |           |          |        
|                                                                   |                            | 2003      |           | 2002      |          | 2001   
|                                                                   |                            |           |           |           |          |        
|                                                                   |                            |           |           | Weighted- |          |         |      | Weighted- |      |         |           | Weighted-
|                                                                   |                            |           |           | Average   |          |         |      | Average   |      |         |           | Average  
|                                                                   |                            |           |           | Exercise  |          |         |      | Exercise  |      |         |           | Exercise 
|                                                                   |                            | Options   |           | Price     |          | Options |      | Price     |      | Options |           | Price    
|                                                                   |                            |           |           |           |          |         |      |           |      |         |           |          
|Outstanding at beginning of year                                   |                            |           | 2,880,000 |           |          | $       | 3.23 |           |      |         | 1,600,000 |           |           | $ | 0.81 |      |      |  | 720,000 |           |         | $ | 0.27 |     
|                                                                   |                            | Granted   |           |           | 618,000  |         |      |           | 3.58 |         |           |           | 1,520,000 |   |      |      | 5.46 |  |         |           | 880,000 |   |      |      | 1.25 | 
|                                                                   |                            | Forfeited |           |           | (121,000 | )       |      |           | 5.06 |         |           |           | (240,000  | ) |      |      | 1.25 |  |         |           |        |   |      |      |     | 
|                                                                   |                            | Exercised |           |           |         |         |      |           |     |         |           |           |          |   |      |      |     |  |         |           |        |   |      |      |     | 
|                                                                   |                            |           |           |           |          |         |      |           |      |         |           |           |           |   |      |      |      |  |         |           |         |   |      |     
|                                                                   | Outstanding at end of year |           |           | 3,377,000 |          |         | $    | 3.22      |      |         |           | 2,880,000 |           |   | $    | 3.23 |      |  |         | 1,600,000 |         |   | $    | 0.81 |     
|                                                                   |                            |           |           |           |          |         |      |           |      |         |           |           |           |   |      |      |      |  |         |           |         |   |      |     
|Options vested and exercisable at year end                         |                            |           | 1,573,000 |           |          | $       | 1.87 |           |      |         | 660,000   |           |           | $ | 0.60 |      |      |  | 180,000 |           |         | $ | 0.27 |     
|                                                                   |                            |           |           |           |          |         |      |           |      |         |           |           |           |   |      |      |      |  |         |           |         |   |      |     
|Weighted average fair value of options granted
    during the year |                            |           |           |           |          | $       | 3.58 |           |      |         |           |           |           | $ | 5.46 |      |      |  |         |           |         | $ | 0.50 |     
|                                                                   |                            |           |           |           |          |         |      |           |      |         |           |           |           |   |      |      |      |  |         |           |         |   |      |     

Exercise prices for options outstanding as of
March 31, 2003 range from $0.27 to $6.60 per share. The
remaining average life of exercisable options at March 31, 2003
was 6.91 years.

48



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##### Table of Contents



THANE INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO AUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10.     Quarterly
Financial Data (Unaudited)

|                                          |                     |               |            |              |  |             |            |          |   |   |            |       |   |   |             |       |  
|----------------------------------------- | ------------------- | ------------- | ---------- | ------------ |  | ----------- | ---------- | -------- | - | - | ---------- | ----- | - | - | ----------- | ----- | -
|                                          |                     |              
|                                          |                     | Quarter Ended
|                                          |                     |              
|                                          |                     | June 30       |            | September 30 |  | December 31 |            | March 31
|                                          |                     |               |            |              |  |             |            |         
|Fiscal 2003:                              |                     |               |            |              |  |             |            |          |   |   |            |       |   |   |             |      
|Total revenues                            |                     | $             | 44,741,000 |              |  | $           | 35,745,000 |          |   | $ | 34,763,000 |       |   | $ | 43,975,000  |      
|Cost of sales, including selling expenses |                     |               | 32,971,000 |              |  |             | 27,389,000 |          |   |   | 35,865,000 |       |   |   | 36,641,000  |      
|Income (loss) from operations             |                     |               | 4,861,000  |              |  |             | 441,000    |          |   |   | (9,996,000 | )     |   |   | (30,206,000 | )    
|Net income (loss)                         |                     |               | 2,256,000  |              |  |             | (383,000   | )        |   |   | (8,833,000 | )     |   |   | (30,089,000 | )    
|Earnings (loss) per share:                |                     |               |            |              |  |             |            |          |   |   |            |       |   |   |             |      
|                                          | Basic               |               | $          | 0.07         |  |             | $          | (0.01    | ) |   | $          | (0.25 | ) |   | $           | (0.90 | )
|                                          | Diluted             |               | $          | 0.06         |  |             | $          | (0.01    | ) |   | $          | (0.25 | ) |   | $           | (0.90 | )
|Fiscal 2002:                              |                     |               |            |              |  |             |            |          |   |   |            |       |   |   |             |      
|Total revenues                            |                     | $             | 72,721,000 |              |  | $           | 57,074,000 |          |   | $ | 50,109,000 |       |   | $ | 51,549,000  |      
|Cost of sales, including selling expenses |                     |               | 59,801,000 |              |  |             | 45,088,000 |          |   |   | 38,226,000 |       |   |   | 36,660,000  |      
|Income from operations                    |                     |               | 7,821,000  |              |  |             | 7,016,000  |          |   |   | 6,699,000  |       |   |   | 9,058,000   |      
|Net income (loss)                         |                     |               | 4,357,000  |              |  |             | 3,990,000  |          |   |   | 3,981,000  |       |   |   | (2,468,000  | )    
|Earnings (loss) per share:                |                     |               |            |              |  |             |            |          |   |   |            |       |   |   |             |      
|                                          | Basic               |               |            | 0.13         |  |             |            | 0.12     |   |   |            | 0.12  |   |   |             | (0.07 | )
|                                          | Diluted             |               |            | 0.13         |  |             |            | 0.12     |   |   |            | 0.12  |   |   |             | (0.07 | )
|Fiscal 2001:                              |                     |               |            |              |  |             |            |          |   |   |            |       |   |   |             |      
|Net revenues                              |                     |               | 20,262,000 |              |  |             | 32,519,000 |          |   |   | 58,510,000 |       |   |   | 78,646,000  |      
|Cost of sales, including selling expenses |                     |               | 16,291,000 |              |  |             | 24,419,000 |          |   |   | 43,259,000 |       |   |   | 64,753,000  |      
|Income from operations                    |                     |               | 2,351,000  |              |  |             | 5,878,000  |          |   |   | 11,846,000 |       |   |   | 8,784,000   |      
|Net income                                |                     |               | 992,000    |              |  |             | 2,968,000  |          |   |   | 6,169,000  |       |   |   | 5,863,000   |      
|                                          | Earnings per share: |               |            |              |  |             |            |          |   |   |            |       |   |   |             |       |  
|                                          | Basic and Diluted   |               | $          | 0.03         |  |             | $          | 0.09     |   |   | $          | 0.20  |   |   | $           | 0.18  |  

Amounts for 2002 and 2001 above have been
reclassified from those previously reported based on the
Companys change in accounting policy (Note 3).

11.     Subsequent
Events

On July 2, 2003, the Company entered into
amended and restated employment agreements with Reliants
former principal shareholders. In conjunction therewith,
1,771,421 shares that were in escrow, to be earned in the event
that certain thresholds were met, were released from escrow by
the Company and purchased by two of the majority shareholders of
the Company. The purchase price per share was approximately
$0.25. In addition, each of the former shareholders will receive
incentive compensation in an amount equal to 4.167% of the
earnings before interest, income taxes, depreciation and
amortization of Reliant in the fiscal years ended March 31,
2004 and 2005. All other terms of the original employment
agreements remained essentially the same. As a result of this
transaction the Company expects to recognize a charge to
earnings in the first quarter of 2004 of approximately $440,000.

49



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##### Table of Contents





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.




PART III

Item 10.     Directors
and Executive Officers of the Registrant

Directors

Our Board of Directors currently consists of 9
members divided into three classes: Class I, whose term
expires at the annual meeting of stockholders to be held in
2005; Class II, whose term expires at the annual meeting of
stockholders to be held in 2003; and Class III, whose term
expires at the annual meeting of stockholders to be held in
2004. At each annual meeting of the stockholders beginning in
2002, the successors to the class of directors whose terms
expired will be elected to serve three-year terms. If the number
of directors on our board increases, the newly created
directorships will be distributed among the three classes so
that each class will, as nearly as possible, consist of
one-third of the total number of directors constituting our
board.

|                   |  |     |    |       |  |                |     |  |  |  |      | 
|------------------ |  | --- | -- | ----- |  | -------------- | --- |  |  |  | ---- | 
|Name               |  | Age |    | Class |  | Director Since
|                   |  |     |    |       |  |               
|William F. Hay     |  |     | 55 |       |  |                | I   |  |  |  | 1990 | 
|Denise DuBarry-Hay |  |     | 46 |       |  |                | I   |  |  |  | 1990 | 
|Dean Belbas        |  |     | 71 |       |  |                | I   |  |  |  | 2002 | 
|J. Robert Swidler  |  |     | 56 |       |  |                | II  |  |  |  | 2002 | 
|Mark E. Taylor     |  |     | 43 |       |  |                | II  |  |  |  | 1992 | 
|Jerry D. Horn      |  |     | 65 |       |  |                | II  |  |  |  | 2002 | 
|Anthony A. Tamer   |  |     | 43 |       |  |                | III |  |  |  | 2002 | 
|John Bolduc        |  |     | 38 |       |  |                | III |  |  |  | 1999 | 
|Sami W. Mnaymneh   |  |     | 42 |       |  |                | III |  |  |  | 1999 | 

Class I
Directors

William F. Hayco-founded our company and has served as our Chairman and Chief
Executive Officer since our inception in 1990. He also serves as
a director and executive committee member of the Electronic
Retailing Association. Prior to co-founding our company,
Mr. Hay was President and Chief Executive Officer of
William F. Hay and Company, a media and entertainment recruiting
company from 1981 through 1990. From 1977 to 1980, he was with
the broadcast and entertainment recruiting company Korn Ferry
International. Mr. Hay holds a Bachelor of Science degree
in Applied Science and a Master in Business Administration from
Queens University. In 1998, Mr. Hay and Denise DuBarry-Hay
were named Entrepreneurs of the Year for the Southern California
area by Ernst & Young LLP. Mr. Hay is married to Denise
DuBarry-Hay.

Denise DuBarry-Hayco-founded our company and has served as a director and Chief
Creative Officer since our inception in 1990.
Ms. DuBarry-Hay is primarily responsible for all of our
creative and production activities. She also serves as a
director of the Annenberg Medical Center. Prior to co-founding
our company, Ms. DuBarry-Hay was a television producer as
well as a television and film actress. In 1998,
Ms. DuBarry-Hay and William F. Hay were named Entrepreneurs
of the Year for the Southern California area by Ernst &
Young LLP. Ms. DuBarry-Hay is married to William F. Hay.

Dean Belbashas
served as a director of our company since May 2002.
Mr. Belbas currently holds a directorship with Etoc, a
private resort, golf course and childrens camp. Prior to
joining our Board of Directors, Mr. Belbas held the office
of senior vice president of investor relations for General
Mills, as well as a directorship with Possis Medical, Inc.,
where he served as chairman of the Compensation Committee.
Mr. Belbas previously served as a director of Thane from
1996 to June 1999.

50



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##### Table of Contents



Class II
Directors

J. Robert
Swidlerhas served as a director of
our company since May 2002. Mr. Swidler has been Managing
Partner for Canada for Egon Zehnder International Inc., an
international firm specializing in executive search and
management appraisal, since 1989. Prior to joining Egon Zehnder,
he was with J. Robert Swidler, Inc., an executive search company
he founded in 1979. From 1970 to 1978, Mr. Swidler was with
Touche Ross & Co., where he was named partner in June 1975.
Mr. Swidler holds a Master in Business Administration
degree from Cornell University and of Bachelor of Commerce
degree from McGill University.

Mark E. Taylorhas
served as a director and Chief Operating Officer of our company
since May 1992 and was named President in December 2001. He is
primarily responsible for overseeing all of our domestic
operations. From 1988 to 1992, Mr. Taylor was the owner of
Taylor & Associates, an insurance and investment consulting
firm. From 1986 to 1988, Mr. Taylor was a sales manager and
computer software consultant at Saar Management/Western
Information Systems.

Jerry D. Hornjoined
our company as a director in September 2002. Mr. Horn has
served as an Operating Partner of JW Childs Private Equity Fund
since 1995. Mr. Horn previously held the positions of
President and CEO of General Nutrition Companies, Inc. from 1985
to 1991 and Chairman of the Board from 1985 to 1999. Prior to
joining GNC, Mr. Horn served as President and CEO of
Thousand Trails, Inc. from 1983 to 1985 and President and CEO of
Recreational Equipment, Inc. from 1979 to 1983.

Class III
Directors

Anthony A. Tamerhas
served as a director of our company since May 2002 and as a
Managing Partner of H.I.G. Capital Management, Inc. since 1993.
Prior to joining H.I.G., Mr. Tamer was a partner with Bain
& Company and held various operating positions at
Hewlett-Packard and Sprint Corporation. Mr. Tamer earned a
Masters of Science degree from Stanford University and a Master
in Business Administration degree from the Harvard Business
School.

John Bolduchas
served as a director of our company since June 1999 and as a
Managing Director of HIG Capital Management, Inc. since 1993.
Prior to joining HIG, Mr. Bolduc was with Bain &
Company from 1990 to 1993. Mr. Bolduc holds a Master in
Business Administration degree from the Darden Graduate School
of Business at the University of Virginia and Bachelor of
Science degree from Lehigh University.

Sami W. Mnaymnehhas
served as a director of our company since June 1999 and as a
Managing Partner of H.I.G. Capital Management, Inc. since 1993.
Prior to joining H.I.G., Mr. Mnaymneh was a Managing
Director of The Blackstone Group from 1990 to 1993 and prior to
such time was a Vice President in the Mergers and Acquisitions
Group at Morgan Stanley & Co. Mr. Mnaymneh attended
Harvard Business School and Harvard Law School, where he was
awarded a Master in Business Administration degree and a Juris
Doctor degree, respectively, with honors.

51



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##### Table of Contents



Executive
Officers

Executive officers are elected by the Board of
Directors and serve until they resign or are removed by the
Board. Executive officers that were serving as such as of the
date hereof are as follows:

|                   |  |     |    |             |  |                                                                      
|------------------ |  | --- | -- | ----------- |  | ---------------------------------------------------------------------
|Name               |  | Age |    | Position(s)
|                   |  |     |    |            
|William F. Hay     |  |     | 55 |             |  | Chairman of the Board, Chief Executive Officer
    and Director      
|Denise DuBarry-Hay |  |     | 46 |             |  | Chief Creative Officer, President, Xebec
    Productions and Director
|Mark E. Taylor     |  |     | 43 |             |  | President, Chief Operating Officer and Director                      
|Kevin J. McKeon    |  |     | 46 |             |  | Chief Financial Officer                                              
|Kandy Lee Allen    |  |     | 50 |             |  | General Counsel and Secretary                                        
|Joshua Chandler    |  |     | 27 |             |  | Chief Accounting Officer                                             
|Amir Tukulj        |  |     | 43 |             |  | President, Thane Direct, Inc. (International)                        
|Andrew Tobias      |  |     | 42 |             |  | President, Thane USA (Product Sourcing)                              
|Denise Kovac       |  |     | 41 |             |  | President, Thane Distribution Group (Wholesale)                      
|Marty Fahncke      |  |     | 33 |             |  | President, Thane Internet Group                                      
|Kevin Harrington   |  |     | 46 |             |  | Chief Executive Officer, Reliant Interactive
    Media Corp.         
|Timothy Harrington |  |     | 37 |             |  | President, Reliant Interactive Media Corp.                           
|Mel Arthur         |  |     | 58 |             |  | Executive Vice President, Reliant Interactive
    Media Corp.        

Descriptions of the relevant business experience
for each of William F. Hay, Denise DuBarry-Hay and Mark E.
Taylor are set forth above under the listing of our Board of
Directors.

Kevin J. McKeonhas
served as Chief Financial Officer of our company since December
2001. From August 2001 to December 2001, Mr. McKeon served
as a partner in Tatum CFO Partners, a national firm providing
corporate financial services. Prior to joining Tatum CFO
Partners, Mr. McKeon served as the chief financial officer
for several companies, including Interactive Retail Management,
Inc. from April 1999 to July 2001, Ipaxs Corporation from
February 1998 to March 1999, Ferman Motor Car Company, Inc. from
April 1997 to September 1997 and Home Shopping Network, Inc., a
publicly traded company, from December 1986 to March 1997.

Kandy Lee Allenhas
served as General Counsel of our company since April 1996.
Ms. Allen is primarily responsible for our legal and
business affairs. Prior to joining the company, Ms. Allen
was associated with the law firm of Best, Best & Krieger in
Rancho Mirage, California, where her practice focused on general
and transactional counseling for public and private agencies in
the areas of business, finance, resources, mergers and
acquisitions, municipal land use and corporate and governmental
formation and reorganization. Ms. Allen holds a Bachelor of
Arts degree in Liberal Arts studies from Sonoma State University
and a Juris Doctor degree from Hastings College of Law.

Joshua Chandlerhas
served as Chief Accounting Officer of our company since February
2002. Prior to joining the company, Mr. Chandler served as
a senior auditor at Ernst & Young LLP from August 1998
through January 2002.

Amir Tukuljhas
served as President and Chief Operating Officer of Thane Direct,
Inc. since November 1997. He is primarily responsible for all of
our international sales, including management of our
relationships with our international distributors and strategic
partners. Prior to joining our company, Mr. Tukulj served
as the director of international sales for Interwood Marketing
Group, a Canadian marketing company, from 1993 through October
1997.

Andrew J.P. Tobiashas served as President of Thane USA since October 1999.
Mr. Tobias is primarily responsible for product development
and overseeing our relationships with our manufacturers. Prior
to joining our company, Mr. Tobias served as a director of
Glomail (PTY), Ltd., a South African marketing company, from
1995 through September 1999.

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##### Table of Contents



Denise R. Kovachas
served as President of the Thane Distribution Group since
September 1998. She also serves as a director for Fox Marketing
Associates, Inc. Prior to joining our company, Ms. Kovac
served as the Vice President of marketing for Kathy Smith
Lifestyles from January through November 1996, and the Vice
President of Project Development for New Vision Marketing from
November 1996 through August 1998.

Marty Fahnckehas
served as President of Thane Internet Group since July 2000.
Prior to joining our company, Mr. Fahncke served as the
President of FawnKey & Associates, a product development and
marketing company, from December 1998 through July 2000. In
addition, he was the Director of International Marketing for
Williams Worldwide Television from January 1996 through December
1998, the Director of Sales & Marketing for OCurrance
Teleservices, Inc. from January 1994 to January 1996 and part of
the Corporate Accounts Marketing team of Convergys, Inc., a
leading teleservices company, from December 1986 through June
1992.

Kevin Harringtonhas
served as Chairman and Chief Executive Officer of Reliant
Interactive Media Corp. since August 1998. Prior to joining
Reliant, Mr. Harrington was a co-founder and President and
Chief Executive Officer of HSN Direct International, Inc., a
joint venture company formed with The Home Shopping Network,
from July 1994 through August 1998. He is also a founding board
member of the Electronic Retailing Association, an industry
association. Mr. Harrington is the brother of Timothy
Harrington. Mr. Harrington voluntarily resigned as a
director of our Company, a position he had held since May 2002,
on May 6, 2003.

Timothy Harringtonserves as President of Reliant Interactive Media Corp., a
position he has held since August 1998. Prior to joining
Reliant, Mr. Harrington was a co-founder and Executive Vice
President of HSN Direct International, Inc., a joint venture
company formed with The Home Shopping Network, from July 1994
through August 1998. Mr. Harrington is the brother of Kevin
Harrington.

Mel Arthurserves as
Executive Vice President of Reliant, positions he has held since
January 1999. Prior to joining Reliant, Mr. Arthur served
as a consultant to Garden State Nutritionals, as well as an
independent television host, from July 1996 through December
1998. He also served as a television host on The Home Shopping
Network from October 1988 through June 1996.




AUDIT COMMITTEE FINANCIAL EXPERTS

Our audit committee currently consists of
Messrs. Dean Belbas, J. Robert Swidler and Jerry D. Horn,
each of whom are non-employee, independent directors. Our Board
of Directors has determined that Mr. Belbas is a financial
expert.




SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires
our directors and officers, and any individuals who own more
than 10% of a registered class of our equity securities, to file
initial reports of ownership and changes in ownership of such
equity securities with the SEC. Such persons are required by
applicable regulations to furnish us with copies of all
Section 16(a) reports that they file.

To our knowledge, based solely on the review of
the copies of such reports furnished to us, all of our
directors, officers and 10% stockholders have complied with the
applicable Section 16(a) reporting requirements, except for
(i) a Form 4 filed by Mr. Swidler on
October 1, 2002 with respect to one transaction and
(ii) a Form 4 filed by Mr. Swidler on
September 27, 2002 with respect to an aggregate of nine
transactions, each of which were filed late.



|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

This item contains information about
compensation, stock options and employment arrangements and
other information concerning certain of our executive officers.

53



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##### Table of Contents



Summary Compensation Table

The following table sets forth summary
information concerning the compensation we paid during fiscal
2003, 2002 and 2001 to our chief executive officer and each of
our other four most highly compensated executive officers who
were serving as executive officers at the end of fiscal 2003 and
whose compensation exceeded $100,000 for such fiscal year. We
refer to these individuals as our named executive officers.

|                             |                           |                     |      |        |  |              |         |              |  |                        |   |         |  |   |        |        |  |  |   |   |  |  |   |         | 
|---------------------------- | ------------------------- | ------------------- | ---- | ------ |  | ------------ | ------- | ------------ |  | ---------------------- | - | ------- |  | - | ------ | ------ |  |  | - | - |  |  | - | ------- | 
|                             |                           |                     |      |        |  |              |         |              |  |                       
|                             |                           |                     |      |        |  |              |         |              |  | Long Term Compensation
|                             |                           |                     |      |        |  |              |         |              |  | Awards                
|                             |                           |                     |      |       
|                             |                           | Annual Compensation |      |        |  | Securities  
|                             |                           |                     |      |        |  | Underlying  
|                             |                           | Fiscal              |      |        |  | Other Annual |         | Restricted   |  | Options/              
|Name & Principal Position(1) |                           | Year                |      | Salary |  | Bonus(2)     |         | Compensation |  | Stock Awards           |   | SARS   
|                             |                           |                     |      |        |  |              |         |              |  |                        |   |        
|William F. Hay(3)            |                           |                     | 2003 |        |  | $            | 509,615 |              |  |                        |  |         |  | $ | 38,739 |        |  |  |  |   |  |  |  |        
|                             | Chairman of the Board and |                     |      | 2002   |  |              | $       | 520,527      |  |                        | $ | 450,000 |  |   | $      | 37,021 |  |  |   |  |  |  |   |        | 
|                             | Chief Executive Officer   |                     |      | 2001   |  |              | $       | 405,000      |  |                        | $ | 450,000 |  |   | $      | 37,615 |  |  |   |  |  |  |   |        | 
|Denise DuBarry-Hay(4)        |                           |                     | 2003 |        |  | $            | 425,000 |              |  |                        |  |         |  | $ | 35,510 |        |  |  |  |   |  |  |  |        
|                             | Chief Creative Officer    |                     |      | 2002   |  |              | $       | 417,454      |  |                        | $ | 400,000 |  |   | $      | 36,050 |  |  |   |  |  |  |   |        | 
|                             |                           |                     |      | 2001   |  |              | $       | 354,998      |  |                        | $ | 400,000 |  |   | $      | 20,785 |  |  |   |  |  |  |   |        | 
|Mark E. Taylor(5)            |                           |                     | 2003 |        |  | $            | 322,885 |              |  |                        |  |         |  | $ | 21,275 |        |  |  |  |   |  |  |  |        
|                             | President and Chief       |                     |      | 2002   |  |              | $       | 203,117      |  |                        | $ | 146,623 |  |   | $      | 15,320 |  |  |   |  |  |  |   |        | 
|                             | Operating Officer         |                     |      | 2001   |  |              | $       | 151,670      |  |                        | $ | 171,623 |  |   | $      | 16,230 |  |  |   |  |  |  |   | 320,000 | 
|Denise Kovac(6)              |                           |                     | 2003 |        |  | $            | 295,386 |              |  |                        |  |         |  | $ | 17,844 |        |  |  |  |   |  |  |  |        
|                             | President, Thane          |                     |      | 2002   |  |              | $       | 177,500      |  |                        | $ | 160,000 |  |   | $      | 13,959 |  |  |   |  |  |  |   |        | 
|                             | Distribution Group        |                     |      | 2001   |  |              | $       | 122,502      |  |                        | $ | 180,000 |  |   | $      | 10,200 |  |  |   |  |  |  |   | 80,000  | 
|Amir Tukulj(7)               |                           |                     | 2003 |        |  | $            | 302,250 |              |  |                        |  |         |  | $ | 13,337 |        |  |  |  |   |  |  |  |        
|                             | President, Thane Direct   |                     |      | 2002   |  |              | $       | 176,500      |  |                        | $ | 103,000 |  |   | $      | 12,365 |  |  |   |  |  |  |   |        | 
|                             |                           |                     |      | 2001   |  |              | $       | 110,502      |  |                        | $ | 403,000 |  |   | $      | 7,200  |  |  |   |  |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In connection with our acquisition of Reliant, we
    entered into employment agreements with Kevin Harrington,
    pursuant to which he serves as the Chief Executive Officer of
    Reliant, Timothy Harrington, pursuant to which he serves as the
    President of Reliant and Mel Arthur, pursuant to which he serves
    as the Executive Vice-President of Reliant. The terms of each of
    these employment agreements commenced on May 22, 2002.
    Although Messrs. Harrington, Harrington and Arthur would
    have been among the four most highly compensated executive
    officers had they been serving in their present capacities since
    the beginning of fiscal 2003, we have not included information
    for these individuals in this table because only $259,615 out of
    their annual contracts of $300,000 was paid during the fiscal
    year ended March 31, 2003. See Employment Contracts
    and Termination of Employment Arrangements for detailed
    information concerning their employment agreements.
|   
|(2) | Bonus payments above reflect bonuses earned
    during the respective fiscal years. In prior filings the Company
    reported the amounts paid during the respective fiscal years for
    bonuses earned in the previous fiscal years. As such, amounts
    previously reported for fiscal year 2001 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                   |  |   |         | 
|------------------ |  | - | ------- | 
|William F. Hay     |  | $ | 378,755 | 
|Denise DuBarry-Hay |  | $ | 378,755 | 
|Mark E. Taylor     |  | $ | 258,000 | 
|Denise Kovac       |  | $ | 215,000 | 
|Amir Tukulj        |  | $ | 105,000 | 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | For Mr. Hay, other annual compensation
    consists of automobile lease payments in the amount of $21,231,
    $21,228 and $22,977 in fiscal 2003, 2002 and 2001, respectively,
    and country club dues in the amount of $16,458, $15,555 and
    $14,370 in fiscal 2003, 2002 and 2001, respectively and medical
    insurance premiums in the amount of $ 1,050, $238 and $268 in
    fiscal 2003, 2002 and 2001, respectively. Does not include
    payments made by us to Mr. Hay or certain of our affiliates
    with respect to certain aircraft and property leases. See
    Item 13  Certain Relationships and Related
    Transactions.

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | For Ms. DuBarry-Hay, other annual
    compensation consists of automobile lease payments in the amount
    of $29,599, $29,604 and $15,589 in fiscal 2003, 2002 and 2001,
    respectively, and S.A.G. medical insurance premiums in the
    amount of $5,911, $6,446 and $5,196 in fiscal 2003, 2002 and
    2001, respectively. Does not include payments made by us to
    Ms. DuBarry-Hay or certain of our affiliates with respect
    to certain aircraft and property leases. See
    Item 13  Certain Relationships and Related
    Transactions.
|   
|(5) | For Mr. Taylor, other annual compensation
    consists of automobile lease payments in the amount of $9,431,
    $9,456 and $10,039 in fiscal 2003, 2002 and 2001, respectively,
    country club dues in the amount of $2,120 in fiscal 2002 and
    $2,670 in fiscal 2001 and medical insurance premiums in the
    amount of $11,844, $3,744 and $3,521 in fiscal 2003, 2002 and
    2001, respectively.                                                                                                                                                 
|   
|(6) | For Ms. Kovac, other annual compensation
    consists of automobile lease payments in the amount of $13,236,
    $12,730 and $10,200 in fiscal 2003, 2002 and 2001, respectively
    and medical insurance premiums in the amount of $ 4,608 and
    $1,229 in fiscal 2003 and 2002, respectively.                                                                                                                                                                                                                                                          
|   
|(7) | For Mr. Tukulj, other annual compensation
    consists of automobile lease payments in the amount of $10,154,
    $10,346 and $7,200 in fiscal 2003, 2002, and 2001, respectively
    and medical insurance premiums in the amount of $3,183 and
    $2,019 in fiscal 2003 and 2002, respectively.                                                                                                                                                                                                                                                          



| |                             
| | ----------------------------
| | Option Grants in Fiscal 2003

On November 7, 2002, there were 10,000
options granted to each of our three non-employee,
non-affiliated directors at an exercise price of $2.50 per share
and 105,000 options granted to our named executive officers at
an exercise price of $3.50 per share.



| |                                                                                
| | -------------------------------------------------------------------------------
| | Aggregate Option Exercises in Fiscal 2003
    and Fiscal Year-End Option Values

The following table sets forth the number and
value of unexercised options held by our named executive
officers at March 31, 2003. The value of unexercised
options has been calculated using $0.51, the closing price of
our common stock at March 31, 2003. None of our named
executive officers exercised options in fiscal 2003.

|             |  |          |   |          |  |                            |   |                             |  |             |         |                |  |  |         |  |  |   |        |  |  |  |     | 
|------------ |  | -------- | - | -------- |  | -------------------------- | - | --------------------------- |  | ----------- | ------- | -------------- |  |  | ------- |  |  | - | ------ |  |  |  | --- | 
|             |  |          |   |          |  |                            |   |                             |  |            
|             |  |          |   |          |  | Number of Securities       |   |                            
|             |  | Shares   |   |          |  | Underlying Unexercised     |   | Value of Unexercised in the
|             |  | Acquired |   |          |  | Options At Fiscal Year End |   | Money Options at Year End  
|             |  | on       |   | Value    |  |                            |   |                            
|Name         |  | Exercise |   | Realized |  | Exercisable                |   | Un-Exercisable              |  | Exercisable |         | Un-Exercisable
|             |  |          |   |          |  |                            |   |                             |  |             |         |               
|Mark Taylor  |  |          |  |          |  |                            |  |                             |  |             | 496,000 |                |  |  | 144,000 |  |  | $ | 77,184 |  |  |  | -0- | 
|Denise Kovac |  |          |  |          |  |                            |  |                             |  |             | 284,000 |                |  |  | 36,000  |  |  | $ | 57,888 |  |  |  | -0- | 



| |                          
| | -------------------------
| | Compensation of Directors

We issue $10,000 in stock options to our
non-affiliated board members for each year of service on our
board in consideration for serving on our Board of Directors. In
addition, we also pay an annual fee of $10,000 to each
non-affiliated board member. Non-affiliated directors are also
reimbursed for reasonable travel and other out-of-pocket
expenses incurred in connection with attendance at meetings of
the Board of Directors and committees of the Board of Directors.



| |                                                                    
| | -------------------------------------------------------------------
| | Employment Contracts and Termination of
    Employment Arrangements

William F. Hay Employment
Agreement.We have entered into a
three year employment agreement with William F. Hay, dated as of
December 31, 2001, pursuant to which he receives a minimum
annual salary of $525,000 for his services as our Chief
Executive Officer. Mr. Hay voluntarily decreased his annual
salary to $425,000 effective January 13, 2003 and to
$395,000 effective April 28, 2003. He also participates in
our standard senior executive officer long-term disability,
thrift and pension plans, and is reimbursed by us for health
insurance coverage provided by the screen actors guild. We
also provide him, together with Denise DuBarry-Hay, three
country club memberships and two automobile leases. He is also
entitled to receive incentive compensation payments and stock
options as determined by our Board of Directors. If he were

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discharged without cause, he would be entitled to
receive his salary through the earlier of the twelve-month
anniversary date of termination or December 31, 2004, any
incentive compensation payments earned prior to his termination
and the non-competition provisions included in his employment
agreement would terminate.


Denise DuBarry-Hay Employment
Agreement.We have entered into a
three year employment agreement with Denise DuBarry-Hay, dated
as of December 31, 2001, pursuant to which she receives a
minimum annual salary of $425,000 for her services as our Chief
Creative Officer. Ms. DuBarry-Hay voluntarily decreased her
annual salary to $395,000 effective April 28, 2003. She
also participates in our standard senior executive officer
long-term disability, thrift and pension plans, and is
reimbursed by us for health insurance coverage provided by the
screen actors guild. We also provide her, together with
William F. Hay, three country club memberships and two
automobile leases. She is also entitled to receive incentive
compensation payments and stock options as determined by the
Board of Directors. If she were discharged without cause, she
would be entitled to receive her salary through the earlier of
the twelve-month anniversary date of termination or
December 31, 2004, any incentive compensation payments
earned prior to her termination and the non-competition
provisions included in her employment agreement would terminate.

Mark E. Taylor Employment
Agreement.We have entered into an
employment agreement with Mark E. Taylor, dated as of
December 10, 2001, pursuant to which he receives a minimum
annual salary of $327,500 for his services as our President and
Chief Operating Officer. Mr. Taylor voluntarily decreased
his annual salary to $297,500 effective January 13, 2003.
Mr. Taylor is entitled to bonus compensation for fiscal
2002 based on calculations as previously approved by our board,
and for each fiscal year beginning with fiscal 2003 equal to one
percent of our earnings before income taxes, depreciation and
amortization over $23.7 million for the prior year,
excluding Thane Direct and its subsidiaries, payable 50% in cash
and 50% in restricted stock. He also participates in our
standard senior executive officer benefit plans, including, but
not limited to, group life insurance, group medical, long-term
disability and other plans adopted by us. We also provide him
with one country club membership and one automobile lease. He is
also entitled to receive incentive compensation payments and
stock options as determined by our Board of Directors. The
initial term of his employment runs through April 10, 2005.
If he were discharged without cause, he would be entitled to
receive his salary through the earlier of the twelve month
anniversary date of termination or April 10, 2005, any
incentive compensation payments earned prior to his termination
and the non-competition provisions included in his employment
agreement would terminate.

Denise Kovac Employment
Agreement.We have entered into an
employment agreement with Denise Kovac, dated as of
December 10, 2001, pursuant to which she receives a minimum
annual salary of $300,000 for her services as the President of
TDG, Inc., our wholly owned subsidiary. Ms. Kovac
voluntarily decreased her annual salary to $270,000 effective
January 13, 2003. Ms. Kovac is entitled to bonus
compensation for fiscal 2002 based on the pre-tax income of our
United States wholesale division, and for each fiscal year
beginning with fiscal 2003 based on the pre-tax income of TDG,
Inc. and Fox Marketing Associates, Inc., payable 50% in cash and
50% in restricted stock. She also participates in our standard
senior executive officer benefit plans, including, but not
limited to, group life insurance, group medical, long-term
disability and other plans adopted by us. We also provide her
with an automobile lease and incentive compensation payments and
stock options as determined by our Board of Directors. The
initial term of her employment runs through April 10, 2005.
If she were discharged without cause, she would be entitled to
receive her salary through the earlier of the twelve-month
anniversary date of termination or April 10, 2005, any
incentive compensation payments earned prior to her termination
and the non-competition provisions included in his employment
agreement terminate as of the date of termination upon a
termination without cause.

Amir Tukulj Employment
Agreement.Amir Tukulj has an
employment agreement with Thane Direct Canada, Inc., our wholly
owned subsidiary, amended as of January 1, 1999, pursuant to
which he receives a minimum annual salary of $300,000 effective
January 1, 2002 for his services as President of Thane
Direct, Inc. and its subsidiaries. Mr. Tukulj is entitled
to bonus compensations for fiscal 2002 based on a declining
percentage of pre-tax income of the international division
payable 50% in cash and 50% in restricted stock. He also
participates in our standard senior executive officer benefit
plans, including, but not limited to, group life insurance,
group medical, long-term disability and other plans adopted by
Thane. The initial term of his

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employment runs through December 10, 2004.
If he were discharged without cause, he would be entitled to
receive his base salary for a period of six months.


Kevin Harrington Employment
Agreement.We have entered into an
amended and restated employment agreement with Kevin Harrington,
dated as of July 2, 2003, that provides for a minimum
annual salary of $300,000 for his services as chief executive
officer of Reliant. In addition to his annual salary,
Mr. Harrington will receive incentive compensation in an
amount equal to 4.167% of the earnings before interest, income
taxes, depreciation and amortization of Reliant in the fiscal
years ended March 31, 2004 and 2005. The term of this
employment agreement commenced on May 22, 2002 and
continues until March 31, 2005. If he is terminated without
cause, Mr. Harrington will be entitled to receive
compensation and benefits through the effective date of
termination, as well as any incentive bonus and options earned
through the remainder of the employment period and the
non-competition provisions included in his employment agreement
shall terminate. In connection with the execution of this
employment agreement, Mr. Harrington received a loan from
the Company in the amount of $1,071,500 which is secured by a
portion of the common stock of the Company, currently held in
escrow, that Mr. Harrington received in connection with the
Reliant merger. In the event that the cumulative earnings before
interest, income taxes, depreciation and amortization of our
direct response television group for the three year period ended
March 31, 2005 equals or exceeds $15.0 million,
Mr. Harrington will be entitled to receive full forgiveness
of the loan and a cash bonus equal to $428,500.
Mr. Harrington will be entitled to receive a ratable
portion of the loan forgiveness and the cash bonus based on the
cumulative earnings before interest, income taxes, depreciation
and amortization of our direct response television group at the
end of each fiscal quarter during the three year period ended
March 31, 2005.

Timothy Harrington Employment
Agreement.We have entered into an
amended and restated employment agreement with Timothy
Harrington, dated as of July 2, 2003, that provides for a
minimum annual salary of $300,000 for his services as the
president of Reliant. In addition to his annual salary,
Mr. Harrington will receive incentive compensation in an
amount equal to 4.167% of the earnings before interest, income
taxes, depreciation and amortization of Reliant in the fiscal
years ended March 31, 2004 and 2005. The term of this
employment agreement commenced on May 22, 2002 and
continues until March 31, 2005. If he is terminated without
cause, Mr. Harrington will be entitled to receive
compensation and benefits through the effective date of
termination, as well as any incentive bonus and options earned
through the remainder of the employment period and the
non-competition provisions included in his employment agreement
shall terminate. In connection with the execution of this
employment agreement, Mr. Harrington received a loan from
the Company in the amount of $714,250 which is secured by a
portion of the common stock of the Company, currently held in
escrow, that Mr. Harrington received in connection with the
Reliant merger. In the event that the cumulative earnings before
interest, income taxes, depreciation and amortization of our
direct response television group for the three-year period ended
March 31, 2005 equals or exceeds $15.0 million,
Mr. Harrington will be entitled to receive full forgiveness
of the loan and a cash bonus equal to $285,750.
Mr. Harrington will be entitled to receive a ratable
portion of the loan forgiveness and the cash bonus based on the
cumulative earnings before interest, income taxes, depreciation
and amortization of our direct response television group at the
end of each fiscal quarter during the three year period ended
March 31, 2005.

Mel Arthur Employment
Agreement.We have entered into an
amended and restated employment agreement with Mel Arthur, dated
as of July 2, 2003, that provides for a minimum annual
salary of $300,000 for his services as the executive
vice-president of Reliant. In addition to his annual salary,
Mr. Arthur will receive incentive compensation in an amount
equal to 4.167% of the earnings before interest, income taxes,
depreciation and amortization of Reliant in the fiscal years
ended March 31, 2004 and 2005. The term of this employment
agreement commenced on May 22, 2002 and continues until
March 31, 2005. If he is terminated without cause,
Mr. Arthur will be entitled to receive compensation and
benefits through the effective date of termination, as well as
any incentive bonus and options earned through the remainder of
the employment period and the non-competition provisions
included in his employment agreement shall terminate. In
connection with the execution of this employment agreement,
Mr. Arthur received a loan from the Company in the amount
of $714,250 which is secured by a portion of the common stock of
the Company, currently held

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in escrow, that Mr. Arthur received in
connection with the Reliant merger. In the event that the
cumulative earnings before interest, income taxes, depreciation
and amortization of our direct response television group for the
three-year period ended March 31, 2005 equals or exceeds
$15.0 million, Mr. Arthur will be entitled to receive
full forgiveness of the loan and a cash bonus equal to $285,750.
Mr. Arthur will be entitled to receive a ratable portion of
the loan forgiveness and the cash bonus based on the cumulative
earnings before interest, income taxes, depreciation and
amortization of our direct response television group at the end
of each fiscal quarter during the three year period ended
March 31, 2005.




| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | Additional Information with Respect to
    Compensation Committee Interlocks and Insider Participation in
    Compensation Decisions

Our compensation committee currently consists of
Messrs. Sami W. Mnaymneh, Dean Belbas, and J. Robert
Swidler, who acts as Chairman. None of our executive officers
serve as a member of the Board of Directors or compensation
committee of any other company that has one or more executive
officers serving as a member of our Board of Directors, nor has
such a relationship existed in the past.



|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

Securities
Authorized for Issuance under Equity Compensation
Plans

The following table sets forth certain
information regarding compensation plans (including individual
compensation arrangements) under which our equity securities are
authorized for issuance as of the end of fiscal 2003.

|                          |  |                     |           |                     |  |                      |      |  |  |  |           |    
|------------------------- |  | ------------------- | --------- | ------------------- |  | -------------------- | ---- |  |  |  | --------- | ---
|                          |  | Number of           |           |                     |  |                     
|                          |  | Securities to be    |           |                     |  |                     
|                          |  | Issued upon         |           | Weighted Average    |  | Number of           
|                          |  | Exercise of         |           | Exercise Price of   |  | Securities Available
|Plan Category             |  | Outstanding Options |           | Outstanding Options |  | for Future Issuance 
|                          |  |                     |           |                     |  |                     
|Equity Compensation Plans |  |                     | 3,377,000 | (1)                 |  | $                    | 3.22 |  |  |  | 1,003,000 | (1)
|Approved by Stockholders  |  |                     |           |                     |  |                      |      |  |  |  |           |    



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of 2,856,000 shares out of a total
    authorized of 2,880,000 shares of Thane common stock issuable
    upon the exercise of options granted pursuant to our 1999 Stock
    Option Plan which is described below. Also includes 521,000
    shares out of a total authorized of 1,500,000 shares of Thane
    common stock issuable upon the exercise of options granted
    pursuant to our 2002 Stock Option Plan which is also described
    below.

1999 Stock Option
Plan.Our 1999 Stock Option Plan was
adopted by our Board of Directors effective as of June 10,
1999. The 1999 plan is intended to further our success by
increasing the ownership interest of certain of our executives
and employees and to enhance our ability to attract and retain
executives and employees. The 1999 plan authorizes the issuance
of up to 2,880,000 shares of our common stock. As of
July 11, 2003, options to purchase 2,856,000 of the
available shares of common stock under the 1999 plan were issued
and outstanding. The 1999 plan terminates in June 2009; however,
any options outstanding when the 1999 plan terminates will
remain outstanding in accordance with their terms.

Our compensation committee administers the 1999
plan, although our Board of Directors may, subject to any legal
limitations, exercise any powers or duties of the compensation
committee concerning the 1999 plan. Option holders may not
transfer their options unless they die or, in the case of
non-qualified options, the compensation committee determines
otherwise.

2002 Stock Option
Plan.Our Board of Directors and
stockholders approved the 2002 plan effective as of
January 1, 2002. The purposes of the 2002 plan are to
(i) further our growth, development and success by enabling
our executives, non-executive employees, directors and
consultants to acquire continuing equity interests in our
company, increasing their personal interests and motivating them
to exert their best efforts on

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our behalf and (ii) enhance our ability to
attract and retain executives, non-executive employees,
directors and consultants.


The 2002 plan provides for the granting of
incentive stock options under the Internal Revenue Code of 1986,
as amended, and options that do not qualify as incentive stock
options. The 2002 plan provides for the grants of these options
to officers, directors, full and part-time employees and
consultants. We reserved 1,500,000 shares of our common stock
for issuance under the 2002 plan. As of July 11, 2003,
options to purchase 521,000 of the available shares of common
stock under the 2002 plan were issued and outstanding.

Our compensation committee administers the 2002
plan, although our Board of Directors may, subject to any legal
limitations, exercise any powers or duties of the compensation
committee concerning the 2002 plan. Pursuant to the terms of the
2002 plan, our compensation committee has the authority to
determine:



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | the meaning and application of the terms of the
    plan and all stock option agreements,

 the persons to whom option grants are
made,



| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | the nature and amount of option grants,                                                                                                        
|
| |  | the exercisability of option grants and any
    restrictions, vesting or exercise schedules and other provisions
    relating to option grants,
|
| |  | the price to be paid upon exercise of each option,                                                                                             
|
| |  | the period in which options may be exercised, and                                                                                              
|
| |  | other terms and conditions of option grants.                                                                                                   

In order to meet one of the requirements of
Section 162(m) of the Internal Revenue Code, the 2002 plan
limits to 300,000 the number of shares of our common stock that
may be subject of grants to any single individual in any one
calendar year. The shares of stock that may be issued under the
2002 plan may be either authorized and unissued shares or
previously issued shares held as treasury stock.

The exercise price per share for incentive stock
options cannot be less than the fair market value of our common
stock on the date of the grant. If a recipient owns more than
ten percent (10%) of our common stock, incentive stock options
granted to that recipient must have an exercise price of not
less than 110% of the fair market value of our common stock on
the grant date. The compensation committee has the authority to
determine the exercise price of non-incentive stock options.
Determinations of fair market value of a share of our common
stock are made in accordance with the 2002 plan.

Our compensation committee has the authority to
determine the term of each option granted under the 2002 plan.
However, the term of stock options may not exceed ten
(10) years from the date of grant. In the case of an
incentive stock option granted to an owner of more than ten
percent (10%) of our common stock, the term may not exceed five
(5) years from the date of grant. Generally the recipient
of an option may exercise it only while employed by us, except
that our compensation committee may provide in any stock option
agreement that the recipient may exercise vested options after
termination of employment. An option holder may pay the exercise
price of an option by any legal manner that we permit, which may
include use of shares of our common stock already owned by the
option holder or by a broker-assisted cashless exercise
procedure. The 2002 plan provides that options are not
transferable except by will or the laws of descent and
distribution, although the compensation committee may provide
otherwise in any stock option agreement.

If a stock split, stock dividend, consolidation,
recapitalization, reorganization or similar event occurs, we
will make proportional adjustments to the number of shares of
common stock reserved for issuance under the 2002 plan and
issuable under outstanding options and adjustments to the
exercise prices of outstanding options. The 2002 plan also
provides for the acceleration of vesting and exercisability of
options if we are subject to a change of control as defined in
the plan, although the compensation committee may adjust
outstanding options by substituting stock or other securities of
any successor or another party to the change in control
transaction, or cash out such outstanding options, in any such
case, generally based on the consideration received by our
stockholders in the transaction.

59



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The 2002 plan will terminate in March 2012, and
we may not grant awards under it after termination, however, any
options outstanding when the 2002 plan terminates will remain
outstanding in accordance with their terms. Our Board of
Directors may amend, alter, suspend or terminate the 2002 plan
at any time, provided that we must obtain stockholder approval
for any change that would increase the number of shares reserved
for issuance or would change the class of persons eligible to
receive grants of options. In addition, the board may not amend
the plan to (i)fix the exercise price per share for incentive
stock options at less than 100% of the fair market value of a
share of common stock on the date of grant or (ii) extend
the duration of the 2002 plan or extend the maximum period of
ten (10) years during which holders may exercise options.

Our compensation committee may amend the terms of
any option granted, including any stock option agreement,
retroactively or prospectively, but no such amendment shall
impair the previously accrued rights of existing recipients
without their consent.

As a condition to the exercise of an option, we
may require the recipient to pay to us all applicable federal,
state and local taxes that we must withhold. At the discretion
of the compensation committee and upon request of a recipient,
the withholding tax requirements may be satisfied by withholding
of shares of common stock otherwise issuable to the recipient.



| |                                                                   
| | ------------------------------------------------------------------
| | Security Ownership of Certain Beneficial
    Owners and Management

The following table sets forth certain
information regarding beneficial ownership of our outstanding
common stock as of July 11, 2003 according to information
supplied to us by: (i) each person we know to own
beneficially more than 5% of our common stock; (ii) each of
our directors; (iii) each of the named executive officers;
and (iv) all of our current directors and executive
officers as a group.

Beneficial ownership is determined in accordance
with the rules of the SEC. In computing the number of shares
beneficially owned by a person and the percentage ownership of
that person, shares subject to options, warrants and securities
convertible into common stock held by that person that are
exercisable as of July 11, 2003 or exercisable within
60 days thereof are deemed outstanding. Except as indicated
in the footnotes to this table, we believe that each stockholder
named in the table has sole voting and investment power with
respect to the shares set forth opposite such stockholders
name, except to the extent shared by a spouse under applicable
law. As of July 11, 2003, there were 35,462,781 shares
of common stock outstanding.

|                                             |  |                           |            |               |  |  |        | 
|-------------------------------------------- |  | ------------------------- | ---------- | ------------- |  |  | ------ | 
|                                             |  |                          
|                                             |  | Shares Beneficially Owned
|                                             |  |                          
|Name and Address(1)                          |  | Number                    |            | Percentage(2)
|                                             |  |                           |            |              
|H.I.G. Direct Marketing Holdings, Inc.(3)(4) |  |                           | 20,724,253 |               |  |  | 56.02% | 
|KPI, Inc.(3)(4)                              |  |                           | 1,330,953  |               |  |  | 3.60%  | 
|Desert Value Holdings, Inc.(3)(4)            |  |                           | 700        |               |  |  | *      | 
|William F. Hay(5)                            |  |                           | 9,087,928  |               |  |  | 24.56% | 
|Denise DuBarry-Hay(6)                        |  |                           | 9,087,928  |               |  |  | 24.56% | 
|Mark E. Taylor(7)                            |  |                           | 725,760    |               |  |  | 1.96%  | 
|Kandy Lee Allen(8)                           |  |                           | 124,000    |               |  |  | *      | 
|Amir Tukulj                                  |  |                           | 640,000    |               |  |  | 1.73%  | 
|Andrew Tobias(9)                             |  |                           | 230,400    |               |  |  | *      | 
|Denise Kovac(10)                             |  |                           | 341,760    |               |  |  | *      | 
|Marty Fahncke(11)                            |  |                           | 160,000    |               |  |  | *      | 
|Kevin J. McKeon(12)                          |  |                           | 60,000     |               |  |  | *      | 
|Kevin Harrington                             |  |                           | 221,427    |               |  |  | *      | 
|Timothy Harrington                           |  |                           | 147,618    |               |  |  | *      | 
|Mel Arthur                                   |  |                           | 73,809     |               |  |  | *      | 
|J. Robert Swidler                            |  |                           | 19,000     |               |  |  | *      | 

60



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##### Table of Contents



|                                                                     |  |                           |            |               |  |  |        | 
|-------------------------------------------------------------------- |  | ------------------------- | ---------- | ------------- |  |  | ------ | 
|                                                                     |  |                          
|                                                                     |  | Shares Beneficially Owned
|                                                                     |  |                          
|Name and Address(1)                                                  |  | Number                    |            | Percentage(2)
|                                                                     |  |                           |            |              
|Jerry D. Horn                                                        |  |                           | 13,200     |               |  |  | *      | 
|Dean Belbas                                                          |  |                           | 9,149      |               |  |  | *      | 
|Sami W. Mnaymneh(13)                                                 |  |                           | 22,055,906 |               |  |  | 59.62% | 
|John Bolduc(13)                                                      |  |                           | 22,055,906 |               |  |  | 59.62% | 
|Anthony A. Tamer(13)                                                 |  |                           | 22,055,906 |               |  |  | 59.62% | 
|Directors and executive officers as a group (19
    persons)(14)(15) |  |                           | 11,854,051 |               |  |  | 32.04% | 



---



| |   |              
| | - | -------------
| | * | Less than 1%.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Unless otherwise indicated, the address of each
    beneficial owner listed below is c/o Thane
    International, Inc., 78-140 Calle Tampico, La Quinta,
    California 92253.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (2) | Calculated based on 36,997,181 shares of
    common stock outstanding, which includes
    (i) 35,462,781 shares of common stock outstanding as
    of the date hereof and (ii) 1,534,400 shares subject to
    options exercisable within 60 days of July 11, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (3) | The address of H.I.G. Direct Marketing Holdings,
    Inc., KPI, Inc. and Desert Value Holdings, Inc. is c/o H.I.G.
    Capital, LLC, 1001 Brickell Bay Drive, 27th Floor, Miami,
    Florida 33131. Mr. Anthony A. Tamer currently serves
    as the president and as a director of H.I.G. Direct Marketing
    Holdings, KPI and Desert Value Holdings. Mr. Sami W.
    Mnaymneh currently serves as the secretary and as a director of
    H.I.G. Direct Marketing Holdings, KPI and Desert Value Holdings.
    Messrs. Tamer and Mnaymneh constitute all of the officers and
    directors of H.I.G. Direct Marketing Holdings, KPI and Desert
    Value Holdings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (4) | H.I.G. Investment Group II, L.P. is the
    controlling stockholder of each of H.I.G. Direct Marketing
    Holdings, KPI and Desert Value Holdings. H.I.G. Capital
    Partners II, L.P. is a stockholder of each of H.I.G. Direct
    Marketing Holdings, KPI and Desert Value Holdings. H.I.G.
    Partners II, L.P. is the general partner of H.I.G.
    Investment Group. H.I.G. Advisors, L.L.C. is the general partner
    of H.I.G. Capital Partners. H.I.G. GP-II, Inc. is the general
    partner of H.I.G. Partners and the manager of H.I.G. Advisors.
    H.I.G. Investment Group, H.I.G. Capital Partners, H.I.G.
    Partners, H.I.G. Advisors and H.I.G. GP-II may, by virtue of
    their respective relationships with H.I.G. Direct Marketing
    Holdings, KPI and Desert Value Holdings, be deemed to
    beneficially own the securities held by H.I.G. Direct Marketing
    Holdings, KPI and Desert Value Holdings, and to share voting and
    investment power with respect to such securities. H.I.G.
    Investment Group, H.I.G. Capital Partners, H.I.G. Partners,
    H.I.G. Advisors and H. I.G. GP-II each disclaim beneficial
    ownership of the securities, except to the extent of their
    respective investment interests in H.I.G. Direct Marketing
    Holdings, KPI and Desert Value Holdings. The address of each of
    H.I.G. Investment Group, H.I.G. Capital Partners, H.I.G.
    Partners, H.I.G. Advisors and H.I.G. GP-II is c/o H.I.G.
    Capital, LLC, 1001 South Bayshore Drive, 27th Floor, Miami,
    Florida 33131.
|
| | (5) | Represents (i) 4,543,964 shares directly
    owned by Mr. Hay and (ii) 4,543,964 shares directly
    owned by Denise DuBarry-Hay, Mr. Hays spouse.
    Mr. Hay may, by virtue of his relationship with Ms.
    DuBarry-Hay, be deemed to beneficially own the securities held
    by Ms. DuBarry-Hay and to share voting and investment power
    with respect to such securities. Mr. Hay disclaims
    beneficial ownership of the securities directly owned by
    Ms. DuBarry-Hay.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (6) | Represents (i) 4,543,964 shares directly
    owned by Ms. DuBarry-Hay and (ii) 4,543,964 shares
    directly owned by William F. Hay, Ms. DuBarry-Hays
    spouse. Ms. DuBarry-Hay may, by virtue of her relationship
    with Mr. Hay, be deemed to beneficially own the securities
    held by Mr. Hay and to share voting and investment power
    with respect to such securities. Ms. DuBarry-Hay disclaims
    beneficial ownership of the securities directly owned by
    Mr. Hay.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (7) | Includes (i) 85,760 shares directly owned by
    Mr. Taylor and (ii) 640,000 shares subject to options
    exercisable by Mr. Taylor within 60 days of July 11,
    2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

61



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##### Table of Contents





| |     |                                                                                                                                                                                                                                       
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (8) | Includes 124,000 shares subject to options
    exercisable by Ms. Allen within 60 days of
    July 11, 2003. Does not include 36,000 shares subject to
    options not exercisable by Ms. Allen within 60 days of
    July 11, 2003.  
|
| | (9) | Includes 230,400 shares subject to options
    exercisable by Mr. Tobias within 60 days of
    July 11, 2003. Does not include 57,600 shares subject to
    options not exercisable by Mr. Tobias within 60 days
    of July 11, 2003.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes (i) 45,760 shares directly owned by
    Ms. Kovac and (ii) 320,000 shares subject to options
    exercisable by Ms. Kovac within 60 days of July 11,
    2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|(11) | Includes 160,000 shares subject to options
    exercisable by Mr. Fahncke within 60 days of
    July 11, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(12) | Includes 60,000 shares subject to options
    exercisable by Mr. McKeon within 60 days of
    July 11, 2003. Does not include 205,000 shares subject to
    options not exercisable by Mr. McKeon within 60 days
    of July 11, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(13) | Represents (i) 20,724,253 shares directly
    owned by H.I.G. Direct Marketing Holdings, (ii) 1,330,953
    shares directly owned by KPI and (iii) 700 shares owned by
    Desert Value Holdings. Messrs. Mnaymneh, Bolduc and Tamer
    are stockholders of each of H.I.G. Direct Marketing Holdings,
    KPI and Desert Value Holdings. In addition,
    Messrs. Mnaymneh and Tamer constitute all of the officers
    and directors of H.I.G. GP-II, the ultimate parent entity of
    H.I.G. Direct Marketing Holdings, KPI and Desert Value Holdings.
    Messrs. Mnaymneh, Bolduc and Tamer may, by virtue of their
    respective relationships with H.I.G. Direct Marketing Holdings,
    KPI and Desert Value Holdings, be deemed to beneficially own the
    securities held by H.I.G. Direct Marketing Holdings , KPI and
    Desert Value Holdings, and to share voting and investment power
    with respect to such securities. Messrs. Mnaymneh, Bolduc
    and Tamer each disclaim beneficial ownership of the securities,
    except to the extent of his respective investment interests in
    H.I.G. Direct Marketing Holdings, KPI and Desert Value Holdings.
    The address of Messrs. Mnaymneh, Bolduc and Tamer is c/o H.I.G.
    Capital, LLC, 1001 South Bayshore Drive, 27th Floor, Miami,
    Florida 33131.
|    
|(14) | For purposes of this calculation, we have
    included Joshua Chandler in the group of director and officers.
    Mr. Chandler does not directly own any shares nor does he
    own any shares subject to options exercisable within
    60 days of July 11, 2003. Mr. Chandler owns
    80,000 shares subject to options that are not exercisable within
    60 days of July 11, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|(15) | Includes 11,854,051 shares beneficially held by
    William F. Hay, Denise DuBarry-Hay, Mark E. Taylor, Kandy Lee
    Allen, Amir Tukulj, Andrew Tobias, Denise Kovac, Marty Fahncke,
    Kevin Harrington, Timothy Harrington, Mel Arthur, Dean Belbas,
    Kevin J. McKeon, Joshua Chandler, J. Robert Swidler and Jerry D.
    Horn. Does not include 22,055,906 shares deemed to be
    beneficially held by Messrs. Mnaymneh, Bolduc, and Tamer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Item 13.     Certain
Relationships and Related Transactions

General

We have from time to time entered into
transactions with certain of our officers, directors and
principal stockholders and entities in which such parties have
an interest. We believe that each such transaction has been on
terms no less favorable to us than could be obtained in a
transaction with an independent third-party.

TV Shop USA,
Inc.

In April 2001, TV Shop USA, Inc., a Delaware
corporation, purchased inventory from our manufacturers and
subsequently resold it to us for approximately $2.4 million once
the shipments arrived in the United States. The inventory was
resold to us at cost plus a 2% markup necessary to cover the
cost of interest expense. H.I.G. Direct Marketing Holdings,
Inc., William F. Hay and Denise DuBarry-Hay are the principal
stockholders of TV Shop USA.

62



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##### Table of Contents



Paribas
Warrant Repurchase

On February 12, 2002, we entered into a
Stock and Warrant Purchase and Redemption Agreement with Paribas
North America, Inc., Paribas Capital Funding LLC and H.I.G.
Direct Marketing Holdings, Inc. Pursuant to this agreement, on
March 13, 2002 we purchased from the Paribas entities
warrants to purchase an aggregate of 3,964,448 shares of our
common stock. As consideration for such purchase, we paid
$4.0 million in cash to the Paribas entities and issued
them new warrants to purchase an aggregate of 792,896 shares of
our common stock. In conjunction with the Paribas warrant
purchase, we redeemed 3,171,552 shares of our common stock held
by H.I.G. Direct Marketing Holdings for a redemption price of
$.0001 per share. Such redemption was in full satisfaction of
H.I.G. Direct Marketing Holdings obligations under the
Redemption Agreement it entered into with us on June 10,
1999. Pursuant to the Redemption Agreement, 3,964,448 shares of
our common stock held by H.I.G. Direct Marketing Holdings were
subject to redemption by us upon the exercise of any of the
warrants held by the Paribas entities.

Krane
Acquisition

On March 15, 2002, we acquired Krane in
exchange for 2,634,768 shares of our common stock. KPI, Inc., an
affiliate of H.I.G. Direct Marketing Holdings, owned
approximately 50.4% of the outstanding Krane common stock. The
terms of the Agreement and Plan of Merger, including the merger
consideration, were negotiated between us and the minority
stockholders of Krane. We believe that the terms of the
Agreement and Plan of Merger are at least as favorable to us as
could have been obtained from an unaffiliated third-party. In
connection with the Krane acquisition, KPI and Krane entered
into a certain Amended and Restated Make-Well Agreement, dated
as of March 15, 2002, pursuant to which KPI agreed to
provide up to $500,000 of financial support to Krane for the
benefit of LaSalle Bank National Association.

H.I.G.
Consulting Agreement

We have entered into an Amended and Restated
Consulting Agreement, dated as of January 8, 2002, with
H.I.G. Capital, LLC, an affiliate of H.I.G. Direct Marketing
Holdings, pursuant to which H.I.G. Capital will provide us with
management consulting and financial services through
January 8, 2007. Pursuant to the Amended and Restated
Consulting Agreement, H.I.G. Capital agreed to terminate the
aggregate monthly fees of $37,500 payable by us contained in the
original consulting agreement and that certain Consulting
Agreement, dated as of May 16, 2000, by and between Krane
and H.I.G. Capital in exchange for a one time $1.5 million
cash payment by us to H.I.G. Capital, which amount will be
payable by us when we raise additional capital.

In addition, we have agreed to pay H.I.G. Capital
investment banking fees equal to (i) 2.0% of the fair
market value of any companies acquired by us, (ii) 2.0% of
the consideration received by us upon the sale of all or
substantially all of our stock or assets, and (iii) 1.0% of
any funds raised by us pursuant to any future equity Financings.

Management

Since 1999, we have leased an aircraft from La
Quinta Air Corp. for use by company executive officers. William
F. Hay and Denise DuBarry-Hay are the principal stockholders of
La Quinta Air Corp. On May 1, 2001, we entered into a
five-year leasing arrangement with La Quinta Air Corp. with
respect to a Westwind II airplane at a monthly cost of
approximately $30,000 plus routine maintenance, insurance and
costs. During fiscal 2003, the lease payment was renegotiated
down to approximately $26,000 per month.

We lease an automobile from La Quinta Air Corp.
on a month to month basis for use by William F. Hay and Denise
DuBarry-Hay at a monthly cost of approximately $1,800.

We lease residential property located at 78030
Coronados, La Quinta, California from William F. Hay and Denise
DuBarry-Hay on a month to month basis at a monthly cost of
$3,800. This property is used to house certain of our officers,
directors and other business related guests. Management believes
these accommodations save the Company substantial lodging
expenses.

63



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##### Table of Contents



Prior to August 2002, we leased commercial office
space located at 78-140 Calle Tampico, La Quinta, California,
our principal executive offices, from William F. Hay and Denise
DuBarry-Hay at a monthly cost of approximately $22,000. The
lease has a term of 20-years commencing on June 1, 2001. In
August 2002, the stockholders sold the building to an unrelated
third-party subject to the terms of the existing lease. The
lease terms have remained the same since the sale of the
property.

Certain of our directors and director nominees
are affiliated with H.I.G. Capital. Messrs. Sami W.
Mnaymneh and Anthony A. Tamer are managing partners of H.I.G.
Capital and Mr. John Bolduc is a managing director of
H.I.G. Capital.

Reliant

In 2003, in accordance with the employment
agreements entered into between the Company and the former
principal shareholders of Reliant, the Company loaned $2,500,000
to these shareholders, with the underlying notes accruing
interest at 6%. In the event that certain thresholds are met in
future years, the loans will be forgiven and recognized as
compensation expense. The loans are secured by 442,854 escrowed
shares of the Companys stock.

Item 14.     Controls
and Procedures

Within the 90-day period prior to the filing of
this report, the management of the company, including the Chief
Executive Officer and Chief Financial Officer, conducted an
evaluation of the effectiveness of the design and operation of
the companys disclosure controls and procedures as defined
in Exchange Act Rule 13a-14(c). Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer
concluded that the companys disclosure controls and
procedures were effective as of the date of that evaluation.
There have been no significant changes in internal controls, or
in factors that could significantly affect internal controls,
subsequent to the date the Chief Executive Officer and Chief
Financial Officer completed their evaluation.




PART IV



|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

15(a)(1) Financial Statements:

Included in Part II, Item 8 of this report:

|                                                                                                                    |  |           |    | 
|------------------------------------------------------------------------------------------------------------------- |  | --------- | -- | 
|                                                                                                                    |  | Page     
|                                                                                                                    |  | Reference
|                                                                                                                    |  |          
|Report of independent auditors                                                                                      |  |           | 26 | 
|Consolidated balance sheets as of March 31,
    2003 and 2002                                                       |  |           | 27 | 
|Consolidated statements of operations for the
    years ended March 31, 2003, 2002 and 2001                         |  |           | 28 | 
|Consolidated statements of stockholders
    equity (deficit) for the years ended March 31, 2003,
    2002 and 2001 |  |           | 29 | 
|Consolidated statements of cash flows for the
    years ended March 31, 2003, 2002 and 2001                         |  |           | 30 | 
|Notes to audited consolidated financial statements                                                                  |  |           | 31 | 

15(a)(2) Financial Statement Schedule:

Included in Part IV of this report:

Schedule II  Valuation and
qualifying accounts and reserves

Other schedules have been omitted since they are
either not required or not applicable.

64



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##### Table of Contents



15(a)(3) Exhibits

|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|No.     |       | Description
|        |       |            
|        | 3.1   |             |  | Amended and Restated Certificate of Incorporation
    of the Registrant.(1)                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 3.2   |             |  | Amended and Restated Bylaws of the Registrant.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 4.1   |             |  | Specimen Certificate for common stock Certificate
    of the Registrant.(1)                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10.1  |             |  | Executive Employment Agreement dated as of
    December 31, 2001 by and between William F. Hay and Thane
    International, Inc.(1)                                                                                                                                                                                                                                                                                                                                                         
|        | 10.2  |             |  | Executive Employment Agreement dated as of
    December 31, 2001 by and between Denise DuBarry-Hay and Thane
    International, Inc.(1)                                                                                                                                                                                                                                                                                                                                                     
|        | 10.3  |             |  | Employment Agreement dated as of December 10,
    2001 by and between Mark E. Taylor and Thane International,
    Inc.(1)                                                                                                                                                                                                                                                                                                                                                                   
|        | 10.4  |             |  | Employment Agreement dated as of December 10,
    2001 by and between Denise Kovac and Thane International, Inc.(1)                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.5  |             |  | Executive Employment Agreement dated as of
    January 1, 1999 by and between Amir Tukulj and Thane Direct
    Canada, Inc., as amended.(1)                                                                                                                                                                                                                                                                                                                                                 
|        | 10.6  |             |  | Loan and Security Agreement, dated as of March
    13, 2002, by and among, TDG, Inc., Thane Direct, Inc., West
    Coast Direct Marketing, Inc., Thane Direct Canada Inc., Thane
    International, Inc., Fox Marketing Associates, Inc., Tradewind
    Products, Inc., Concept and Product Solutions, Time Prophets,
    Inc., Xebec Productions, Inc., La Quinta Services Corp.,
    Congress Financial Corporation (Florida) and each of the
    financial institutions named therein.(1)
|        | 10.8  |             |  | Registrants 2002 Stock Option Plan.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.9  |             |  | Form of Option Agreement under Registrants
    2002 Stock Option Plan.(1)                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.10 |             |  | Registrants 1999 Stock Option Plan.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.11 |             |  | Form of Option Agreement under Registrants
    1999 Stock Option Plan.(1)                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.12 |             |  | Amended and Restated Consulting Agreement by and
    between Thane International, Inc. and H.I.G. Capital, LLC.(1)                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.13 |             |  | Amended and Restated Employment Agreement, dated
    as of July 2, 2003, by and among Thane International, Inc.,
    Reliant Interactive Media Corp. and Kevin Harrington                                                                                                                                                                                                                                                                                                                   
|        | 10.14 |             |  | Amended and Restated Employment Agreement, dated
    as of July 2, 2003, by and among Thane International, Inc.,
    Reliant Interactive Media Corp. and Tim Harrington                                                                                                                                                                                                                                                                                                                     
|        | 10.15 |             |  | Amended and Restated Employment Agreement, dated
    as of July 2, 2003, by and among Thane International, Inc.,
    Reliant Interactive Media Corp. and Mel Arthur.                                                                                                                                                                                                                                                                                                                        
|        | 10.23 |             |  | Servicing Agreement dated April 28, 1999 by and
    between Thane Marketing and West Telemarketing Corporation.(1)                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.24 |             |  | Exclusive Order Fulfillment Agreement, dated as
    of June 9, 1999, by and between Thane International, Inc. and
    Innotrac Corporation, successor to UDS, as amended.(1)                                                                                                                                                                                                                                                                                                                
|        | 21.1  |             |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                             



---



|    |                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to an identically
    numbered exhibit filed with the Registrants Registration
    Statement on Form S-4 (Registration No. 333-76224).

65



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##### Table of Contents



15(b) Reports on Form 8-K:

None.

Item 16.     Principal
Accountant, Fees and Services

Independent Auditor Fee Information

Audit
Fees

Fees for audit services provided by
Ernst & Young totaled approximately $278,000 and
$383,000 in 2003 and 2002, respectively, including fees
associated with the annual audit, the reviews of the
Companys quarterly reports on Form 10-Q, and review
of the Companys registration statement on Form S-4.

Audit-Related
Fees

Fees for audit-related services provided by
Ernst & Young totaled approximately $57,000 and
$199,000 in 2003 and 2002, respectively. Audit-related services
mainly include accounting consultation and assistance with
acquisition due diligence.

Tax
Fees

Fees for tax services provided by
Ernst & Young, including tax compliance, tax advice and
tax planning, totaled approximately $183,000 and $116,000 in
2003 and 2002, respectively.

All Other
Fees

There were no fees for services that are not
included in the above.

66



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##### Table of Contents






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.



| |                          
| | -------------------------
| | THANE INTERNATIONAL, INC.



| |     |                   
| | --- | ------------------
| | By: | /s/ WILLIAM F. HAY

| |                        
| | -----------------------
| |                        
| | William F. Hay         
| | Chief Executive 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 indicated, on July 14, 2003.

|                                         |  |                                                                                                |  | 
|---------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | 
|                                         |  |                                                                                               
|Signature                                |  | Title                                                                                         
|                                         |  |                                                                                               
|/s/ WILLIAM F. HAYWilliam F. Hay         |  | Chairman of the Board, Chief Executive Officer,
    and Director (Principal Executive Officer)
|                                        
|/s/ MARK TAYLORMark Taylor               |  | President and Director                                                                        
|                                        
|/s/ KEVIN J. MCKEONKevin J. McKeon       |  | Chief Financial Officer
    (Principal Financial Officer)                                     
|                                        
|/s/ JOSHUA CHANDLERJoshua Chandler       |  | Chief Accounting Officer
    (Principal Accounting Officer)                                   
|                                        
|/s/ DENISE DUBARRY-HAYDenise Dubarry-Hay |  | Chief Creative Officer and Director                                                           
|                                        
|/s/ SAMI W. MNAYMNEHSami W. Mnaymneh     |  | Director                                                                                      
|                                        
|/s/ JOHN BOLDUCJohn Bolduc               |  | Director                                                                                      
|                                        
|Dean Belbas                              |  | Director                                                                                      
|                                        
|J. Robert Swidler                        |  | Director                                                                                      
|                                        
|Anthony A. Tamer                         |  | Director                                                                                      
|                                        
|/s/ JERRY D. HORNJerry D. Horn           |  | Director                                                                                      

67



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##### Table of Contents






CERTIFICATION OF CHIEF EXECUTIVE OFFICER
UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002


I, William F. Hay, certify that:

1. I have reviewed this annual report on
Form 10-K of Thane International, Inc. (the
Registrant);

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual
report;

4. The Registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    Registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    Registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The Registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the Registrants auditors and the audit
committee of Registrants Board of Directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the Registrants ability to record, process,
    summarize and report financial data and have identified for the
    Registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the Registrants internal controls; and                                                                                                                                                    

6. The Registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |     |                   
| | --- | ------------------
| | By: | /s/ WILLIAM F. HAY

| |                                     
| | ------------------------------------
| |                                     
| | William F. Hay                      
| | Chairman of the Board,              
| | Chief Executive Officer and Director
| | (Principal Executive Officer)       

Date: July 14, 2003

68



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##### Table of Contents






CERTIFICATION OF CHIEF FINANCIAL OFFICER
UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002


I, Kevin J. McKeon, certify that:

1. I have reviewed this annual report on
Form 10-K of Thane International, Inc.

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual
report;

4. The Registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Registrant and we have:



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    Registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | (b) evaluated the effectiveness of the
    Registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | (c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The Registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the Registrants auditors and the audit
committee of Registrants Board of Directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the Registrants ability to record, process,
    summarize and report financial data and have identified for the
    Registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the Registrants internal controls; and                                                                                                                                                    

6. The Registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |     |                    
| | --- | -------------------
| | By: | /s/ KEVIN J. MCKEON

| |                              
| | -----------------------------
| |                              
| | Kevin J. McKeon              
| | Chief Financial Officer      
| | (Principal Financial Officer)

Date: July 14, 2003

69



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##### Table of Contents






CERTIFICATION OF CHIEF ACCOUNTING OFFICER
UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002


I, Joshua A. Chandler, certify that:

1. I have reviewed this annual report on
Form 10-K of Thane International, Inc.

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual
report;

4. The Registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Registrant and we have:



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    Registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | (b) evaluated the effectiveness of the
    Registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | (c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The Registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the Registrants auditors and the audit
committee of Registrants Board of Directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the Registrants ability to record, process,
    summarize and report financial data and have identified for the
    Registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the Registrants internal controls; and                                                                                                                                                    

6. The Registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |     |                       
| | --- | ----------------------
| | By: | /s/ JOSHUA A. CHANDLER

| |                               
| | ------------------------------
| |                               
| | Joshua A. Chandler            
| | Chief Accounting Officer      
| | (Principal Accounting Officer)

Date: July 14, 2003

70



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##### Table of Contents



THANE INTERNATIONAL, INC.

SCHEDULE
II.     VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES

For the years ended March 31, 2001, 2002
and 2003


The allowance for accounts receivable has
increased and decreased as follows:

|     |  |            |       |           |  |               |        |            |  |  |         |   |  |  |       | 
|---- |  | ---------- | ----- | --------- |  | ------------- | ------ | ---------- |  |  | ------- | - |  |  | ----- | 
|     |  | Balance at |       |           |  |               |        | Balance at
|     |  | Beginning  |       |           |  |               |        | End of    
|     |  | of Year    |       | Additions |  | Deductions(1) |        | Year      
|     |  |            |       |           |  |               |        |           
|2001 |  |            | 324   |           |  |               | 1,687  |            |  |  | (99     | ) |  |  | 1,912 | 
|     |  |            |       |           |  |               |        |            |  |  |         |   |  |  |       | 
|2002 |  |            | 1,912 |           |  |               | 5,217  |            |  |  | (787    | ) |  |  | 6,342 | 
|     |  |            |       |           |  |               |        |            |  |  |         |   |  |  |       | 
|2003 |  |            | 6,342 |           |  |               | 18,721 |            |  |  | (18,705 | ) |  |  | 6,358 | 
|     |  |            |       |           |  |               |        |            |  |  |         |   |  |  |       | 



---



|    |                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------
|(1) | Write-off of doubtful accounts against the
    allowance, recoveries or reductions of the allowance.

The reserves for inventories have increased and
decreased as follows:

|     |  |            |       |           |  |               |       |            |  |  |        |   |  |  |       | 
|---- |  | ---------- | ----- | --------- |  | ------------- | ----- | ---------- |  |  | ------ | - |  |  | ----- | 
|     |  | Balance at |       |           |  |               |       | Balance at
|     |  | Beginning  |       |           |  |               |       | End of    
|     |  | of Year    |       | Additions |  | Deductions(1) |       | Year      
|     |  |            |       |           |  |               |       |           
|2001 |  |            | 246   |           |  |               | 4,112 |            |  |  |       |   |  |  | 4,358 | 
|     |  |            |       |           |  |               |       |            |  |  |        |   |  |  |       | 
|2002 |  |            | 4,358 |           |  |               | 1,589 |            |  |  | (1,813 | ) |  |  | 4,134 | 
|     |  |            |       |           |  |               |       |            |  |  |        |   |  |  |       | 
|2003 |  |            | 4,134 |           |  |               | 6,607 |            |  |  | (6,063 | ) |  |  | 4,678 | 
|     |  |            |       |           |  |               |       |            |  |  |        |   |  |  |       | 



---



|    |                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------
|(1) | Write-off of slow-moving or obsolete inventory,
    sale of inventory at reduced margin or reductions of the reserve.

71